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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
___________
FORM 20-F
(Mark One)
[X] Registration statement pursuant to Section 12(b) or 12(g) of the
Securities Exchange Act of 1934; or
[_] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended _______ ; or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________ to _________
Commission file number _________
SECURITY CAPITAL U.S. REALTY
(Exact name of registrant as specified in its charter)
Grand Duchy of Luxembourg
(Jurisdiction of Incorporation or Organization)
25b, boulevard Royal
L-2449 Luxembourg
(Address of Principal Executive Offices)
Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
American Depositary Shares
(Title of Class)
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.
American Depositary Receipts: 0 as of 31 December 1998
Shares: 173,123,743 as of 31 December 1998
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes ________ No ________ N/A
Indicate by check mark which financial statement item the registrant has elected
to follow:
Item 17 Item 18 X
----- -----
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST
FIVE YEARS.)
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes ________ No ________ N/A
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For a description of the defined terms used in this Form 20-F, please read
the "Glossary" located in Part III.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
SC-U.S. Realty is a research-driven, growth-orientated real estate company
focused on taking significant strategic investment positions in value-added real
estate operating companies based in the United States. For a description of
SC-U.S. Realty's strategic investment positions, see "--SC-U.S. Realty's
Operating Strategy--Strategic Investment Positions" below and for a more
detailed description of SC-U.S. Realty's operating strategy, including how it
adds value to real estate operating companies, see "--SC-U.S. Realty's Operating
Strategy" below. SC-U.S. Realty's primary capital deployment objective is to
take a pro-active ownership role in businesses that it believes can potentially
generate above-average rates of return. SC-U.S. Realty believes there are
significant value creation opportunities in the multi-trillion dollar U.S. real
estate industry, as investors shift from traditional, direct, private forms of
ownership to indirect ownership through REITs whose securities are traded on
major stock exchanges. As of 31 December 1998 SC-U.S. Realty's strategic
investments had a combined market capitalisation of approximately $8.6 billion.
The offices of SC-U.S. Realty are located at 25b, boulevard Royal, L-2449
Luxembourg and its telephone number is 011 (352) (4637561).
Strategy
SC-U.S. Realty seeks to maximise its Shareholders' returns primarily by
acquiring and managing significant strategic investment positions in real estate
operating companies based in the United States. SC-U.S. Realty seeks to identify
potential strategic investment positions through rigorous fundamental research
focused on the U.S. real estate industry, business niches and specific
companies. By investing substantial capital and obtaining a combination of
various board and board committee representation, consultation rights, approval
rights and other rights, SC-U.S. Realty seeks to influence and oversee the
development and implementation of a long-term focused operating strategy and
value-added operating system for each of its strategic investment positions.
SC-U.S. Realty also has non-strategic investment positions, or special
opportunity positions, primarily in publicly-traded U.S. real estate operating
companies where its research identifies attractive intermediate-term investment
opportunities. SC-U.S. Realty's objective is to have 85%-90% of its assets
invested in strategic investment positions and 10%-15% of its assets invested in
special opportunity positions.
Strategic Investment Positions and Other Investments
SC-U.S. Realty currently holds strategic investment positions in six U.S.
real estate operating companies, of which three are private start-up companies
and three are publicly-traded on the NYSE: City Center Retail, a private start-
up company focused on serving top U.S. and international retailers in attractive
downtown and urban infill markets for retail throughout the United States; CWS
Communities, a private start-up company focused on acquiring, developing and
owning manufactured housing communities in selected target markets throughout
the U.S.; Urban Growth Property, a private start-up company focused on
acquiring, developing and owning strategically located income-producing land
(primarily parking or car parks) in key urban infill locations in selected
target markets throughout the U.S.; CarrAmerica (NYSE:CRE), a national company
focused on providing office space to leading companies; Storage USA (NYSE:SUS),
a national company focused on self-storage; and Regency (NYSE:REG), a national
company focused on grocery-anchored neighbourhood infill shopping centres, which
on 28 February 1999, merged with Pacific Retail Trust. See "--Overview of
Strategic Investment Positions--Grocery-Anchored Neighbourhood Infill Shopping
Centres: Regency Retail Corporation" below for more information.
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BUSINESS
Overview and Company Objective
SC-U.S. Realty is a research-driven, growth orientated real estate company
focused on the U.S. real estate industry as it continues to move towards greater
securitisation. SC-U.S. Realty's research-driven operating strategy is to take
significant strategic investment positions (with board representation,
consultation and other rights) in value-added real estate operating companies
which are based in the United States. The Company was established as a
Luxembourg real estate company on 7 July 1995.
SC-U.S. Realty's Research-Based Capital Deployment Strategy
Security Capital carries out rigorous fundamental research on the real
estate industry, business niches and on specific companies. Fundamental real
estate research entails comprehensive evaluations of real estate supply and
demand factors (such as population and economic trends, consumer and industry
needs, capital flows and building permit and construction data) on a market and
submarket basis and by real estate product type. Fundamental company research
involves meetings with company management, visits to properties and detailed
analysis of financial statements and operations.
Security Capital utilises its fundamental real estate and business niche
research to identify attractive company investments which have, or potentially
have, some or all of the following characteristics:
. Presence in geographic submarkets and property niches which are reasonably
protected by barriers to entry and generally are not targeted by
institutional capital sources.
. Presence in property sectors in which ownership is fragmented, where
managerial competition is generally not strong and equity capital is less
readily available.
. Improved cash flow through innovations in how the business is organised
through value-added operating systems.
. Predictable cash flow growth.
SC-U.S. Realty's Investment Criteria
SC-U.S. Realty's performance is directly related to the ability of the
companies in which it invests to increase cash flow per share and maximise
returns to shareholders. SC-U.S. Realty uses the following criteria to identify
opportunities to implement its strategy:
Superior Management Teams
SC-U.S. Realty believes that the business of successfully owning and
operating real estate does not differ significantly from the successful
operation of a company in any other industry. SC-U.S. Realty seeks to identify
companies which are, or have the potential to be, managed in accordance with
effective business disciplines designed to create shareholder value.
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Strategic Focus
SC-U.S. Realty seeks strategic investment positions in companies that have
the potential to combine a strategically focused asset base with value-added
operating systems, but which do not have the management expertise, direction
and/or capital to be preeminent in their target markets. In this way, SC-U.S.
Realty seeks to identify investments to which it can add value by (i) applying
its capital, (ii) substantial representation on a company's board of directors
and key committees which provides opportunities to influence a company's
strategic focus, investment activities, risk diversification, financial
discipline, management development and succession planning and (iii) obtaining
approval rights by contract over significant matters such as the annual
operating budget, certain acquisitions, dispositions or developments of assets,
certain sales of securities, major financings, certain agreements for
themanagement of properties, appointments and dismissals of executive officers,
the amendment or granting of exemptions to the share ownership limitations set
forth in a company's organizational documents, and business combination
proposals.
Underserved Markets
Appropriate property type and market selection are critical factors to the
success of any real estate operating company. With this in mind, SC-U.S. Realty
seeks to identify, through fundamental research, markets which are characterised
by strong job and population growth trends, and markets and sectors
characterised by generally strong supply and demand fundamentals for the
targeted product type.
Substantial Market Capitalisation
SC-U.S. Realty does not deploy capital into a real estate operating company
unless it believes that the business opportunity is economically attractive
enough for such company to achieve a public equity market capitalisation of at
least $1.5 billion within five to ten years. Capitalisation levels of this
magnitude should provide sufficient stock market liquidity and should support
management teams with in-depth experience in each of the disciplines required to
run focused real estate operating companies.
SC-U.S. Realty believes that a well-managed, fully integrated real estate
operating company should have the following objectives:
. Commitment of capital to industry-leading research and development to
identify protected real estate niches, products which can more effectively
meet customer needs and operating and service systems which can enhance
returns on assets.
. Development of fully integrated value-added operating systems.
. Intensive focus on specialised market niches in which the operating
company can achieve critical mass and be preeminent in its target markets.
. Disciplined capital deployment based on economic value-added methodology.
. Development of superior management teams with depth and experience,
succession planning and strong corporate cultures.
. Investment grade long-term debt ratings.
. Alignment of shareholder and employee interests.
SC-U.S. Realty seeks to influence each strategic investee to become a
preeminent acquirer, developer, operator and long-term owner of a particular
property type nationally or within a defined geographic region. Equally
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important, SC-U.S. Realty seeks to influence each such strategic investee to
incorporate value-added service and marketing strategies to maximise cash flow.
SC-U.S. Realty believes that a well-managed, fully integrated real estate
operating company should realise greater economic benefits from its assets than
owners of passively managed property portfolios. A fully integrated company
should have the ability to:
. Acquire a critical mass of properties in several target markets and
thereby achieve greater influence with customers, tenant representatives,
lease brokers and suppliers in those markets.
. More effectively service customers by permitting them to move between the
company's buildings and markets as their space needs grow and change,
meeting their needs in numerous markets with a single point of contact and
developing new space when needed. This higher service component provides
greater flexibility and efficiencies for customers and should result in
significant customer loyalty, strong property occupancy and higher cash
flow.
. Afford a marketing and leasing group dedicated solely to the company's
properties, which is advantageous when competing for customers. Owners of
passively managed real estate portfolios must generally rely on third-party
leasing agents, who represent numerous property owners.
. Co-ordinate services on behalf of large customer (i.e., tenant) groups to
maximise the customers' leverage with third parties and create economies of
scale in such areas as research, marketing and direct mail customer
contacts, which benefits the customers and makes the relationship with the
real estate company more valuable to them.
. Undertake extensive, focused market research as well as research and
development of new product types, product improvements and operating
methods to meet market needs, control expenses and enhance operating
income.
. Achieve economies of scale and employ sophisticated financial controls and
management information systems, leading to more effective property
management.
SC-U.S. Realty's Operating Strategy
SC-U.S. Realty deploys its capital in two principal ways: strategic
investment positions and special opportunity positions. Its primary operating
strategy is to acquire and manage strategic investment positions, which strategy
SC-U.S. Realty believes is superior to passive real estate ownership and passive
stock ownership.
Strategic Investment Positions
A strategic investment position is defined by SC-U.S. Realty as an
investment which results in SC-U.S. Realty being the largest shareholder of a
particular REIT (or a real estate operating company which is expected in due
course to become a REIT), having substantial representation on the REIT's board
of directors and key board committees and providing opportunities to influence
the REIT's strategic focus, investment activities, financing discipline,
management development and succession planning.
At any one time, SC-U.S. Realty aims to have 85%-90% of its assets deployed
in strategic investment positions in REITs. As of 31 December 1998 SC-U.S.
Realty had approximately 85.6% of its assets deployed in strategic investment
positions. These are intended to be long-term investments.
SC-U.S. Realty's objective is to take significant, friendly strategic
investment positions in real estate operating companies. These positions will
either be in private real estate operating companies (with initial ownership as
close to 100% as possible) or in public real estate operating companies (with
ownership of a minimum of 25% of
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the common equity). SC-U.S. Realty seeks to influence each strategic investee to
generate sustainable increases in cash flow per share in order to achieve an
increase in shareholder value. SC-U.S. Realty expects to benefit from market
appreciation when it takes private real estate companies public (depending on
overall equity market conditions) and to create short-term and long-term market
appreciation when it aligns itself with existing public real estate companies
that will benefit from SC-U.S. Realty's influence and oversight regarding areas
of management expertise, strategic direction and/or access to capital. To the
extent that SC-U.S. Realty were to determine that a strategic investee could not
be expected to generate attractive returns over the long term, SC-U.S. Realty
would consider selling any such investment and redeploying its capital in an
existing or new strategic investment position.
SC-U.S. Realty will seek to maximise its Shareholders' returns by investing
significant capital in each strategic investee and by obtaining substantial
board and board committee representation, consultation rights and other rights
to influence the research, development and implementation of a long-term,
focused operating strategy and value-added operating systems. SC-U.S. Realty
will not take a strategic investment position in a company unless it believes
that SC-U.S. Realty's involvement has the potential ultimately to result in the
company being a leader in its business niche.
SC-U.S. Realty's strategic investment positions generally fall into two
categories:
. Start-Up/Private Company Value Creation: SC-U.S. Realty identifies and
assists in assembling management teams which will pursue highly focused
business strategies in privately formed companies which are capitalised
initially by SC-U.S. Realty. As these companies grow, and ultimately become
publicly-traded (depending on overall equity market conditions), SC-U.S.
Realty expects to be well-positioned to take advantage of the market value
appreciation which founders of publicly traded real estate companies have
frequently experienced in the past when floating their companies. To date,
SC-U.S. Realty has formed four private start-up companies. Three of these
companies, City Center Retail, CWS Communities and Urban Growth Property,
are still in the early phases of acquiring a critical mass of ownership,
assembling their respective management teams and developing their
respective value-added operating systems. The fourth private company,
Pacific Retail, merged with Regency on 28 February 1999. For information
regarding the merger, see "--Overview of Strategic Investment Positions--
Grocery-Anchored Neighbourhood Infill Shopping Centres: Regency Retail
Corporation" below.
. Public Company Value Creation: SC-U.S. Realty believes it can influence a
publicly traded REIT's strategic focus, operating effectiveness and
capitalisation to achieve improvements in operating results and market
valuation of the REIT. SC-U.S. Realty focuses on influencing these
companies strategically.
In the long term, the substantial majority of SC-U.S. Realty's strategic
investment positions will be in REITs which are, or are expected to be, publicly
traded on a major U.S. stock exchange. These strategic positions will therefore
be valued on a daily basis by the stock market, which SC-U.S. Realty believes is
an inherently more accurate and up-to-date valuation basis than the real estate
appraisals traditionally used by passive real estate investors. Furthermore,
SC-U.S. Realty's strategic investment positions should benefit from increased
liquidity and expected broader access to capital in the public markets.
SC-U.S. Realty intends to influence each company in which it strategically
invests to emulate the characteristics of successful businesses outside the real
estate industry by making such company:
. Highly Focused: Each strategic investee should focus on a specific
property type in well-defined target markets.
. Fully Integrated Operating Companies: Each strategic investee should have
the internal capability to conduct substantially all operating components
of its business with strong professional management and systems, operating
and investment discipline and continuous research and innovation.
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. Companies with Value-Added Operating Systems: Each strategic investee
should seek to assemble a critical mass of assets in its target markets,
which creates opportunities to translate real estate ownership into a
service business that meets the special needs of broad customer groups,
providing increased occupancies, acquisition and development opportunities
and other revenue opportunities.
SC-U.S. Realty intends that, through application of these business
principles, each strategic investee will seek to be a leader in the markets in
which it operates, and that its primary objective will be to increase cash flow
per share on a sustainable basis in order to achieve increases in shareholder
value. SC-U.S. Realty seeks to emulate a number of U.S. corporations which have
generated attractive returns by focusing on creating shareholder value through
the strict application of core business principles and disciplines.
SC-U.S. Realty primarily takes strategic positions in real estate operating
companies organised as equity REITs. Equity REITs are tax-advantaged
organisations which own real estate directly or indirectly and generally do not
pay U.S. income tax to the extent they distribute their earnings currently. To
obtain this tax-advantaged treatment, REITs are required to distribute 95% of
their taxable income to shareholders and satisfy certain other requirements.
For more information concerning SC-U.S. Realty's rights, obligations and
restrictions with respect to its strategic investees, see the descriptions of
SC-U.S. Realty's agreements with each of its strategic investees in
"--Agreements Between SC-U.S. Realty and its Strategic Investees" below.
Special Opportunity Positions
As a result of Security Capital's ongoing research, SC-U.S. Realty has
identified a number of publicly traded companies which provide attractive
investment opportunities and which it refers to as special opportunity
positions. SC-U.S. Realty may acquire up to 10% (but generally less than 5%) of
the shares of such companies and generally holds such positions for an
intermediate term of 12 to 18 months ("publicly traded positions"), although
sale of such a position may occur sooner or later, depending on market or
business conditions and on whether the return objectives have been realised. The
objective is to realise attractive total returns through dividends and share
price appreciation and to provide SC-U.S. Realty with an efficient method of
maintaining a portion of its assets in liquid investments (which assets may be
redeployed on short notice). SC-U.S. Realty's objective is to have 10%-15% of
its assets invested in such special opportunity positions. As of 31 December
1998 SC-U.S. Realty had $262 million (approximate market value) of special
opportunity positions (excluding SC-U.S. Realty's investment in Security Capital
Group), which represented approximately 9.1% of SC-U.S. Realty's total assets.
From time to time, if deemed appropriate according to SC-U.S. Realty's
aforementioned criteria, SC-U.S. Realty may seek to turn a publicly traded
special opportunity position into a strategic investment position. In
exceptional circumstances, and to a very limited extent, SC-U.S. Realty may take
special opportunity positions in companies which are not publicly traded.
Generally, such a position would be in a company which does not at the time of
investment fulfill the criteria for a strategic investment position, but in
which SC-U.S. Realty may take a strategic investment position in the future. As
of 31 December 1998, SC-U.S. Realty's special opportunity positions represented
investments in 24 publicly traded companies and in three non-public companies.
None of such investments, on an individual basis, is material to SC-U.S. Realty.
As of 31 December 1998 SC-U.S. Realty beneficially owned approximately 6.1% of
the outstanding common stock of Urban Shopping Centers, Inc. Urban Shopping
Centers, Inc. is a self-administered and self-managed REIT focused on owning,
managing, leasing, acquiring, developing and redeveloping a portfolio of super-
regional and regional malls located throughout the United States, particularly
high-quality regional malls. This represents the only special opportunity
position in which SC-U.S. Realty beneficially owns more than 5% of the
outstanding securities of a single entity.
In 1996, SC-U.S. Realty committed $110 million of capital to Security
Capital Group's securities ($55 million in shares of common stock and $55
million in aggregate principal amount of convertible debentures), all of which
has been called and funded. In September 1997, SC-U.S. Realty invested an
additional $55 million in Security Capital Group's initial public offering of
common stock, bringing SC-U.S. Realty's total investment in Security Capital
Group to $165 million (cost), with a fair value of approximately $116.2 million
as of 31 December 1998,
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representing 4.0% of SC-U.S. Realty's total assets at fair value as of such
date. The Board of Directors has established a policy not to invest more than
10% of SC-U.S. Realty's assets in securities of Security Capital Group and it
expects that, in the long term, less than 5% of SC-U.S. Realty's assets will be
invested in securities of Security Capital Group. The purpose of the investment
in Security Capital Group is to provide SC-U.S. Realty with the benefit of
exposure to specific niches within the multifamily and industrial real estate
sectors, as well as the diversification benefits of real estate management and
advisory fee income through Security Capital Group's real estate services and
advisory activities. Security Capital Group augments its operating company
returns with revenues received for managing and advising real estate companies
(including SC-U.S. Realty).
SC-U.S. Realty has acquired Security Capital Group securities at arm's
length prices. SC-U.S. Realty currently has no intention to acquire additional
Security Capital Group securities. The advisory fee which SC-U.S. Realty pays to
the Security Capital U.S. Realty Management S.A. (the "Operating Advisor"),
which is calculated on the basis of the net asset value of SC-U.S. Realty's
investments, does not reflect any assets invested in Security Capital Group.
Real Estate Acquisitions
SC-U.S. Realty may from time to time (but does not currently expect to)
acquire direct interests in U.S. real estate. Any such interests would be
acquired with the intention of contributing them to a real estate company in
exchange for equity at fair value which is at least as liquid as the real estate
interests. It is the intention of SC-U.S. Realty not to hold direct interests in
real estate in the long term.
The Future
SC-U.S. Realty's primary focus will be on achieving growth for its existing
strategic investment positions and identifying other real estate operating
companies in well-researched business niches which would be suitable strategic
investment positions for SC-U.S. Realty. Security Capital continues to research
and evaluate other business niches which it believes may provide opportunities
to form start-up REITs.
Competition
There are numerous developers, operators, real estate companies and other
owners of real estate that compete with SC-U.S. Realty's strategic investees.
SC-U.S. Realty's strategic investees compete on a regional and national basis
with no individual market being material to SC-U.S. Realty as a whole. All of
the properties of SC-U.S. Realty's strategic investees are located in developed
areas where there are a number of competitors. The number of competitive
properties could have a material adverse effect on one or more of SC-U.S.
Realty's strategic investees and therefore on the rents charged by them. SC-U.S.
Realty's strategic investees may be competing with other entities that have
greater resources and whose officers and directors have more experience than the
officers, directors and trustees of SC-U.S. Realty's strategic investees.
Overview of Strategic Investment Positions
In accordance with its investment strategy, SC-U.S. Realty had funded as of
31 December 1998 a total of $2.5 billion (at cost) of equity capital to seven
U.S. real estate operating companies (representing approximately 92.8% of SC-
U.S. Realty's total amount committed to strategic investment positions). This
capital has been, or is expected to be, deployed by these companies primarily in
the acquisition of assets consistent with their highly focused operating
strategies. Subsequent to 31 December 1998, on 28 February 1999, Regency and
Pacific Retail merged. See "--Overview of Strategic Investment Positions--
Grocery-Anchored Neighbourhood Infill Shopping Centres: Regency Retail
Corporation" below for more information.
The following table reflects SC-U.S. Realty's funded investments as of
31 December 1998 in each of its seven strategic investment positions:
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As of 31 December 1998
(in thousands $, except for %)
<TABLE>
<CAPTION>
Percentage of
SC-U.S. Realty's Percentage of
Total Assets Strategic Investee's
Strategic Investment Positions(1) Cost Value by Value Common Equity(2)
- --------------------------------- ---------- ------------- ----------------- ---------------------
<S> <C> <C> <C> <C>
CarrAmerica........................... $ 699,851 $ 686,482(3) 23.9% 39.9%
City Center Retail.................... 304,035 304,035(4) 10.6 99.9
CWS Communities....................... 153,563 153,563(4) 5.3 96.0
Pacific Retail........................ 524,038 501,805(4) 17.5 74.2
Regency............................... 235,750 260,775(3) 9.1 46.0
Storage USA........................... 394,272 380,178(3) 13.2 42.4
Urban Growth Property................. 181,082 181,082(4) 6.3 98.7
---------- ---------- ----
Total strategic investment positions.. $2,492,391 $2,467,920 85.9%
========== ========== ====
</TABLE>
(1) All strategic investment positions are of common stock or common shares.
(2) On a percentage of outstanding common shares or common stock basis. On a
fully diluted basis, the percentage interest of each strategic investee's
common equity was 32.8%, 99.9%, 96.0%, 68.1%, 37.6%, 37.4% and 98.7%,
respectively. After the completion of merger of Pacific Retail and
Regency, the percentage interest in Regency's common equity was 61.3% and
55.4% on an outstanding and fully diluted basis, respectively.
(3) Value for this publicly traded investment has been derived using its
closing stock price on the NYSE.
(4) As more fully described in Note 2A to the Consolidated Financial Statements
included in Item 18 and "--Valuation and Investment Restrictions" below,
value for this private company investment has been reflected on the basis
of the probable net realisation value estimated in good faith by the Board
of Directors. Except for Pacific Retail, all of the Company's private
company investments have been reflected at cost as an approximation of fair
value for these recent investments. On 28 February 1999, Regency merged
with Pacific Retail. See "--Grocery-Anchored Neighbourhood Infill Shopping
Centres: Regency Retail Corporation" below. Therefore, because of the
pending merger transaction at 31 December 1998, Pacific Retail was valued
based on the exchange ratio and the closing stock price of Regency on the
NYSE.
The business niches and operating companies in which SC-U.S. Realty has
taken strategic investment positions are described below.
Office: CarrAmerica Realty Corporation
CarrAmerica is a self-administered and self-managed, publicly traded REIT
which owns, develops, acquires and operates office properties. The Company's
office properties are located primarily in 15 suburban markets across the United
States. CarrAmerica has created and developed a national operating system that
provides corporate users of office space with a mix of products and services to
meet their workplace needs at both the national and local level.
In the early 1990s, Security Capital's strategic research in the office
sector identified a dramatic shift in future demands for office space as many
U.S. companies began to seek alternatives to expensive "trophy" buildings. These
companies began migrating to office locations that offered attractive incentives
such as lower operating costs and a higher quality of life. These companies
sought flexible space that could accommodate expansion, consolidation and
relocation. They also sought a more efficient means by which to out-source their
office space needs. In short, these companies were looking for a new workplace
to meet their changing needs.
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On the supply side, Security Capital's research revealed highly fragmented
ownership within the office sector, where a large percentage of office buildings
were owned by local developers and institutions that passively managed a small
"pool" of local assets. Security Capital's research indicated that the absence
of any critical mass of national office ownership was reflected in the lack of
operating efficiencies and expertise among the existing suppliers of office
space.
Security Capital identified an opportunity to create a national operating
company to provide office space to many of America's leading companies. In
November 1995, after extensive research into the best investment alternative for
carrying out this business plan (which included reviewing a considerable number
of potential transactions), SC-U.S. Realty committed $250 million to CarrAmerica
(then called Carr Realty Corporation).
From its initial commitment in November 1995 to invest $250 million at
$21.47 per share of common stock, SC-U.S. Realty's investment at cost in
CarrAmerica as of 31 December 1998 had increased to $699.9 million (at an
average price per share of $24.47) as a result of additional investments. As of
31 December 1998 SC-U.S. Realty owned 39.9% of CarrAmerica's outstanding common
stock. On 1999 CarrAmerica's common stock closed at $ on
the NYSE.
The following table shows the high and low closing prices of CarrAmerica's
common stock on the NYSE during each quarter (or portion thereof) since the
quarter preceding SC-U.S. Realty's initial commitment:
<TABLE>
<CAPTION>
High Low
Closing Price Closing Price
------------- -------------
<S> <C> <C>
1995
Third Quarter.............................. $19.75 $17.25
Fourth Quarter(1).......................... 24.50 18.63
1996
First Quarter.............................. 24.75 23.88
Second Quarter............................. 25.25 23.75
Third Quarter.............................. 25.75 22.00
Fourth Quarter............................. 29.25 25.00
1997
First Quarter.............................. 32.13 28.25
Second Quarter............................. 29.88 26.38
Third Quarter.............................. 32.00 28.25
Fourth Quarter............................. 32.88 28.56
1998
First Quarter.............................. 31.44 28.50
Second Quarter............................. 30.06 26.75
Third Quarter.............................. 30.13 19.63
Fourth Quarter............................. 24.81 19.13
1999
First Quarter.............................. 24.38 20.94
Second Quarter (through __________ 1999)...
</TABLE>
- ------------
(1) SC-U.S. Realty's initial commitment to invest in CarrAmerica was announced
on 6 November 1995.
At the time of SC-U.S. Realty's initial commitment, CarrAmerica was one of
the largest owners and operators of office space in the Washington D.C.
metropolitan area and had (together with its predecessors) a 30-year track
record.
-9-
<PAGE>
SC-U.S. Realty believed that CarrAmerica had a solid core management team and
significant development expertise, but lacked the resources to expand
nationally. In April 1996, CarrAmerica changed its name from Carr Realty
Corporation to its current name to reflect its national strategy.
As part of its proactive ownership role, SC-U.S. Realty has encouraged
CarrAmerica's management team to develop the CarrAmerica "National Operating
System" as the platform for CarrAmerica's new national strategy. The three
components of CarrAmerica's "National Operating System" are the Corporate
Services Group, the Market Officer Group and the National Development Group. The
Corporate Services Group is responsible for marketing CarrAmerica's properties,
build-to-suit capabilities and the national scope of CarrAmerica's operations to
a targeted list of major corporate users of office space. The local market
officers of the Market Officer Group are cognisant of and responsive to
customers' relocation or expansion needs and have extensive knowledge of local
conditions in their respective markets as a result of Security Capital's
proprietary market research and their meeting with CarrAmerica's customers on a
regular basis. These officers are thus also well-positioned to assist the
Corporate Services Group in identifying customers with new build-to-suit and
multi-market requirements. The National Development Group is responsible for
developing suburban office properties, build-to-suit facilities and business
parks. By integrating the components of the "National Operating System", SC-U.S.
Realty believes that CarrAmerica is well-positioned to meet the dynamic and
continually evolving range of space and location requirements demanded by
growth-orientated corporate users of office space. CarrAmerica's National
Operating System is designed to provide corporate users of office space with a
mix of products and services to meet their workplace needs at both the national
and local levels. CarrAmerica believes that, through its existing portfolio of
operating properties, property development opportunities and land acquired and
currently held for future development, CarrAmerica can generate incremental
demand through the relocation and expansion needs of many of its customers, both
within a single target market and in multiple target markets.
SC-U.S. Realty has helped the Board of Directors and Investment Committee
of CarrAmerica to implement a research-driven, disciplined approach to capital
deployment. This enabled CarrAmerica to acquire more than $1 billion of office
assets in 1996, more than $900 million of office assets in 1997, and more than
$610 million of office assets in 1998 (through 30 September 1998). SC-U.S.
Realty believes that CarrAmerica has achieved a critical mass of ownership in
substantially all of its target markets and that CarrAmerica's research-driven
investment strategy enabled it to acquire these properties at favourable yields.
Between 31 December 1995 and 30 September 1998 CarrAmerica acquired 300
operating properties containing approximately 20.1 million square feet of office
space, resulting in more than a 550% increase in the total square footage of
operating properties in which CarrAmerica has a majority interest.
CarrAmerica's primary business objectives are to achieve long-term
sustainable per share cash flow growth and to maximise stockholder value through
a strategy of (i) acquiring, developing, owning and operating office properties
primarily in suburban markets throughout the United States that exhibit strong,
long-term growth characteristics and (ii) maintaining and enhancing a national
operating system that provides corporate users of office space with a mix of
products and services to meet their workplace needs at both the national and
local level. CarrAmerica has focused its investments primarily in suburban
markets throughout the United States because it believes that suburban markets
provide growth-orientated companies and their employees with workplace locations
which have lower operating costs, greater convenience and a higher quality of
life than traditional rental business district locations.
As of 30 September 1998 CarrAmerica owned interests in 288 operating
properties containing approximately 21.8 million square feet of office space
located in 15 markets, 63 properties under development that can contain
approximately 5.0 million square feet of office space at an expected cost at
completion of approximately $766.9 million, and land and options to acquire land
that can support the development of up to 5.7 million square feet of office
space. As of 30 September 1998 the operating properties owned by CarrAmerica
were 96.7% leased and the average rent per leased square foot was $17.83. None
of such properties, on an individual basis, is materially important to
CarrAmerica. CarrAmerica serves over 2,000 different customers.
The following table provides an overview of CarrAmerica's portfolio by
market as of 30 September 1998:
-10-
<PAGE>
<TABLE>
<CAPTION>
Number Square % of Total Square Future
of Footage of Portfolio Footage Buildable
Operating Operating Square Under Square
Market Properties Properties Footage(1) Construction Footage(2)
- ------ ---------- ---------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
San Francisco Bay........... 81 5,759,000 26.5% 972,000 417,000
Sacramento.................. 8 316,000 1.4 -- --
Washington, D.C.
Downtown................. 9 2,134,000 9.8 227,000 --
Suburban................. 7 1,272,000 5.8 328,000 --
Atlanta..................... 45 2,105,000 9.6 180,000 96,000
Orange County/Los Angeles... 37 1,648,000 7.6 122,000 --
San Diego................... 14 681,000 3.1 200,000 77,000
Chicago..................... 10 1,574,000 7.2 190,000 465,000
Denver...................... 10 1,001,000 4.6 275,000 1,486,000
Dallas...................... 12 1,340,000 6.1 919,000 772,000
Seattle..................... 24 1,136,000 5.2 239,000 --
Austin, Texas............... 10 738,000 3.4 606,000 1,169,000
Salt Lake City.............. 8 463,000 2.1 152,000 80,000
Phoenix..................... 9 1,093,000 5.0 132,000 366,000
Boca Raton.................. 2 439,000 2.0 188,000 411,000
Portland, Oregon............ 2 126,000 0.6 275,000 317,000
--- ---------- ----- --------- ---------
Total.................... 288 21,825,000 100.0% 5,005,000 5,656,000
=== ========== ===== ========= =========
</TABLE>
- ----------------
(1) Represents the percentage of total square footage of the consolidated
properties.
(2) Represents buildable square footage of land (including land subject to
options and excluding square footage under construction) that is held for
development.
In August 1997 OmniOffices, Inc. ("OmniOffices"), an affiliate of
CarrAmerica, acquired substantially all of the assets of OmniOffices Group, Inc.
and its subsidiaries for an aggregate purchase price of approximately $50
million in cash. These assets included 28 executive office suite centres
containing approximately 1,650 office suites located in 14 markets across the
United States. In addition, as of 30 September 1998, OmniOffices has acquired an
additional 73 executive office suite centres for approximately $161.3 million in
cash. These additional 73 executive office suite centres contain approximately
4,430 office suites located in various cities across the United States.
CarrAmerica believes that the executive office suites business has significant
potential for growth because the demand for executive office suites is likely to
increase as companies seek greater flexibility and alternative workplace
solutions for their staffing and business plan requirements. CarrAmerica
believes that its position as the only national office property owner and
operator providing both traditional, long-term office space and (through
OmniOffices) flexible, short-term workplace options provides it with a
competitive advantage in meeting the evolving needs of growing companies. In
conformance with limitations under the tax laws relating to REITs, OmniOffices
is structured as a taxable "C" corporation in which CarrAmerica owns 95% of the
economic interest, but none of the voting stock. The voting stock is owned 17%
by The Oliver Carr Company, 35% by SC-U.S. Realty and 48% by an entity owned by
CarrAmerica's six current executive officers. The holders of the voting common
stock control the ability to elect the directors of OmniOffices and thus the
power to direct OmniOffices' affairs.
CarrAmerica believes that, as a result of its National Operating System,
market research capabilities, access to capital, and experience as an owner,
operator and developer of real estate, it will continue to be able to identify
and consummate acquisition opportunities and to operate its portfolio more
effectively than competitors without such
-11-
<PAGE>
capabilities. CarrAmerica, however, competes in many of its target markets with
other real estate operators, some of whom may have been active in such markets
for a longer period than CarrAmerica. In CarrAmerica's major markets of
Washington, D.C. and Northern California, rental rates for office buildings have
increased and vacancy rates have decreased over the last five years (Source: CB
Commercial/Torto Wheaton Research).
CarrAmerica has received investment grade ratings for its long-term debt
securities from Moody's, Standard & Poors and Duff & Phelps and has reduced its
ratio of long-term debt to undepreciated book capitalisation from 58.1% prior to
SC-U.S. Realty's initial investment to 40.0% as of 30 September 1998. As of 30
September 1998 CarrAmerica had outstanding four series of preferred stock with
an aggregate liquidation preference of $417.0 million. As of 30 September 1998
CarrAmerica's total indebtedness was $1.6 billion. CarrAmerica has achieved a
significant increase in per share cash flow and SC-U.S. Realty believes that it
is continuing to build a solid foundation for future growth.
CarrAmerica's experienced staff of over 1,800 employees, including
approximately 1,500 on-site building and executive suites employees, provides a
broad range of real estate services. CarrAmerica continues to recruit key
personnel to further develop its National Operating System.
CarrAmerica is a publicly traded company and information concerning
CarrAmerica can be obtained from the Commission at the following address: Public
Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549. Information
concerning certain agreements between CarrAmerica and SC-U.S. Realty which
relate to, among other things, SC-U.S. Realty's rights to nominate directors of
CarrAmerica, participate in future equity issuances by CarrAmerica and consult
with CarrAmerica about certain significant matters is contained in "--Agreements
Between SC-U.S. Realty and its Strategic Investees" below.
Self-Storage: Storage USA, Inc.
Storage USA was formed in 1985 to acquire, develop, construct, franchise,
own and operate self-storage facilities throughout the United States. Storage
USA is the second largest owner and operator of self-storage space in the United
States.
Storage USA is focused on becoming the preeminent owner, operator, manager,
developer and franchiser of self-storage facilities in the United States.
Storage USA's strategy is to maximise rents, occupancy and profitability at each
of its facilities by offering outstanding value and customer service in this
fragmented real estate niche.
Based on Security Capital's strategic research, SC-U.S. Realty believes
that the self-storage industry in the United States offers attractive long-term
growth potential with compelling supply and demand fundamentals and the capacity
to generate significant free cash flow. From an ownership perspective, the
industry is fragmented, undercapitalised and has traditionally been considered
an unglamourous, non-institutional business niche. Storage USA believes that
there are approximately 26,000 self-storage facilities in the United States. SC-
U.S. Realty believes that, because owners generally lack a critical mass of
ownership, self-storage facilities are generally not professionally or
efficiently managed and customers are underserved.
Demand for self-storage continues to grow from both consumers and
commercial users, and SC-U.S. Realty believes that self-storage continues to
present an attractive capital deployment opportunity. In the case of consumer
demand, this is because the U.S. is an extremely mobile society, creating
frequent need for short-term and long-term storage space during periods of
transition, such as moving to new homes or transferring to new jobs. In
addition, many Americans are purchasing smaller homes or renting apartments
where storage space is very limited. This trend is particularly strong among the
elderly as they move from large suburban homes with ample storage space to
smaller apartments or assisted-living units. In addition, SC-U.S. Realty expects
that demand from consumers will continue to grow as market awareness increases.
In the case of commercial demand, the restructuring of corporate America
has forced companies, both large and small, across a range of industries to
downsize and to become more efficient. Many small business owners and
-12-
<PAGE>
entrepreneurs depend on self-storage facilities to house their inventories and
equipment in a flexible and cost-effective manner.
In 1996 SC-U.S. Realty decided to invest in Storage USA because it believed
that Storage USA had the opportunity to become the preeminent national owner,
operator, manager, developer and franchiser of self-storage facilities in the
United States. In short, SC-U.S. Realty believed that Storage USA had the
potential to become the "brand leader" of the self-storage industry.
From its initial commitment in February 1996 to invest $220 million at
$31.30 per share of common stock, SC-U.S. Realty's investment at cost in Storage
USA as of 31 December 1998 had increased to $394.3 million (at an average price
per share of $33.51) as a result of additional investments. As of 31 December
1998 SC-U.S. Realty owned 42.4% of Storage USA's outstanding common stock. On
1999, Storage USA's common stock closed at $ on the NYSE.
The following table shows the high and low closing prices of Storage USA's
common stock on the NYSE during each quarter (or portion thereof) since the
quarter preceding SC-U.S. Realty's initial commitment:
<TABLE>
<CAPTION>
High Low
Closing Price Closing Price
------------- -------------
<S> <C> <C>
1995
Fourth Quarter............................. $32.75 $28.75
1996
First Quarter (1).......................... 34.75 30.50
Second Quarter............................. 34.38 32.25
Third Quarter.............................. 34.00 32.00
Fourth Quarter............................. 38.63 33.13
1997
First Quarter.............................. 38.88 36.63
Second Quarter............................. 40.25 35.63
Third Quarter.............................. 41.75 38.25
Fourth Quarter............................. 40.94 37.13
1998
First Quarter.............................. 41.06 37.50
Second Quarter............................. 39.00 34.31
Third Quarter.............................. 38.06 29.88
Fourth Quarter............................. 33.75 28.56
1999
First Quarter.............................. 32.44 27.75
Second Quarter (through 1999).....
</TABLE>
- ---------------
(1) SC-U.S. Realty's initial commitment to invest in Storage USA was announced
on 1 March 1996.
At the time of SC-U.S. Realty's investment in Storage USA, SC-U.S. Realty
believed that Storage USA had the potential to become one of the leading
national operators of storage facilities due to the quality of its management
team, its systems and its focus on training, especially at the property level.
Storage USA believed that SC-U.S. Realty could help create a strategic
organisational plan which would provide the executive leadership necessary for
growth and
-13-
<PAGE>
focus on developing growth opportunities. Through representation on the board of
directors of Storage USA, SC-U.S. Realty has assisted Storage USA on a series of
research initiatives relating to Storage USA's capital deployment strategy.
Storage USA's primary business objective is to maximise shareholder value.
Storage USA plans to achieve this objective through a four-part strategy: (i)
internal growth through continued improvement in operating results at owned
properties, (ii) external growth through acquisitions, (iii) current investment
for enhanced long-term returns through development, and (iv) the franchising of
Storage USA's self-storage concept.
Storage USA believes that it is distinguishable from most of its
competitors by its balanced approach to increasing its profitability through a
combination of internal growth, acquisitions and development, its emphasis on
the hiring and training of skilled personnel as active managers of its self-
storage facilities, its management information systems, and its ability to
attract senior management who will enhance Storage USA's ability to define and
execute its business plan.
The four components of Storage USA's internal growth strategy are
aggressive leasing, regularly scheduled rent increases, trained facility
managers and integrated management information systems. Through aggressive
leasing, Storage USA seeks to increase its revenues by improving the occupancy
in its facilities. In particular, Storage USA uses sales and marketing programs
that are customised for each location by facility and district managers who have
substantial authority and effective incentives. Through regularly scheduled rent
increases, Storage USA has historically increased rents in all of its facilities
at least once a year regardless of the occupancy level. As a facility nears 100%
occupancy, Storage USA typically increases rents more frequently. Storage USA
carefully selects and thoroughly trains managers of its self-storage facilities.
Through integrated management information systems, Storage USA maintains
appropriate controls and enhances operational efficiencies. Storage USA has
installed computer systems at each facility which are equipped with
comprehensive facilities management software. Weekly operating results are
transmitted electronically from each of these facilities to Storage USA's
headquarters. These systems allow Storage USA to closely monitor manager
performance and market response to Storage USA's rental structure.
Storage USA acquired over $300 million of existing self-storage facilities
in 1996 and an additional $353 million in 1997, expanding its target markets to
locations in 31 states and the District of Columbia. Storage USA's strategy is
to acquire properties that are under-managed and under-rented in markets with
positive fundamentals for self-storage. Storage USA repositions these properties
in their respective markets through state-of-the-art renovation and management
training programmes. As of 30 September 1998 Storage USA had 22 facilities under
construction, totaling approximately 1.7 million square feet (at an estimated
cost of $108 million). As of 30 September 1998 the average physical occupancy of
the 418 facilities owned by Storage USA was 85%.
At 30 September 1998 Storage USA owned 418 facilities containing 27.6
million net rentable square feet and managed for others 56 facilities containing
an additional 3.5 million net rentable square feet in 31 states and the District
of Columbia. None of such properties, on an individual basis, is materially
important to Storage USA. As of 30 September 1998 Storage USA employed
approximately 1,573 employees, of whom approximately 401 were employed part time
(fewer than 30 hours per week on a regular basis).
The following table provides an overview of Storage USA's portfolio by
market as of 30 September 1998:
-14-
<PAGE>
Storage USA, Inc.
Market Analysis of All Properties
As of 30 September 1998
<TABLE>
<CAPTION>
Number of Available
State Properties Square Feet
- ----- ---------- -----------
<S> <C> <C>
Alabama................... 2 110,662
Arizona................... 20 1,142,293
California................ 81 5,965,698
Colorado.................. 2 156,194
Connecticut............... 7 529,974
Delaware.................. 1 71,695
District of Columbia...... 1 107,431
Florida................... 31 2,378,140
Georgia................... 6 434,512
Illinois.................. 1 76,341
Indiana................... 22 1,009,228
Kansas.................... 4 200,805
Kentucky.................. 6 279,960
Maryland.................. 17 1,219,042
Massachusetts............. 14 869,435
Michigan.................. 14 909,720
Missouri.................. 2 104,905
Nevada.................... 11 765,078
New Jersey................ 16 1,073,843
New Mexico................ 11 606,007
New York.................. 18 1,253,660
North Carolina............ 7 461,009
Ohio...................... 26 1,510,306
Oklahoma.................. 15 944,896
Oregon.................... 3 203,040
Pennsylvania.............. 10 658,463
Tennessee................. 32 2,000,504
Texas..................... 22 1,587,859
Utah...................... 3 196,635
Virginia.................. 12 732,245
Washington................ 1 62,550
--- ----------
Total.................. 418 27,622,130
=== ==========
</TABLE>
Competition exists in all of the market areas in which the facilities are
located. Storage USA principally faces competitors who seek to attract tenants
primarily on the basis of lower prices. However, Storage USA usually does not
seek to be the lowest-priced competitor. Rather, Storage USA's strategy is to
charge premium prices based on the quality of its facilities and its customer
service-orientated managers and amenities.
-15-
<PAGE>
Storage USA believes that the pool of self-storage users has increased in
recent years due to greater consumer awareness, cost reduction programs by
businesses, increased mobility in the general population and an increasing mix
of products and services offered by self-storage facilities. Although
circumstances vary among markets, Storage USA believes that current demand for
self-storage facilities is strong when compared to the available supply of self-
storage space. At the same time, Storage USA believes that few operators of
self-storage facilities are currently constructing additional facilities or have
access to the capital and the development and construction expertise necessary
to do so. Therefore, Storage USA believes that the supply of self-storage
facilities will remain relatively limited for some time, and that the industry
generally will continue to experience strong occupancy and increasing rental
rates. Storage USA believes that its access to capital markets as a public
company, the systems and methods it has developed and the skilled personnel it
has gathered and trained for acquiring and managing self-storage facilities with
potential for increased occupancy and rental rates, and its expertise in
facility development and construction, place Storage USA in a position to
capitalise on these market conditions for the benefit of its shareholders.
Certain of Storage USA's competitors operate more facilities and have
substantially greater financial resources than Storage USA. The three largest
self-storage managers, based on industry data as to the aggregate number of
square feet of facilities operated (whether or not the facilities are owned),
are: (1) Public Storage Management, Inc. (67.8 million square feet); (2) Storage
USA (29.5 million square feet); and (3) U-Haul International, Inc. (26.1 million
square feet) (Source: Mini-Storage Messenger, September, 1998 edition). On 12
November 1998 Public Storage announced that it had entered into an agreement to
merge with Storage Trust Realty whereby it would increase its aggregate number
of square feet of facilities operated to approximately 76.8 million square feet.
These other entities may be able to accept more risk than Storage USA can
prudently manage, including risks with respect to the geographic proximity of
its investments and the payment of higher facility acquisition prices. This
competition may generally reduce the number of suitable acquisition
opportunities offered to Storage USA and increase the price required to be able
to consummate the acquisition of particular facilities. Further, Storage USA
believes that competition from entities organised for purposes substantially
similar to Storage USA's objectives could increase. Nevertheless, Storage USA
believes that the operations, development and financial experience of its
executive officers and directors and its customer-orientated approach to
management of self-storage facilities should enable Storage USA to compete
effectively.
On 12 November 1998 Storage USA's operating subsidiary, SUSA Partnership
L.P., sold $65 million of 8.875% Series A Cumulative Redeemable Preferred
Partnership Units. The partnership has the right to redeem the units at any time
after 1 November 2003 at the original capital contribution plus the cumulative
priority return to the redemption date to the extent not previously distributed.
The units are exchangeable for 8.875% Series A Preferred Stock of Storage USA,
on or after 1 November 2008 at the option of 51% of the holders of the units.
Storage USA is a publicly traded company and information concerning Storage
USA can be obtained from the Commission at the addresses listed under
"--Overview of Strategic Investment Positions--Office: CarrAmerica Realty
Corporation" above. Information concerning certain agreements between Storage
USA and SC-U.S. Realty which relate to, among other things, SC-U.S. Realty's
rights to nominate directors of Storage USA, participate in future shares
issuances by Storage USA and consult with Storage USA about certain significant
matters is contained in "--Agreements Between SC-U.S. Realty and its Strategic
Investees" below.
Grocery-Anchored Neighbourhood Infill Shopping Centres: Regency Realty
Corporation
Security Capital's strategic research in the retail sector revealed that
the U.S. is generally considered to be "over-retailed" and, consequently, the
entire retail sector has been in a state of flux for several years. However,
after considerable research and demographic analysis, Security Capital concluded
that, although much of the retail sector would provide low future growth, a few
retail niches had been unfairly tainted by this view, creating inefficiencies in
the marketplace and, thus, value-creation opportunities. Security Capital's
extensive research over nearly two years showed protected grocery-anchored
neighbourhood infill shopping centres to be an attractive retail niche.
Infill centres are located in high-density residential areas where there is
little or no land available for competing retail construction. These physical
barriers to entry make this type of property one of the more protected retail
niches. In addition, Security Capital's research showed that changing
demographics were affecting shopping patterns and that,
-16-
<PAGE>
as a result, Americans increasingly value convenience, location and service. The
grocery anchors of these centres meet those needs by providing essential goods
and personal and entertainment services (such as beauty salons, dry cleaners and
video rentals).
Security Capital's research indicated that ownership of neighbourhood
infill shopping centres was highly fragmented, with few companies operating on a
regional basis. In addition, Security Capital's research indicated that
ownership was typically local, with weak re-merchandising capabilities due to a
lack of research, capital, vision and, importantly, relationships with strong,
high-growth retailers. SC-U.S. Realty believes that without a critical mass of
ownership, local owners will continue to be at a severe disadvantage and will
not be able to afford to develop value-added operating systems. Moreover,
institutional owners have generally been absent due to the management-intensive
nature of this sector and the relatively small size of single-asset
transactions.
In 1995, Security Capital recognised the opportunity to form Pacific
Retail, a private start-up company that focused on becoming the leading owner,
operator and developer of grocery-anchored neighbourhood infill shopping centres
in selected high-growth markets of the western United States. Shortly
thereafter, Security Capital identified Regency, a NYSE-listed company
headquartered in Jacksonville, Florida, as an attractive operating platform to
focus on becoming the leading owner, operator and developer of grocery-anchored
neighbourhood infill shopping centres in selected high-growth markets of the
eastern United States.
On 28 February 1999 Regency merged with Pacific Retail in a tax-free
transaction. Pursuant to the terms of the merger agreement, a holder of Pacific
Retail common shares received 0.48 shares of Regency common stock for each
common share of Pacific Retail. In addition, Regency assumed all of the
outstanding indebtedness of Pacific Retail. Regency will continue to maintain
its current dividend and dividend policy. Regency has a 13-person board of
directors, including four independent directors named by Regency, three
directors named by Pacific Retail, three directors named by SC-U.S. Realty and
three members of management.
The merger resulted in Regency having total assets of approximately $2.4
billion, comprising 200 retail centres in 20 states containing 23.0 million
square feet. Since Pacific Retail and Regency were separate companies at 31
December 1998 the following discussion provides information separately for the
two companies. Once Regency has presented results on a combined basis, the
following discussion will also be combined.
Pacific Retail
Pacific Retail had been implementing a business strategy that was designed
to make it the leading owner, operator and developer of grocery-anchored
neighbourhood infill shopping centres in selected high-growth markets of the
western United States.
Since SC-U.S. Realty's initial commitment of $200 million in October 1995,
Pacific Retail had closed on over $1 billion of acquisitions and had expanded
its management team in California and the Pacific Northwest. Acquisitions in
1997 totaled $453.7 million. As of 31 December 1998 Pacific Retail owned 66
neighbourhood infill shopping centres containing approximately 7.6 million
square feet. Its target markets include 21 high-growth markets in the western
half of the United States. As of 31 December 1998 the operating properties owned
by Pacific Retail were 96.4% leased. None of such properties, on an individual
basis, was materially important to Pacific Retail. As of 31 December 1998
Pacific Retail employed approximately 128 people.
The following table provides an overview of Pacific Retail's portfolio by
market as of 31 December 1998:
-17-
<PAGE>
<TABLE>
<CAPTION>
12/21/98
----------------- Number
Square % of Total Current % % of
Market Feet Square Feet Investment Leased Occupied Properties
- ------ --------- ----------- -------------- ------ -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Sacramento Area............ 236,329 3.1% $ 25,519,078 94.7% 91.3% 2
San Francisco Bay Area..... 1,023,576 13.5 167,714,682 97.8 95.1 11
Los Angeles County Area.... 669,079 8.8 83,095,152 96.4 96.1 7
Orange County Area......... 642,056 8.4 94,476,368 96.5 94.5 5
San Diego County Area...... 610,356 8.0 107,669,774 99.0 96.5 4
Seattle Area............... 762,560 10.0 103,727,442 97.3 97.2 8
Portland Area.............. 583,704 7.7 81,642,567 91.4 91.3 6
Dallas/Ft. Worth Area...... 1,949,023 25.6 223,318,086 94.2 92.9 14
Houston Area............... 114,416 1.5 11,170,514 97.0 97.0 1
Austin Area................ 266,763 3.5 34,740,829 99.6 98.0 2
Denver Area................ 417,862 5.5 44,203,060 99.2 99.2 4
Phoenix Area............... 326,984 4.3 40,689,217 99.5 96.0 2
--------- ----- -------------- ---- ---- --
Total Operating Portfolio.. 7,602,710 100.0% $1,017,963,340 96.4% 95.1% 66
========= ===== ============== ==== ==== ==
</TABLE>
- ------------
Note: A significant portion (73.9%) of Pacific Retail's portfolio is considered
prestabilised. Prestabilised properties are those which have been owned less
than one year or, if owned more than one year, have not reached 93% occupancy.
This schedule does not include properties under development.
Regency
Regency is focused on becoming the leading owner, operator and developer of
grocery-anchored neighbourhood infill shopping centres in selected high-growth
markets in the United States. Regency has been utilising the equity from SC-U.S.
Realty's investment to take advantage of attractive acquisition and development
opportunities in its target markets.
From its initial commitment in June 1996 to invest $132.2 million at
$17.625 per share of common stock, SC-U.S. Realty's investment at cost in
Regency has increased to $235.8 million as of 31 December 1998 at an average
price per share of $20.11, as a result of additional investments. As of 31
December 1998 SC-U.S. Realty owned 46.0% of Regency's outstanding common stock.
After the completion of the merger with Pacific Retail, SC-U.S. Realty owned
61.3% of Regency's outstanding common stock. On 1999, Regency's
common stock closed at $ on the NYSE.
The following table shows the high and low closing prices of Regency's
common stock on the NYSE during each quarter (or portion thereof) since the
quarter preceding SC-U.S. Realty's initial commitment:
<TABLE>
<CAPTION>
High Low
Closing Price Closing Price
------------- -------------
1996
<S> <C> <C>
First Quarter.................................. $17.38 $16.00
Second Quarter(1).............................. 21.00 16.63
Third Quarter.................................. 22.38 19.38
Fourth Quarter................................. 26.25 21.63
1997
</TABLE>
-18-
<PAGE>
<TABLE>
<S> <C> <C>
First Quarter.................................. 28.00 25.00
Second Quarter................................. 28.13 25.00
Third Quarter.................................. 28.25 25.13
Fourth Quarter................................. 28.00 24.63
1998
First Quarter.................................. 27.75 24.88
Second Quarter................................. 26.56 24.13
Third Quarter.................................. 26.44 20.56
Fourth Quarter................................. 23.38 20.50
1999
First Quarter.................................. 22.94 18.75
Second Quarter (through 1999).......
</TABLE>
- --------------
(1) SC-U.S. Realty's initial commitment to invest in Regency was announced on
12 June 1996.
At the time of SC-U.S. Realty's investment in Regency, SC-U.S. Realty
believed that Regency had a strong management team with significant experience
as an owner and operator of grocery-anchored neighbourhood infill shopping
centres in Florida, but lacked the resources and capital to execute an expanded
business plan on a regional level.
Regency's primary business objectives are (i) to generate superior
shareholder returns by sustaining above-average annual increases in funds from
operations and long-term growth in free cash flow, (ii) to create the largest
real estate portfolio of quality grocery-anchored neighbourhood shopping centres
in targeted infill markets in the United States, (iii) to build the strongest
possible capital structure through conservative financial management that will
cost-effectively provide the capital to fund Regency's growth strategy, and (iv)
to put in place the people and processes necessary to enable Regency to
implement its Retail Operating System, a system which incorporates research-
based investment strategies and value-added leasing and management systems.
During 1996, Regency acquired 13 grocery-anchored shopping centres
representing 1.4 million square feet for $107.1 million. On 7 March 1997,
Regency acquired, through its operating partnership, Regency Retail Partnership,
L.P., substantially all of the assets of Branch Properties, L.P., a privately
held real estate firm based in Atlanta, Georgia, for $232.4 million. During
1997, in addition to the Branch properties, Regency acquired 13 grocery-anchored
shopping centres representing 1.9 million square feet, for $163.3 million, two
of which are partially operating while undergoing redevelopment.
In March 1998, Regency acquired the real estate assets of entities
comprising the Midland Group, which consisted of 21 shopping centres plus a
development pipeline of 11 shopping centres. Regency paid approximately $230.4
million to acquire these assets. Subsequent to 1998, Regency expects to pay
approximately $12.7 million to acquire equity interests in the development
pipeline as the properties reach stabilisation. Regency may also be required to
make payments aggregating $10.5 million through 2000, contingent upon increases
in net income from existing properties, the development pipeline and new
properties developed or acquired in accordance with the contribution agreement.
Regency's portfolio as of 31 December 1998 comprised 129 neighbourhood
infill shopping centres (14.7 million square feet) in its target markets.
Regency is building a critical mass of properties and developing its management
team and value-added retail operating system. As of 31 December 1998 the real
estate portfolio was 92.9% leased and had average annualised rents of $9.12 per
square foot. None of such properties, on an individual basis, is materially
important to Regency. As of 31 December 1998 Regency employed approximately 240
people.
-19-
<PAGE>
The following table provides an overview of Regency's portfolio by market
as of 31 December 1998:
<TABLE>
<CAPTION>
Company-Owned
Number of Gross Leasable %
Location Properties Area (Sq. Ft.) Leased
- -------- ---------- --------------- -------
<S> <C> <C> <C>
Florida.......... 46 5,728,347 91.4%
Georgia.......... 27 2,737,590 93.1
Ohio............. 13 1,786,521 93.4
North Carolina... 12 1,239,783 98.3
Alabama.......... 5 516,060 99.0
Texas............ 5 479,900 84.7
Colorado......... 5 447,569 89.4
Tennessee........ 4 295,179 96.8
Virginia......... 2 197,324 97.7
Mississippi...... 2 185,061 97.6
Michigan......... 2 177,929 81.5
South Carolina... 2 162,056 100.0
Delaware......... 1 232,752 94.8
Kentucky......... 1 205,060 95.6
Illinois......... 1 178,600 86.9
Missouri......... 1 82,498 99.8
--- ---------- -----
Total......... 129 14,652,229 92.9%
=== ========== =====
</TABLE>
There are numerous shopping centre developers, real estate companies and
other owners of real estate that compete with Regency in seeking retail tenants
to occupy vacant space, for the acquisition of shopping centres, and for the
development of new shopping centres. However, ownership of neighbourhood infill
centres historically has been highly fragmented, with local ownership, as
institutional capital has generally avoided the relatively small size of the
centres and their management-intensive nature. In addition, such centres
targeted by Regency are generally located within densely populated
neighbourhoods where little or no land is available for development of competing
centres.
Regency performs renovations and/or improvements to its properties in
accordance with tenant lease terms and when considered necessary due to market
conditions. As of 31 December 1998 Regency had 12 centres which are either in
the process of being completed or are undergoing development or redevelopment
with an anticipated total cost of approximately $189 million on a completed cost
basis.
Regency is a publicly traded company and information concerning Regency can
be obtained from the Commission at the address listed under "--Overview of
Strategic Investment Positions--Office: CarrAmerica Realty Corporation" above.
Information concerning certain agreements between Regency and SC-U.S. Realty
which relate to, among other things, SC-U.S. Realty's rights to nominate
directors of Regency, participate in future share issuances by Regency and
consult with Regency about certain significant matters is contained in
"--Agreements Between SC-U.S. Realty and its Strategic Investees" below.
-20-
<PAGE>
Urban Infill Retail: City Center Retail Trust
In the second quarter of 1997, SC-U.S. Realty established City Center
Retail, a private start-up real estate operating company which is taxed as a
REIT. City Center Retail was created to provide high quality customer service on
a national basis to top U.S. and international retailers in attractive downtown
and urban infill markets for retail throughout the United States. City Center
Retail plans, subject to market and other conditions, to become a public company
after it reaches critical mass in its key growth markets. City Center Retail is
focused on becoming the premier company in the acquisition, development,
operation and ownership of well-designed and well-managed urban retail
properties in attractive U.S. markets for premier U.S. and international
retailers by providing attractive urban retail locations.
Security Capital's strategic research in the retail sector uncovered
several key trends in the United States which Security Capital believes result
in an attractive opportunity in the urban infill retail property niche to create
the first national company focused on developing, acquiring, operating and
owning real estate in downtown markets. Security Capital's research indicated
that a number of high-growth national and regional retailers in the United
States are focusing their growth away from suburban shopping malls in favour of
high-density urban infill locations. These locations have a competitive
advantage in the form of physical barriers to entry provided by the surrounding
buildings. They are also well-positioned to attract significant foot traffic
from surrounding workplaces and neighbourhoods, as well as that of conference
attendees and tourists, and typically offer large, open floor space that many
retailers find attractive for promotional, retail and entertainment centres.
Security Capital believes that there is an increasing recognition by top
retailers of the strong and sustainable viability of urban retail space in
leading U.S. cities. In addition, Security Capital's research indicates that
there is a move to revitalise urban and downtown centres, with a focus on
retailing, and an evolution in urban design that combines retail, food and
entertainment uses (along with other uses such as office or hotel) in a multi-
story urban redevelopment. Historically, top retailers have generally been
required to deal with different real estate entities in each market in which
they have a presence. City Center Retail was established by SC-U.S. Realty with
the objective of becoming the premier national company in the acquisition,
development, operation and ownership of well-designed and well-managed urban
retail properties in attractive U.S. markets for premier U.S. and international
retailers.
As of 31 December 1998 SC-U.S. Realty had committed to invest $350 million
at $10 per common share in City Center Retail, of which approximately $304
million had been funded. As of such date, SC-U.S. Realty owned 99.9% of City
Center Retail's equity capital. In January 1999, SC-U.S. Realty committed to
invest up to an additional $25 million in City Center Retail.
City Center Retail intends to help retailers meet their expansion goals
more quickly by minimising the administrative time involved in property
acquisition, development, leasing and management. Consistent with this strategy,
City Center Retail intends to develop and redevelop urban properties for premier
retailers. In addition, City Center Retail intends to work with private,
institutional and municipal property owners to maximise the value of their
properties.
City Center Retail is building the organisational and financial resources
to acquire and redevelop national property portfolios as well as individual
properties. City Center Retail's target markets will include "twenty-four hour
cities" such as Boston, Chicago, New York, San Francisco and Washington, D.C. In
addition to its primary focus on downtown markets and infill locations, where
retail demand is strong and property supply is constrained, City Center Retail
also targets "main street markets" in smaller communities where City Center
Retail customers desire to be located. Critical factors in identifying
attractive markets include substantial population density, high median household
income, strong employment levels, significant convention and tourism traffic and
limited property available for competing developments nearby. The properties
selected are typically street-accessed and mixed-use, multi-storey properties
which combine retail, restaurant and entertainment uses (with the possibility of
office, hotel and residential uses, depending on changing market conditions).
-21-
<PAGE>
As a result of SC-U.S. Realty's ownership, City Center Retail's management
team has obtained access to Security Capital's management, operating expertise
and proprietary strategic research, including the following, in order to provide
retail customers with a high level of service:
. Research-driven selection of target markets to identify attractive
locations for retailers.
. A value-added retail operating system to deliver a uniform level of
service to every retail customer.
. A strong capital base with funding by SC-U.S. Realty.
City Center Retail's markets are typically pedestrian-orientated shopping
districts in or near the downtown areas of major metropolitan cities. Such areas
typically have substantial residential, business and tourist bases, with high
population density and high income demographics. The real estate supply in these
high-density districts is typically constrained, resulting in generally high
occupancy levels and a relatively reduced risk of competition from new
construction.
As of 31 December 1998 City Center Retail had made investments in 29
projects for an aggregate cost of $461 million at full funding containing
approximately 2.2 million square feet. As of such date, City Center Retail had
6 projects under development and/or redevelopment with an expected total cost at
completion of approximately $192 million.
City Center Retail has four properties which are materially important, on a
individual basis, to its operations. These properties are located in Miami,
Chicago, suburban Chicago and Washington, D.C. These properties are all retail
shopping centres with one being an office complex with retail tenants on the
first floor. The anchor tenants include large retail department stores,
sporting goods retailers, restaurants, movie theatres and one university leasing
office space. The occupancy rates of these properties are 93%, 91%, 32%
(redevelopment, 56% leased) and 69% (redevelopment, 81% leased), with lease
maturities for the material tenants coming due from 2004 to 2013. The average
rents for square foot range from $16.00 to almost $32.00.
City Center Retail is still in the early stages of assembling its
management team, acquiring a critical mass of properties and developing a value-
added operating system. Above all, City Center Retail works closely with
municipalities, tenants and property owners to help to ensure that all parties
to a transaction are well-served. This long-term perspective also promotes high
quality construction standards, as well as allowing City Center Retail to build
and continually strengthen relationships with its customers. In the long term,
City Center Retail's goal is to become the preferred single-source provider of
urban retail space in meeting the national real estate needs of these customers.
Information concerning agreements between City Center Retail and SC-U.S. Realty
which relate to, among other things, SC-U.S. Realty's rights to nominate
trustees of City Center Retail and consult with City Center Retail about certain
significant matters is contained in "--Agreements Between SC-U.S. Realty and its
Strategic Investees" below.
Manufactured Housing Communities: CWS Communities Trust
In December 1997 SC-U.S. Realty established CWS Communities Trust, a
private start-up real estate operating company which expects to elect to be
taxed as a REIT for its taxable year ending 31 December 1998. CWS Communities
acquires, develops and owns manufactured housing communities in selected target
markets throughout the U.S. SC-U.S. Realty's objective is to focus CWS
Communities on becoming the leading national developer, owner and operator of
manufactured housing communities in the United States.
Based on Security Capital's strategic research, SC-U.S. Realty believes
that underlying demand, supply and growth fundamentals for manufactured housing
communities in the United States are strong. Demand is being driven by first-
time home buyers, as well as aging baby boomers, attracted to the relative
affordability, improved product quality and enhanced amenities of new
manufactured housing communities compared to traditional site-built homes. SC-
U.S. Realty believes that supply is constrained due to the difficulty of
identifying attractive sites and receiving zoning approval by municipalities for
new development.
-22-
<PAGE>
In December 1997 SC-U.S. Realty committed to invest $300 million in common
shares of CWS Communities at $10.00 per common share. As of 31 December 1998,
SC-U.S. Realty had funded $153 million of its commitment and owned 96.0% of CWS
Communities' equity capital. SC-U.S. Realty expects that it will own
approximately 80% of CWS Communities upon full funding of its commitment.
CWS Communities is one of the largest private owners, operators and
developers of manufactured housing communities in the United States. As of 31
December 1998 CWS Communities owned and operated or had under contract to
acquire or develop a total of 47 communities with over 16,540 spaces in nine
states for a total estimated cost of approximately $404 million. None of such
properties, on an individual basis, is materially important to SC-U.S. Realty.
All property titles are held by CWS Communities L.P. (or in wholly owned
subsidiaries) in fee simple. All properties are either currently operating or
are to be developed into manufactured housing communities. CWS Communities will
from time to time purchase manufactured homes for resale. The homes may be
leased out on a temporary basis. CWS Communities' primary business is to lease
the space/pad where a manufactured home is located. Most leases are one-year
leases. CWS Communities has some leases that are as short as month-to-month and
as long as five years. Generally, it is expected that substantially all of CWS
Communities' leases will expire and renew annually.
The operating properties may at times require certain capital expenditures.
These are considered by CWS Communities to be immaterial in proportion to the
current investment. The development, capital expenditures and acquisition of
remaining communities under contract are expected to be financed by working
capital or the remaining $147 million unfunded commitment of SC-U.S. Realty. As
of 31 December 1998 CWS Communities was developing a new community and expanding
two existing communities which have a total expected investment of approximately
$8 million.
There are numerous commercial developers, real estate companies and other
owners of real estate that compete with CWS Communities in seeking land for
development, communities for acquisition, and residents for communities. All of
CWS Communities' properties are located in developed areas that include other
communities. The number of competitive manufactured housing communities in a
particular area could have a material adverse effect on CWS Communities' ability
to lease spaces and on the rents charged. In addition, other forms of single
family and multifamily residential communities provide housing alternatives to
residents and potential residents of CWS Communities' manufactured housing
communities.
CWS Communities is continuing to assemble its management team and is still
in the early stages of obtaining a critical mass of properties and implementing
a value-added operating system. Although currently privately owned, CWS
Communities is expected to conduct an initial public offering within three to
five years, after it has acquired a critical mass of ownership and further
developed its management team and operating system, subject to market and other
conditions. Information concerning certain agreements between CWS Communities
and SC-U.S. Realty which relate to, among other things, SC-U.S. Realty's right
to nominate trustees of CWS Communities and consult with CWS Communities about
significant matters is contained in "--Agreements Between SC-U.S. Realty and its
Strategic Investees" below.
Urban Infill Parking: Urban Growth Property Trust
In April 1997, SC-U.S. Realty established Urban Growth Property, a private
start-up real estate operating company which is taxed as a REIT. Urban Growth
Property is focused on acquiring, developing and owning strategically located
income-producing land (primarily parking or car parks) in key urban infill
locations in selected target markets throughout the U.S.
Based on Security Capital's strategic research, SC-U.S. Realty believes
that a company focused on acquiring, developing and owning strategically located
income-producing land in key urban infill and certain suburban locations in
selected target markets throughout the U.S. can generate attractive returns.
Security Capital's research also indicates that the underlying demand, supply
and growth fundamentals for parking lots and car parks in urban infill and
certain
-23-
<PAGE>
suburban locations in selected target markets in the U.S. is strong. Growth is a
function of increased demand driven by new developments at such locations and
the absence of adequate supply.
The available supply of parking lots and car parks is limited in many of
these high-density areas, where the supply of land suitable for development has
decreased, thereby improving the market for such properties. Urban Growth
Property believes that the 22 properties it owned as of 31 December 1998 are
generally in these high-density areas and some offer a higher level of service
or amenities than competing properties. As of that date, there were two
properties at which planned renovations were being made, which are expected to
cost approximately $3.4 million. None of its properties, on an individual
basis, is materially important to SC-U.S. Realty.
As of 31 December 1998 SC-U.S. Realty had funded $181.1 million and owned
98.7% of Urban Growth Property's equity capital.
Urban Growth Property is in the process of obtaining a critical mass of
properties and implementing a value-added operating system. Although currently
privately owned, Urban Growth Property is expected to conduct an initial public
offering once it has acquired a critical mass of properties and further
developed its management team and operating system, subject to market and other
conditions. Information concerning certain agreements between Urban Growth
Property and SC-U.S. Realty which relate to, among other things, SC-U.S.
Realty's rights to nominate trustees of Urban Growth Property and consult with
Urban Growth Property about certain significant matters is contained in
"--Agreements Between SC-U.S. Realty and its Strategic Investees" below.
AGREEMENTS BETWEEN SC-U.S. REALTY AND ITS STRATEGIC INVESTEES
CarrAmerica
As long as SC-U.S. Realty owns at least 25% (by value) of CarrAmerica's
outstanding shares of common stock on a fully diluted basis (a "25% Owner"),
SC-U.S. Realty is generally entitled to nominate for election by stockholders
that number of directors to CarrAmerica's board of directors that corresponds to
its percentage ownership of the outstanding shares of common stock (but in no
case more than 40% of the directors). CarrAmerica's board of directors currently
consists of eight directors, three of which are SC-U.S. Realty's nominees.
As long as SC-U.S. Realty is a 25% Owner, it is entitled, subject to
certain exceptions, to a participation right to purchase or subscribe for up to
30% (or up to 35% if necessary for SC-U.S. Realty to maintain at least 25%
ownership on a fully diluted basis) of the total of any additional shares of
capital stock issued or sold by CarrAmerica or its major subsidiaries. SC-U.S.
Realty has the right to purchase or subscribe for such additional shares at the
same price and on the same terms as other purchasers or subscribers.
As long as SC-U.S. Realty is a 25% Owner, CarrAmerica is required to
consult with SC-U.S. Realty before approving, among other things, any
acquisition or disposition of assets having a value in excess of $25 million,
any financing in excess of $25 million, any operating budgets, any new material
agreements or arrangements with executive officers or any issuance of equity.
As part of SC-U.S. Realty's commitment to assist CarrAmerica to become the
leading owner, operator and developer of office properties in the United States,
SC-U.S. Realty has committed, subject to certain limitations and exceptions,
that while it is a 25% Owner, it will not invest (i) in other companies in a
similar industry to CarrAmerica or (ii) in the types of properties owned by
CarrAmerica.
SC-U.S. Realty is subject to a standstill agreement which prohibits it
from, among other things, acquiring more than 45% of CarrAmerica's outstanding
shares of common stock (or more than 40% on a fully diluted basis), soliciting
business combination transactions with respect to CarrAmerica, selling, pledging
or disposing of shares of common stock in CarrAmerica except in accordance with
certain specified limitations, soliciting proxies for an election contest,
calling a special meeting of stockholders or making stockholder proposals,
acting in concert with third parties to acquire over
-24-
<PAGE>
5% of any class of voting capital stock of CarrAmerica, making certain transfers
of SC-U.S. Realty's capital stock, or seeking representation on CarrAmerica's
board of directors or a change in the size or composition of CarrAmerica's board
of directors other than with respect to SC-U.S. Realty's nomination rights
discussed above. The standstill expires in April 2001 (and will be automatically
extended for one-year periods unless SC-U.S. Realty elects to terminate the
standstill), but the standstill terminates earlier if, among other things, (i)
any person other than SC-U.S. Realty acquires 15% or more of the outstanding
shares of common stock of CarrAmerica on a fully diluted basis or obtains the
right to elect a number of directors equal to or greater than the number of
directors to which SC-U.S. Realty is entitled, (ii) CarrAmerica's board of
directors authorises the solicitation of proposals for certain business
combinations, or CarrAmerica receives a written submission, not rejected by its
board, proposing any such transaction, or CarrAmerica's board of directors
removes any anti-takeover provisions in connection with any transaction, (iii)
certain events of default occur under debt arrangements of CarrAmerica or its
subsidiaries, or (iv) CarrAmerica violates certain operating and financial
covenants relating to indebtedness limitations, retention of third-party
property managers, investment in non-office properties, termination of REIT
status, and limitations on issuance of preferred stock and units of Carr Realty,
L.P.
CarrAmerica's charter generally prohibits any one stockholder or group of
affiliated stockholders from holding more than 5% of CarrAmerica's outstanding
shares of common stock and/or more than 5% of any class or series of
CarrAmerica's preferred stock. However, SC-U.S. Realty is generally permitted by
the charter to acquire up to 45% of the outstanding shares of common stock
and/or up to 45% of any class or series of preferred stock.
CarrAmerica's organisational documents contain provisions generally
preventing foreign investors (other than SC-U.S. Realty and its affiliates) from
acquiring additional shares of CarrAmerica's capital stock if, as a result of
such acquisition, foreign investors, including SC-U.S. Realty, would hold,
directly or indirectly, 50% or more of the fair market value of such capital
stock (for these purposes, SC-U.S. Realty is assumed to own 45% of such capital
stock). Because SC-U.S. Realty owned 39.9% of CarrAmerica's outstanding common
stock as of 31 December 1998, these provisions would effectively limit
significant further investment in CarrAmerica by non-U.S. investors.
Storage USA
As long as SC-U.S. Realty owns 20% or more of Storage USA's outstanding
shares of common stock (a "20% Owner"), SC-U.S. Realty is generally entitled to
nominate for election to Storage USA's board of directors such number of
directors as corresponds to its percentage ownership of the outstanding shares
of common stock. Storage USA's board currently consists of nine directors, of
which three are SC-U.S. Realty's nominees. Storage USA's charter requires that a
majority of the directors on its board be independent.
As long as SC-U.S. Realty owns 15% or more of Storage USA's outstanding
shares of common stock, it is entitled, subject to certain exceptions, to a
participation right to purchase or subscribe for up to that number of additional
shares of capital stock sold or issued by Storage USA or its major subsidiaries
which corresponds to SC-U.S. Realty's percentage ownership of the outstanding
shares of common stock in Storage USA prior to such sale or issue, up to a
maximum of 35% of such securities so issued or sold. SC-U.S. Realty has the
right to purchase or subscribe for such additional shares at the same price and
on the same terms as the other purchasers or subscribers.
As long as SC-U.S. Realty is a 20% Owner, Storage USA is required to
consult with SC-U.S. Realty before approving, among other things, any
acquisition of assets having a value in excess of $25 million, any disposition
of assets having a value in excess of $25 million, any business combination
proposal, any financing in excess of $150 million, any operating budget, any
material change in executive management, any new material agreement or
arrangement with executive officers or any issuance of equity in excess of $150
million.
As part of SC-U.S. Realty's commitment to assist Storage USA to become the
pre-eminent national owner, operator and developer of self-storage facilities in
the United States, SC-U.S. Realty has committed, subject to certain limitations
and exceptions, that while it is a 20% Owner, it will not invest in other
companies in a similar industry to Storage USA.
-25-
<PAGE>
SC-U.S. Realty is subject to a standstill agreement which prohibits it
from, among other things, acquiring more than 42.5% (previously 37.5%) of
Storage USA's outstanding shares of common stock, soliciting business
combination transactions with respect to Storage USA, pledging or disposing of
stock in Storage USA except in limited circumstances, soliciting proxies for an
election contest, or calling a special meeting of stockholders or making
stockholder proposals, acting in concert with third parties to acquire over 5%
of any class of voting capital stock of Storage USA, making certain transfers of
SC-U.S. Realty's capital stock, or seeking representation on Storage USA's board
of directors other than with respect to SC-U.S. Realty's nomination rights
summarised above. The standstill expires in 2003 (and will be automatically
extended for one-year periods unless SC-U.S. Realty elects to terminate the
standstill), but the standstill terminates earlier if, among other things, (i)
any person other than SC-U.S. Realty acquires more than 9.8% of the outstanding
shares of common stock of Storage USA on a fully diluted basis or obtains the
right to elect a number of directors equal to or greater than the number of
directors to which SC-U.S. Realty is entitled, (ii) Storage USA's board
authorises the solicitation of proposals for certain business combination
transactions, or Storage USA receives a written submission, not rejected by the
board, proposing any such transaction, or Storage USA's board removes certain
anti-takeover provisions in connection with any such transaction, (iii) certain
events of default occur under debt arrangements of Storage USA or its
subsidiaries, or (iv) Storage USA violates certain operating and financial
covenants relating to indebtedness limitations, termination of REIT status,
restrictions on securities investments, assets held other than directly by
Storage USA, loans to subsidiaries, assets under third-party management,
investments in properties unrelated to self-storage facilities, and limitations
on ownership of partnership interests.
Storage USA's charter generally prohibits any one stockholder from holding
more than 9.8% of its outstanding shares of common stock. However, SC-U.S.
Realty is generally permitted to acquire up to 42.5% of the outstanding shares
of common stock. SC-U.S. Realty has been advised by the board of directors of
Storage USA that an amendment to the charter will be proposed at the next
opportunity to take account of the recent increase in the percentage of Storage
USA's shares of common stock which can be acquired by SC-U.S. Realty under the
standstill agreement referred to above.
Storage USA's organisational documents contain provisions generally
preventing foreign investors (other than SC-U.S. Realty and its affiliates) from
acquiring additional shares of Storage USA's capital stock if, as a result of
such acquisition, foreign investors, including SC-U.S. Realty, would hold,
directly or indirectly, 50% or more of the fair value of such capital stock.
Regency
As long as SC-U.S. Realty owns 20% or more of Regency's outstanding shares
of common stock (a "20% Regency Owner"), SC-U.S. Realty is generally entitled to
nominate for election to Regency's board of directors that number of directors
which is the greater of three directors, and that number of directors as
corresponds to its percentage ownership of the common stock then outstanding
(but in no case more than 49% of the directors). Regency's board currently
consists of 13 directors, of which two are SC-U.S. Realty's nominees.
As long as SC-U.S. Realty owns 15% or more of Regency's outstanding shares
of common stock (a "15% Owner"), it is entitled, subject to certain exceptions,
to a participation right to purchase or subscribe for up to that number of
additional shares of capital stock sold or issued by Regency or its subsidiaries
which corresponds to SC-U.S. Realty's percentage ownership of shares of capital
stock in Regency prior to such sale or issuance up to a maximum of 49% of such
securities so issued or sold. SC-U.S. Realty has the right to purchase or
subscribe for such additional shares at substantially the same price and on the
same terms as other purchasers or subscribers.
As long as SC-U.S. Realty is a 20% Regency Owner, Regency will be required
to consult with SC-U.S. Realty before approving, among other things, any
acquisitions of assets with a value in excess of $10 million, any dispositions
of assets with a value in excess of $20 million, any financing in excess of $20
million, any operating budgets, any material change in executive management, any
new material agreements or arrangements with executive officers or any issuances
of equity.
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<PAGE>
As part of SC-U.S. Realty's commitment to assist Regency to become the
leading owner, operator and developer of grocery-anchored neighborhood infill
shopping centres in the eastern United States, SC-U.S. Realty has committed,
subject to certain limitations and exceptions, while it is a 20% Regency Owner,
not to invest in other companies in a similar industry to Regency, or in the
types of properties owned by Regency within a certain geographic region.
Regency's charter generally prohibits any one shareholder from holding more
than 7% of its outstanding shares of common stock. Regency's charter permits
SC-U.S. Realty to acquire up to (i) 60% of the outstanding shares of Regency
common stock on a fully diluted basis so long as SC-U.S. Realty owns 45% or more
of the outstanding shares of Regency common stock on a fully diluted basis, and
(ii) 49% of the outstanding shares of Regency common stock on a fully diluted
basis at any time after SC-U.S. Realty owns less than 45% of the outstanding
shares of Regency common stock on a fully diluted basis for a continuous period
of 180 days.
SC-U.S. Realty has agreed with Regency that with regard to certain
amendments of Regency's charter or bylaws and with regard to certain
extraordinary transactions which require the affirmative vote of a majority of
stockholders, it will vote its shares in excess of 49% of the outstanding shares
of Regency common stock entitled to vote on the proposal in one of the two
following manners, at its option: (i) in accordance with the recommendation of
the Regency board of directors, or (ii) proportionately in accordance with the
votes of the other holders of Regency common stock. With regard to certain
extraordinary transactions submitted to a vote of stockholders which requires
the affirmative vote of the holders of two-thirds of the shares of Regency's
common stock, SC-U.S. Realty will vote its shares of Regency common stock in
excess of 32% of the outstanding shares of Regency common stock entitled to vote
on the proposal in one of the two following manners, at its option: (i) in
accordance with the recommendation of the Regency board of directors, or (ii)
proportionately in accordance with the votes of the other holders of Regency
common stock.
SC-U.S. Realty is subject to a standstill agreement which prohibits it
from, among other things, acquiring more than 60% of Regency's outstanding
shares of common stock on a fully diluted basis, soliciting business combination
transactions with respect to Regency, pledging or disposing of shares in Regency
except in limited circumstances, soliciting proxies for an election contest,
calling a special meeting of stockholders or making stockholder proposals,
acting in concert with third parties to acquire over 5% of any class of voting
capital stock of Regency, making certain transfers of SC-U.S. Realty's capital
stock, or seeking representation on Regency's board of directors or a change in
the size or composition of Regency's board of directors other than with respect
to SC-U.S. Realty's nomination rights discussed above. The standstill expires in
July 2001 (and will be automatically extended for one-year periods unless SC-
U.S. Realty elects to terminate the standstill), but the standstill terminates
earlier if, among other things, (i) any person other than SC-U.S. Realty
acquires more than 9.8% of the outstanding shares of common stock of Regency on
a fully diluted basis or obtains the right to elect a number of directors equal
to or greater than the number of directors to which SC-U.S. Realty is entitled,
(ii) Regency's board authorises the solicitation of proposals for certain
business combinations, or Regency receives a written submission, not rejected by
the board, proposing any such transaction, or Regency's board removes any anti-
takeover provisions in connection with any such transaction, (iii) certain
events of default occur under debt arrangements of Regency or its subsidiaries,
or (iv) Regency violates certain operating and financial covenants relating to
indebtedness limitations, termination of REIT status, restrictions on securities
investments, assets held other than directly by Regency, loans to subsidiaries,
assets under third-party management, investment in properties unrelated to
shopping centers, and limitations on ownership of partnership interests.
Regency's organisational documents contain provisions generally preventing
foreign investors (other than SC-U.S. Realty and its affiliates) from acquiring
additional shares of Regency's capital stock if, as a result of such
acquisition, foreign investors, including SC-U.S. Realty, would hold directly or
indirectly 50% or more of the fair market value of such capital stock, or if, as
a result of such acquisition, foreign investors, not including SC-U.S. Realty,
would hold, directly or indirectly, 5% or more of the fair market value of such
capital stock. Notwithstanding the fact that as of 31 December 1998 SC-U.S.
Realty owned 37.6% of Regency's shares of common stock on a fully funded and
fully diluted basis, these provisions would effectively limit further investment
in Regency by non-U.S. investors.
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<PAGE>
City Center Retail
As long as SC-U.S. Realty owns 10% or more of City Center Retail's
outstanding common shares, SC-U.S. Realty is entitled to nominate for election
to City Center Retail's board of trustees such number of trustees as corresponds
to its percentage ownership of the outstanding common shares.
As long as SC-U.S. Realty owns 50% or more of City Center Retail's
outstanding common shares, SC-U.S. Realty has consultation rights, and as long
as SC-U.S. Realty owns less than 50% but at least 20% of the outstanding common
shares, City Center Retail is required to obtain SC-U.S. Realty's approval of
any annual operating budget, certain acquisitions, dispositions or developments
of assets, certain sales of shares or convertible securities, major financings,
certain agreements for the management of properties (as long as SC-U.S. Realty
owns at least 15% of the outstanding common shares), appointments and dismissals
of executive officers, acquisitions by any person of more than 9.8% of the
common shares, the amendment or granting of exemptions to the share ownership
limitations in City Center Retail's charter, business combination proposals, and
the investment of more than 10% of City Center Retail's assets in other property
types.
City Center Retail's charter prohibits any one shareholder (other than SC-
U.S. Realty) from holding more than 9.8% of its outstanding shares.
CWS Communities
As long as SC-U.S. Realty owns 10% or more of CWS Communities' outstanding
common shares, SC-U.S. Realty is entitled to nominate for election three persons
(out of the current board size of five members) to CWS Communities' board of
trustees, and in the event the board is subsequently expanded, SC-U.S. Realty
will be entitled to nominate for election to CWS Communities' board of trustees
such number of trustees as corresponds to its percentage ownership of the
outstanding shares.
As long as SC-U.S. Realty owns 50% or more of CWS Communities' outstanding
common shares, SC-U.S. Realty has consultation rights, and as long as SC-U.S.
Realty owns less than 50% but at least 20% of the outstanding common shares, CWS
Communities is required to obtain SC-U.S. Realty's approval of its annual
operating budget; major acquisitions, dispositions or developments of assets;
certain sales of shares or convertible securities; major financings; certain
agreements for the management of properties (as long as SC-U.S. Realty owns at
least 15% of the outstanding common shares); appointments and dismissals of
executive officers; acquisitions by any person of more than 9.8% of the common
shares; the amendment or granting of exemptions to the share ownership
limitations in CWS Communities' charter; business combination proposals; or the
investment of more than 10% of CWS Communities' assets in other property types.
CWS Communities' charter prohibits any one shareholder (other than SC-U.S.
Realty) from holding more than 9.8% of its outstanding common shares. In
addition, the board of trustees of CWS Communities has granted a waiver to
certain shareholders allowing ownership of up to certain specified levels, which
levels decrease as CWS Communities issues common shares.
Urban Growth Property
As long as SC-U.S. Realty owns 10% or more of Urban Growth Property's
outstanding common shares, SC-U.S. Realty is entitled to nominate for election
to Urban Growth Property's board of trustees such number of trustees as
corresponds to its percentage ownership of the outstanding shares.
As long as SC-U.S. Realty owns 50% or more of Urban Growth Property's
outstanding common shares, SC-U.S. Realty has consultation rights, and as long
as SC-U.S. Realty owns less than 50% but at least 20% of the outstanding common
shares, Urban Growth Property is required to obtain SC-U.S. Realty's approval of
its annual operating budget; major acquisitions, dispositions or developments of
assets; certain sales of shares or convertible securities; major financings;
certain agreements for the management of properties (as long as SC-U.S. Realty
owns at
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<PAGE>
least 15% of the outstanding common shares); appointments and dismissals
of executive officers; acquisitions by any person of more than 9.8% of the
common shares; the amendment or granting of exemptions to the share ownership
limitations in Urban Growth Property's charter; business combination proposals;
or the investment of more than 10% of Urban Growth Property's assets in other
property types.
Urban Growth Property's charter prohibits any one shareholder (other than
SC-U.S. Realty) from holding more than 9.8% of its outstanding common shares.
THE COMPANY
Security Capital U.S. Realty was established on 7 July 1995 in Luxembourg.
It is constituted as a Societe d'Investissement a Capital Fixe ("SICAF"). The
main object of the Company as stated in Article 4 of its Articles is to invest
in real estate (i) directly or (ii) through one or several subsidiaries or (iii)
through direct or indirect shareholdings in, and convertible and other debt of,
real estate companies with the purpose of spreading investment risks and
affording Shareholders the results of the management of its assets. The Company
is registered with the Register de Commerce et des Societes du Tribunal
d'Arrondissement de et a Luxembourg under number B51654. The Company is closed-
ended as to redemptions. The Company is governed by Part II of the Luxembourg
Law of 30 March 1988 on Undertakings for Collective Investment.
The Company is subject to regulation in Luxembourg as a real estate
investment company. The operational supervision of the Company is exercised in
the first instance in Luxembourg. The Dutch Central Bank (De Nederlandsche Bank
NV) has granted the Company authorisation under the Investment Institution
Supervision Act (Wet toezicht beleggingsinstellingenplain). Regulation of the
Company by the Dutch Central Bank enables the Company to offer Shares in the
Netherlands. Being subject to regulation does not mean that any regulatory
authority has confirmed the contents of this document.
The shareholders of a SICAF have limited liability, having at risk only the
amount contributed by them to the SICAF in exchange for their shares. In
addition, a SICAF is required to publish an annual report (containing audited
financial statements) and a semi-annual report. All accounting information
provided in the annual report must be audited by an authorised independent
auditor.
The Company owns its assets directly or indirectly through one or more
wholly-owned subsidiaries of the Company. The Company and these subsidiaries
are sometimes collectively referred to as "SC-U.S. Realty".
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<PAGE>
OPERATING ADVISOR
SC-U.S. Realty is advised by the Operating Advisor, a Luxembourg
corporation, headquartered in Europe, which is a wholly-owned subsidiary of
Security Capital Group. The Operating Advisor provides advice on strategy,
investments, finance and certain other administrative matters affecting SC-U.S.
Realty. See also "Operating Advisor" in Item 13. In order to achieve the
optimal U.S.-based coverage of real estate opportunities, the Operating Advisor
sub-contracts for certain services through the Sub-Advisor, a wholly-owned
subsidiary of Security Capital Group. The
SECURITY CAPITAL U.S. REALTY
100%
Security Capital Holdings S.A.
35.0%
Security Capital
Group
Incorporated
100%
Strategic
Investment
Positions
Special Opportunity
Positions
100%
Security Capital
U.S. Realty Management S.A.
(Operating Advisor)
Security Capital
Investment Research
Incorporated
(Sub-Advisor)
Percentage interests are based on the number of shares outstanding as of 31
December 1998.
services provided by the Sub-Advisor include fundamental research, investment
identification, investment due diligence and investment monitoring. The Sub-
Advisor has access to all of the market information, demographic research and
operating strategies of Security Capital Group and its affiliates. SC-U.S.
Realty pays an advisory fee to the Operating Advisor, which is responsible for
paying all fees of the Sub-Advisor and any other Security Capital Group advisory
affiliates. The advisory fee (which is calculated on the basis of 1.25% per
annum of the average monthly value of funds invested by SC-U.S. Realty in any
calendar year, excluding funds placed by SC-U.S. Realty in liquid, short-term
investments pending further investment or in investments in Security Capital
Group securities) is described in greater detail in "Charges and Expenses--
Operating Advisor Fees" in Item 11. SC-U.S. Realty pays its own third-party
operating and administrative expenses and transaction costs, provided that the
Operating Advisor's fee will be reduced to the extent that such third-party
operating and administrative expenses exceed 0.25% per annum of the average
monthly value of funds invested by SC-U.S. Realty in any calendar year. For the
year ended 31 December 1998 such expenses
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<PAGE>
were approximately 0.09% per annum of the average monthly value of funds
invested by SC-U.S. Realty, excluding funds placed by SC-U.S. Realty in liquid,
short-term investments pending further investment or in investments in Security
Capital Group securities.
RELATIONSHIP WITH SECURITY CAPITAL GROUP
Security Capital Group is a publicly traded U.S. real estate research,
investment and operating management company with a fully converted shareholders'
equity, based on fair value, assuming conversion of all convertible securities
and common stock equivalents, of $3.38 billion as of 31 December 1998. At 31
December 1998, Security Capital Group had direct and indirect strategic
investments in 17 private and public real estate operating companies with a
combined total market capitalisation of $24.0 billion. Security Capital Group's
strategy is to create the optimal organisation to lead and profit from global
real estate securitisation.
Security Capital Group is the sole shareholder of the Operating Advisor and
the Sub-Advisor. SC-U.S. Realty therefore has access, through the Operating
Advisor and the Sub-Advisor, to the extensive proprietary research generated by
Security Capital Group and its direct and indirect subsidiaries. In accordance
with the Articles, all transactions with the Operating Advisor and Security
Capital Group, including purchases of Security Capital Group securities (within
the limit set by Management of up to 10% of the Company's assets) and renewals
of the advisory agreement with the Operating Advisor must be approved by a
majority of the Company's independent Directors as well as a majority of the
Directors. Management believes that the total cash investment of Security
Capital Group in the Company ($722.7 million, at cost, as of 31 December 1998)
substantially aligns the Operating Advisor's and Security Capital Group's
economic interests with those of the Company's independent Shareholders.
Conflicts of interest could nevertheless occur.
Security Capital Group has direct and indirect subsidiaries which provide
capital markets, advisory, acquisition and proprietary research services to
affiliates of Security Capital Group. At times, strategic investees of SC-U.S.
Realty may engage such Security Capital Group affiliates for specific projects.
Any such engagement would be subject to the approval of the unaffiliated
directors of such strategic investee (which generally will constitute a majority
of such strategic investee's board of directors) and be on arm's length terms.
The purpose of any such engagement would be to enable the strategic investee to
take advantage of the specialised capabilities of Security Capital Group,
without being required to invest the time and capital, or undertake the risks,
necessary to develop such specialised capabilities internally.
SC-U.S. Realty has acquired shares of common stock and convertible
debentures of Security Capital Group at an aggregate cost of $165 million, all
of such acquisitions having been made at arm's length prices and on the same
terms as for other investors who subscribed for such securities. The purpose of
these investments in Security Capital Group was to provide SC-U.S. Realty with
the benefit of exposure to specific niches within the multifamily and industrial
real estate sectors, as well as the diversification benefits of real estate
management and advisory fee income through Security Capital Group's real estate
services and advisory activities. Security Capital Group augments its operating
company returns with revenues received for advising and managing real estate
companies (including SC-U.S. Realty).
Security Capital Group from time to time purchases Shares, and may purchase
indebtedness for investment purposes. Future purchases of Shares by Security
Capital Group will either be arm's length purchases from unaffiliated third
parties, purchases in the open market or purchases in offerings by SC-U.S.
Realty and, in the last case, Security Capital Group will invest on no more
favourable terms, including as to price, than unaffiliated investors.
Security Capital Group has stated that long-term strategic investment
opportunities in equity REITs located in the United States, which are not
engaged in operating property types in which Security Capital Group currently
owns a strategic position, generally will be allocated to SC-U.S. Realty,
although there can be no assurance that Security Capital Group will maintain
such policy in the future.
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<PAGE>
VALUATION AND INVESTMENT RESTRICTIONS
Valuation
Pursuant to the Articles, SC-U.S. Realty is required to report its NAV
annually. SC-U.S. Realty intends to calculate its NAV and report it to major
news services for international publication on a quarterly basis. In order to
determine its NAV, SC-U.S. Realty subtracts total liabilities from total asset
value, then divides by the number of Shares outstanding as of each Valuation
Day.
Total asset value will be based primarily upon the NYSE market price of SC-
U.S. Realty's publicly traded strategic investment positions and publicly traded
special opportunity positions (these two categories of assets being intended to
constitute, over the long term, the substantial majority of SC-U.S. Realty's
assets).
Private company investments are valued on the basis of the probable net
realisation value estimated with prudence and in good faith by the Board of
Directors. For private company investments in which SC-U.S. Realty has an
ownership interest, SC-U.S. Realty will, whenever the Board of Directors
believes significant developments have occurred affecting the value of an
investment and on at least an annual basis, utilise valuation evidence and
methodologies appropriate to the nature of the investment to derive fair value.
These will include external valuations, cash flow valuation techniques and
valuation information derived through placements of private companies'
securities as well as review by management for other specific indicators of
changes in value relating to property performance and/or significant changes in
local or general market conditions. The Board of Directors, in its discretion,
may permit some other method of valuation to be used, if it determines that such
valuation better reflects the fair value of any assets of SC-U.S. Realty. Once
a privately held company has completed its initial public offering of shares of
common stock and such shares are traded on an established market, SC-U.S. Realty
will use the market price of such shares for NAV purposes. SC-U.S. Realty
expects the shares of all of its strategic investees ultimately to be traded in
established trading markets (primarily the NYSE).
The value of any cash on hand or on deposit, bills and demand notes and
similar items will, in accordance with the Articles, be deemed to be the full
amount thereof. Other than as described above, all other securities and other
assets, including debt and restricted securities, are valued on the basis of
dealer supplied quotations, or by a pricing service approved by the Board of
Directors or, to the extent such prices are not deemed to be representative of
market values, such securities and other assets will be valued at fair value as
determined in good faith pursuant to procedures established by the Board of
Directors.
The Board of Directors, in its discretion, may permit some other method of
valuation to be used, if it considers that such valuation better reflects the
fair value of any asset of SC-U.S. Realty.
The foregoing is a summary of the key elements of the calculation of SC-
U.S. Realty's NAV.
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<PAGE>
Investment Restrictions
The Directors have established the following investment restrictions for
SC-U.S. Realty:
. SC-U.S. Realty will invest in real estate generally through shareholdings
in, and convertible and other debt of, United States real estate companies
whose exclusive object is the acquisition, development, promotion, sale and
lease of properties (a "real estate company"), provided that these holdings
must be determined by the Directors to be at least as liquid as the
properties or property rights held directly by SC-U.S. Realty. SC-U.S.
Realty may also invest up to 10% of its assets in securities of Security
Capital Group, although the Directors expect that in the long term less
than 5% of SC-U.S. Realty's assets will be invested in securities of
Security Capital Group. SC-U.S. Realty will also be permitted to invest
directly in properties or property rights (subject to certain restrictions
agreed upon with certain strategic investees, as described in "--Agreements
between SC-U.S. Realty and its Strategic Investees" above).
. In order to achieve a minimum spread of investment risks, SC-U.S. Realty is
not permitted to (except during an initial period which expires on 30
October 1999) invest more than 20% of its net assets, directly or through a
strategic investee, in a single real estate property. A real estate
property whose economic viability is linked to another real estate property
is not considered a separate item of property for this purpose. In
addition, SC-U.S. Realty may not (except during an initial period which
expires on 30 October 1999) invest more than 20% of its net assets in a
single real estate company that is not a strategic investee. As of 31
December 1998, SC-U.S. Realty was in compliance with each of these tests
and expects to continue to be in compliance with these tests in the future.
. Under Luxembourg law and the Articles, the aggregate of all borrowings of
SC-U.S. Realty may not exceed on average 50% of the aggregate valuation of
the sum of SC-U.S. Realty's (i) debt and equity interest in its real estate
companies and (ii) direct properties and property rights. The long-term
targeted maximum debt percentage is 30% to 40%.
Other Matters
SC-U.S. Realty is not registered as an investment company under the U.S.
Investment Company Act of 1940, as amended (the "Investment Company Act"), in
reliance on an exemption provided by Rule 3a-1 promulgated under the Investment
Company Act. SC-U.S. Realty is not required to register as an investment
company because it is principally engaged in the real estate business through
companies that it primarily controls, as that term is used in the Investment
Company Act, through its equity ownership, investor agreements, board
representation or other control rights, which allow SC-U.S. Realty to exert
significant influence over the operations of each of its strategic investees.
SC-U.S. Realty currently intends to exert similar influence over any other
strategic investee through which it makes future investments.
ITEM 2. DESCRIPTION OF PROPERTY
SC-U.S. Realty does not hold any direct interests in real estate.
ITEM 3. LEGAL PROCEEDINGS
SC-U.S. Realty and its subsidiaries currently are not parties to any legal
proceedings.
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<PAGE>
ITEM 4. CONTROL OF REGISTRANT
See "Relationship with Security Capital Group" in Item 1, "Operating
Advisor" in Item 13 and as more fully described below.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of 31 March 1999, the ownership of
Shares for (i) each person known to the Company to be the owner of more than 10%
of the Shares and (ii) the officers and Directors as a group. No American
Depositary Receipts ("ADRs") were outstanding on that date.
<TABLE>
<CAPTION>
Percent of
Amount Outstanding
Name of Owner Owned Shares
- ------------- ------------- -----------
<S> <C> <C>
SC Realty Shares Limited............... 60,572,716(1) 35.0
All officers and Directors as a group.. 344,663 0.2
</TABLE>
- ----------------
(1) SC Realty Shares Limited, a Bermuda company, is an indirectly wholly-owned
subsidiary of Security Capital Group. Excludes 30,000 Shares owned of
record by the Operating Advisor.
ITEM 5. NATURE OF TRADING MARKET
Market Prices
The Shares have traded on the AEX since 27 June 1996. On ___________ 1999,
the closing price per Share on the AEX (as quoted by Bloomberg Financial
Markets) was $_____. The following table shows the high and low closing prices
of the Shares on the AEX during certain periods since trading began:
<TABLE>
<CAPTION>
High Low
Closing Price Closing Price
------------- -------------
1996
<S> <C> <C>
Third Quarter.......................... $11.50 $10.40
Fourth Quarter......................... 12.80 10.80
1997
First Quarter.......................... 14.50 12.70
Second Quarter......................... 16.00 13.40
Third Quarter.......................... 15.30 14.00
Fourth Quarter......................... 15.50 13.50
1998
First Quarter.......................... 16.00 13.10
Second Quarter......................... 14.00 12.20
Third Quarter.......................... 13.00 9.90
Fourth Quarter......................... 10.60 8.00
1999
First Quarter.......................... 9.80 7.70
Second Quarter (through _________ 1999)
</TABLE>
Source: Bloomberg Financial Markets.
The Shares are also listed on the LSE, but no substantial trading of Shares
has occurred on the LSE.
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<PAGE>
There has been no market for the American Depositary Shares ("ADSs" and
together with the Shares, "Securities").
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
DESCRIPTION OF AMERICAN DEPOSITARY SHARES
The following is a description of the material provisions of the Deposit
Agreement (the "Deposit Agreement") dated as of _________ 1999, among the
Company, The Bank of New York, as Depositary (the "Depositary"), and the holders
from time to time of registered ADRs. Such summary does not purport to be
complete and is qualified in its entirety by reference to the Deposit Agreement.
The Deposit Agreement is governed by the laws of the State of New York. The
corporate trust office of the Depositary is 101 Barclay Street, New York, New
York 10286 and the principal executive office is located at One Wall Street, New
York, New York 10286. Terms used in this section and not otherwise defined
shall have the respective meanings set forth in the Deposit Agreement.
ADRs evidencing ADSs are issuable by the Depositary pursuant to the Deposit
Agreement. Each ADR evidences a specified number of ADSs and each ADS represents
one Share (or evidence of a right to receive such Share) deposited with the
Depositary or the Depositary's custodian (the "Custodian"). An ADR may represent
any number of ADSs.
Deposited Securities
As used in this section, "Deposited Securities" as of any time means Shares
at such time deposited (or deemed to be deposited) under the Deposit Agreement
and any cash, securities or other property received by the Depositary or the
Custodian in respect thereof and at such time held thereunder.
Deposit and Withdrawal of Deposited Securities
The Depositary has agreed that, upon deposit with the Custodian of Shares
(or evidence of rights to receive the same), accompanied by an appropriate
instrument of transfer or endorsement, and subject to the terms of the Deposit
Agreement, it will, upon payment of the fees, charges and taxes provided in the
Deposit Agreement, execute and deliver at the Corporate Trust Office of the
Depositary, to or upon the order of the person or persons specified by the
depositor, an ADR or ADRs registered in the name of such person or persons and
evidencing the number of ADSs relating to such deposit. Each person depositing
Shares and each certificate therefor are deemed to represent and warrant that
(i) such Shares are validly issued and subscribed for, fully paid and non-
assessable and free of any preemptive rights, (ii) such person is duly
authorised to deposit Shares and (iii) such Shares are not, and the ADRs
issuable upon deposit will not be, restricted securities under the Securities
Act of 1933 (the "Securities Act").
The Depositary may issue ADRs against the rights to receive Shares from the
Company or any agent of the Company recording Share ownership. The Depositary
will not issue ADRs against any other rights to receive Shares unless (i) such
ADRs are fully collateralised (marked to market daily) with cash or such other
collateral as the Depositary deems appropriate, (ii) the applicant for such ADRs
represents in writing that it or its customer owns such Shares before the
issuance of such ADRs, (iii) such issuance shall be terminable by the Depositary
on not more than five Business Days' notice and (iv) subject to such further
indemnities and credit regulations as the Depositary deems appropriate.
Additionally, the Depositary will limit the ADRs so issued to 30% of the ADSs
outstanding (without giving effect to ADSs evidenced by outstanding pre-released
ADRs) (provided, however, the Depositary reserves the right to disregard such
limit from time to time as it deems appropriate).
Upon surrender of ADRs at the Corporate Trust Office of the Depositary, and
upon payment of the charges provided in the Depositary Agreement and subject to
the terms thereof and of the Articles and the Deposited Securities, ADR holders
are entitled to delivery at the office of the Custodian of documents of title
representing the Deposited Securities and, at the Corporate Trust Office of the
Depositary, any other property (including cash) represented by the
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ADSs evidenced by the ADRs so surrendered. The forwarding of documents of title
and other property (including cash) for delivery at the Corporate Trust Office
of the Depositary is at the request, risk and expense of the ADR holder.
Dividends, Other Distributions, Rights and Changes Affecting Deposited
Securities
Dividends on the ADSs will be paid in US dollars. Whenever the Depositary
receives from the Company or the Custodian any cash dividends or other cash
distributions denominated in a currency other than US dollars, it shall, to the
extent that in its judgment it can convert such currency on a reasonable basis
into US dollars and transfer the resulting amounts to the United States, convert
such dividends and distributions to US dollars and distribute such amount to the
holders of ADRs in proportion to the number of ADSs representing such Deposited
Securities held by each of them. The amount distributed will be reduced as
appropriate by any amounts required to be withheld by the Company, its agents or
the Depositary on account of taxes. See "Taxation" in Item 7.
If a distribution on any Deposited Securities consists of a dividend in, or
free distribution of, Shares, the Depositary may with the approval of the
Company, and shall if the Company requests, distribute to the holders of
outstanding ADRs, in proportion to their holdings, additional ADRs evidencing an
aggregate number of ADSs that represents the number of Shares received as such
dividend or free distribution, subject to the terms and conditions of the
Deposit Agreement, including the withholding of taxes, if any, and payment of
fees to the Depositary. In lieu of delivering ADRs for fractional ADSs in the
event of any such distribution, the Depositary may sell the number of Shares
represented by the aggregate of such fractions and distribute the net proceeds
to holders of ADRs in accordance with the Deposit Agreement. If additional ADRs
are not so distributed, each ADS shall thenceforth also represent the additional
Shares distributed in respect of the Shares represented by such ADS prior to
such distribution.
If the Company offers or causes to be offered to the holders of Deposited
Securities any rights to subscribe for additional Shares or any rights of any
other nature, the Depositary will, after consultation with the Company, have
discretion as to the procedure to be followed in making such rights available to
holders of ADRs, or in disposing of such rights on behalf of the holders of ADRs
and making the net proceeds available in US dollars to such holders; provided
that the Depositary will, if requested by the Company, either (a) make such
rights available to holders of ADRs by means of rights, warrants or otherwise,
if the Depositary determines it to be lawful or feasible or (b) after
consultation with the Company, if making such rights available is not lawful or
feasible, or if the rights represented by such rights, warrants or other
instruments are not exercised and appear to be about to lapse, sell such rights
or warrants or other instruments at public or private sale, at such place or
places and upon such terms as the Depositary may deem proper, and allocate the
net proceeds of such sale for the account of the holders of ADRs otherwise
entitled thereto upon an averaged or other practicable basis without regard to
any distinctions among such holders because of exchange restrictions, the date
of delivery of any ADR, or otherwise. Such a disposal of rights may reduce the
equity interest in the Company of such holders.
If a registration statement under the Securities Act is required with
respect to the securities to which any rights relate in order for the Company to
offer such rights to holders of ADRs and selling the securities represented by
such rights, the Depositary will not offer such rights to holders of ADRs unless
and until such a registration statement is in effect or unless the offer and
sale of such securities to holders of ADRs are exempt from registration under
the Securities Act and the Depositary has received an opinion from recognised
counsel in the United States for the Company upon which the Depositary can rely
that the offering and sale of such securities to the holders of such ADRs are
exempt from registration under the Securities Act. The Company however, does not
have any obligation to prepare or file any registration statement mentioned
above.
If the Depositary determines that any distribution in property (including
Shares or rights to subscribe therefore) is subject to any tax or governmental
charge that the Depositary is obligated to withhold or pay, the Depositary may
dispose of all or a portion of such property in such amounts and in such manner,
by public or private sale, as the Depositary deems necessary and practicable,
and the Depositary will distribute the net proceeds of any such sale or the
balance of any such property after deduction of such taxes or charges to the ADR
holders entitled thereto.
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Upon any change in par value, split-up, consolidation or any other
reclassification of Deposited Securities, or upon any recapitalisation,
reorganisation, merger or consolidation or sale of assets affecting the Company
or to which it is a party, any securities that shall be received by the
Depositary or the Custodian in exchange for or in conversion of or in respect of
Deposited Securities shall be treated as new Deposited Securities under the
Deposit Agreement, and the ADSs shall thenceforth represent the right to receive
new Deposited Securities so received in exchange or conversion, unless
additional ADRs are delivered as in the case of a share dividend, or unless the
Depositary calls for the surrender of outstanding ADRs to be exchanged for new
ADRs.
Record Dates
Whenever any cash dividend or other cash distribution shall become payable,
or any distribution other than cash shall be made, or whenever rights shall be
issued, with respect to the Deposited Securities, or whenever the Depositary
shall receive notice of any meeting of holders of Shares or other Deposited
Securities, or whenever for any reason there is a change in the number of Shares
that are represented by each ADS, the Depositary shall, after consultation with
the Company to the extent practicable if such record date is different from the
record date applicable to the holders of Shares, fix a record date, for (a)
determining the holders of ADRs who shall be entitled (i) to receive such
dividend, distribution or rights, or the net proceeds of sale thereof, or (ii)
to give instructions for the exercise of voting rights at any such meeting or
(b) fixing the date on or after which each ADS will evidence the changed number
of Shares, subject to the provisions of the Deposit Agreement.
Voting of the Underlying Deposited Securities
Upon receipt of notice of any meeting at which holders of Shares or other
Deposited Securities are entitled to vote, the Depositary shall, as soon as
practicable thereafter, mail to the holders of ADRs a notice which shall be
prepared by the Depositary and approved by the Company, which shall contain (a)
such information as is contained in such notice of meeting, (b) a statement that
the holders of ADRs at the close of business on a specified record date will be
entitled, subject to any applicable provisions of law and of the Articles, to
instruct the Depositary as to the exercise of the voting rights, if any,
pertaining to the amount of Deposited Securities represented by their respective
ADSs and (c) a brief statement as to the manner in which such instructions may
be given, including an express indication that instructions may be given to the
Depositary to give a discretionary proxy to a designated member or members of
the Board of Directors of the Company. Upon the written request of a holder of
an ADR on such record date, received on or before the date established by the
Depositary for such purpose, the Depositary shall endeavor insofar as
practicable to vote or cause to be voted the amount of Deposited Securities
represented by such ADR in accordance with the instructions set forth in such
request. The Depositary shall not, and the Depositary shall ensure that the
Custodian and any of their nominees shall not vote the amount of Shares or other
Deposited Securities, represented by an ADR unless it receives instructions from
the holder of such ADR, nor shall the Depositary or Custodian demand a poll.
Reports
The Depositary makes available for inspection by ADR holders at the
Corporate Trust Office of the Depositary any reports and communications received
from the Company which are both (a) received by the Depositary or the Custodian
or the nominee of either as the holder of the Deposited Securities and (b) made
generally available to the holders of such Deposited Securities by the Company.
The Depositary also sends to ADR holders copies of such reports when furnished
by the Company pursuant to the Deposit Agreement.
Amendment and Termination of the Deposit Agreement
The form of the ADR and the Deposit Agreement may at any time be amended by
agreement between the Company and the Depositary. Any amendment that imposes or
increases any fees or charges (other than fees of the Depositary for the
execution and delivery or cancellation of ADRs and the taxes and other
governmental charges), or that otherwise prejudices any substantial existing
right of ADR holders, will not take effect as to outstanding ADRs until the
expiration of 90 days after notice of such amendment has been given to the
record holders of outstanding ADRs. Every holder of an ADR at the time such
amendment so becomes effective shall be deemed, by continuing to hold such
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ADR, to consent and agree to such amendment and to be bound by the Deposit
Agreement as amended thereby. In no event may any amendment impair the right of
any ADR holder to surrender the ADRs held by it and receive therefor the
Deposited Securities represented thereby, except in order to comply with
mandatory provisions of applicable law.
Whenever so directed by the Company, the Depositary will terminate the
Deposit Agreement by mailing notice of such termination to the record holders of
all ADRs then outstanding at least 30 days prior to the date fixed in such
notice for such termination. The Depositary may likewise terminate the Deposit
Agreement if at any time 60 days after the Depositary shall have delivered to
the Company a notice of its election to resign and a successor depositary shall
not have been appointed and accepted its appointment as provided in the Deposit
Agreement. On and after the date of termination, the holder of an ADR will, upon
(a) surrender of such ADR at the Depositary's Office, (b) payment of the fee of
the Depositary for the surrender of ADRs and (c) payment of any applicable taxes
or governmental charges, be entitled to delivery of the amount of Deposited
Securities represented by the ADSs evidenced by such ADR.
If any ADRs remain outstanding after the date of termination, the
Depositary thereafter will discontinue the registration of transfers of ADRs,
will suspend the distribution of dividends to the holders thereof and will not
give any further notices or perform any further acts under the Deposit
Agreement, except (i) the collection of the dividends and other distributions
pertaining to the Deposited Securities, (ii) the sale of rights as provided in
the Deposit Agreement and (iii) the delivery of Deposited Securities, together
with any dividends or other distributions received with respect thereto and the
net proceeds of the sale of any rights or other property, in exchange for
surrendered ADRs. At any time after the expiration of one year from the date of
termination, the Depositary may sell the Deposited Securities and hold the net
proceeds, together with any other cash then held, unsegregated and without
liability for interest, for the pro rata benefit of the holders of ADRs that
have not theretofore been surrendered, such holders thereupon becoming general
creditors of the Depositary with respect to such net proceeds. After making such
sale, the Depositary shall be discharged from all obligations under the Deposit
Agreement, except to account for such net proceeds and other cash.
Charges of Depositary
The Depositary will charge any party depositing or withdrawing Shares or
any party surrendering ADRs or to whom ADRs are issued (including, without
limitation, issuance pursuant to a stock dividend or stock split declared by the
Company or an exchange of stock regarding the ADRs or Deposited Securities or a
distribution of ADRs pursuant to the Deposit Agreement), whichever applicable:
(1) taxes and other governmental charges, (2) such registration fees as may from
time to time be in effect for the registration of transfers of Shares generally
on the share register of the Company and applicable to transfers of Shares to
the name of the Depositary or its nominee or the Custodian or its nominee on the
making of deposits or withdrawals under the Deposit Agreement, (3) such cable,
telex and facsimile transmission expenses as are expressly provided in the
Deposit Agreement, (4) such expenses as are incurred by the Depositary in the
conversion of Foreign Currency pursuant to the Deposit Agreement, (5) a fee of
$5.00 or less per 100 ADSs (or portion thereof) for the execution, delivery and
surrender of ADRs pursuant to the Deposit Agreement, although this fee has been
waived with respect to transactions occurring with the first 90 days following
the effectiveness of this Form 20-F, (6) a fee of $.02 or less per ADS (or
portion thereof) for any cash distribution made pursuant to the Deposit
Agreement, except for distributions of cash dividends and (7) a fee for the
distribution of securities pursuant to the Deposit Agreement, such fee being in
an amount equal to the fee charged as a result of the deposit of such securities
(for purposes of this clause (7) treating all such securities as if they were
Shares), but which securities are instead distributed by the Depositary to the
holders thereof.
Liability of Holder for Taxes
Any tax, duty or other governmental charge (including, without limitation,
any stamp tax) payable by the Custodian, the Depositary or any nominee of either
of them with respect to any ADR or any Deposited Securities underlying any ADR
shall be payable by the holder of such ADR to the Depositary. The Depositary may
refuse to effect registration of transfer of such ADR or any transfer and
withdrawal of Deposited Securities underlying such ADR until such payment is
made, and may withhold any dividends or other cash distributions constituting
Deposited Securities underlying such ADR or may sell for the account of the
holder thereof any part or all of the other Deposited Securities
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underlying such ADR and may apply such cash or the net proceeds of any such sale
in payment of any such tax, duty or other governmental charge, the holder of
such ADR remaining liable for any deficiency.
General
Neither the Depositary nor the Company will be liable to the holders of
ADRs if prevented or delayed by law or by reason of any provision, present or
future, of the Articles or the Deposited Securities or any circumstances beyond
its control from performing its obligations under the Deposit Agreement. The
obligations of the Company and the Depositary under the Deposit Agreement are
expressly limited to using their best judgment and good faith in the performance
of their respective obligations specifically set forth in this section.
The ADRs are transferable on the books of the Depositary, provided that the
Depositary may close the transfer books at any time or from time to time, when
deemed expedient by it in connection with the performances of its duties or at
the request of the Company. As a condition precedent to the execution and
delivery, registration, registration of transfer, split-up, combination or
surrender of any ADR or transfer or withdrawal of Deposited Securities, the
Depositary or the Custodian may require payment of a sum sufficient to reimburse
it for any tax or any governmental charge (including, without limitation, any
amounts in respect of applicable stamp taxes payable by a holder in accordance
with the Deposit Agreement) and any stock transfer or registration fee with
respect thereto and payment of any applicable fees payable by the holders of
ADRs. The Depositary may refuse to deliver ADRs, register the transfer of any
ADR or make any distribution of, or related to, Deposited Securities until it or
the Custodian has received such proof of citizenship, residence, exchange
control approval, legal or beneficial ownership or other information as it may
deem necessary or appropriate or as the Company may require by written request
to the Depositary or the Custodian. Notwithstanding any other provision of the
Deposit Agreement, the surrender of outstanding ADRs and withdrawal of Deposited
Securities may not be suspended except as required in connection with (i)
temporary delays caused by closing the transfer books of the Depositary or the
Company or the deposit of Deposited Securities in connection with voting at a
meeting of shareholders or payment of dividends, (ii) the payment of fees, taxes
and similar charges, and (iii) compliance with any US or foreign laws or
governmental regulations relating to the ADRs or to the withdrawal of Deposited
Securities.
The delivery, registration of transfer and surrender of ADRs generally may
be suspended during any period when the transfer books of the Depositary or the
Company are closed, or if any such action is deemed necessary or advisable by
the Depositary or the Company at any time or from time to time because of any
requirement of the Articles, relevant law, any government or governmental body
or commission or any securities exchange on which the ADRs or Shares are listed.
The Depositary will keep books, at its transfer office in the City of New
York, for the registration and transfer of ADRs, which at all reasonable times
will be open for inspection by the holders of ADRs and the Company, provided
that such inspection shall not be for the purpose of communicating with holders
of ADRs in the interest of a business or object other than the business of the
Company or a matter related to the Deposit Agreement or the ADRs or Shares.
The Depositary, upon the request or with the approval of the Company, may
appoint one or more co-transfer agents for the purpose of effecting transfers,
combinations and split-ups of ADRs at designated transfer offices on behalf of
the Depositary. In carrying out its functions, a co-transfer agent may require
evidence of authority and compliance with applicable laws and other requirements
by holders of ADRs or persons entitled thereto.
Rule 144A American Depositary Receipt Facility
In connection with a prior offering of Shares, the Company established a
Rule 144A ADR facility. It is expected that holders of the Rule 144A ADRs will
be able to exchange those for the ADRs which the Company is registering hereby.
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The terms of the Rule 144A ADRs are governed by the Rule 144A Deposit
Agreement between the Company and The Bank of New York, as depositary (the "Rule
144A Deposit Agreement"). Pursuant to the Rule 144A ADR facility, the Bank of
New York technically has the right to vote all the Shares which are subject to
the Rule 144A ADR facility and to receive all dividend payments on behalf of the
Rule 144A ADR subscribers, as it is the Shareholder of record in the register of
the Company. However, pursuant to the Rule 144A Deposit Agreement, The Bank of
New York is required to distribute all dividends less any amounts permitted or
required to be withheld pursuant to the terms of the Rule 144A Deposit Agreement
to the Rule 144A ADR subscribers and to request instructions from the Rule 144A
ADR subscribers as to the voting of the Shares which are subject to the Rule
144A ADR facility. The Rule 144A ADR subscribers will also have the right to
transfer their ownership directly to their own name at any time by converting
their Rule 144A ADRs into shares. In addition, Rule 144A ADR subscribers,
through the Rule 144A ADR facility, receive all materials sent to Shareholders
by the Company.
For more information concerning the Rule 144A ADR facility, a copy of the
Rule 144A Deposit Agreement will be furnished upon request.
DESCRIPTION OF SHARES
General
Shares will only be issued in registered form. The power to issue new
Shares is vested in the general meeting of Shareholders and in the Directors of
the Company. The Company has an authorised capital of $1,000,000,000 consisting
of 500,000,000 Shares, par value of $2.00 per share. As of 31 December 1998, the
Company had an issued capital of 173,123,743 Shares, representing issued capital
of $346,247,485. Pursuant to the Articles, the Board of Directors is authorised
to issue additional Shares up to the total authorised capital. The Shares will
participate equally in the payment of dividends when, as and if declared by the
general meeting of Shareholders, upon proposal from the Directors, in their sole
discretion.
All Shares must be fully paid up. The Articles provide that Shareholders
will have preferential or preemptive rights if Shares are offered at below NAV,
provided, however, that the Company does not have to reserve such preferential
and ratable right in circumstances where the price per Share at which the Shares
are offered for subscription is not less than the last available sales price (on
the stock exchange having the highest average daily volume in Shares) reported
on the last trading day preceding the time upon which the Directors approved the
pricing of the Shares. See "--Future Share Issuances--Rights Offerings and
Convertible Debt" below. Each Share is entitled to one vote at any general
meeting of Shareholders, in compliance with Luxembourg law and the Articles,
subject to the special voting provisions described below. The Shares will vote
together as a single class at any general meeting and will have equal rights in
all respects. The Board of Directors may, however, in particular circumstances
subdivide the Shares into two series of Shares. The circumstances under which
the Board of Directors can resolve to do so and the consequences of such
subdivision are set out in the Articles.
Shares are freely transferable subject to the Share ownership limitations
and other provisions described in Article 9 of the Articles.
The inscription of a Shareholder's name in the register of Shares evidences
its right of ownership of such registered Shares, and, unless a Share
certificate is delivered, a holder of registered Shares shall receive a written
confirmation of its shareholding.
Forms for the transfer of Shares are available at the offices of the
Transfer Agent.
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Future Share Issuances
General
The Articles provide that Shares offered from time to time will be offered
at a price per Share which is no less than NAV except (A) by reserving for
existing Shareholders the right to subscribe for new Shares on a preferential
and ratable basis in compliance with the Articles, provided, however, that the
Company does not have to reserve such preferential and ratable right in
circumstances where the price per Share at which the Shares are offered for
subscription is not less than the last available sales price (on the stock
exchange having the highest average daily volume in Shares) reported on the last
trading day preceding the time upon which the Directors approved the pricing of
the Shares or (B) in connection with the conversion of outstanding debt
securities.
Shares may be offered by way of private placement or public offering if the
Directors of the Company and the directors of HOLDINGS determine to raise
additional capital in order to enable SC-U.S. Realty to take advantage of
further investment opportunities.
The Company has the authority under its Articles to increase the issue
price per Share by the estimated costs and expenses to be incurred by the
Company for investing the proceeds of the issue and by applicable sales
commissions. In addition, the Company has the authority under its Articles to
pay such costs and expenses and applicable sales commissions from the assets of
the Company rather than increasing the price at which Shares are offered. The
Company intends to use such authority when market conditions indicate that to do
so would be in the best interests of the Company and its Shareholders.
Rights Offerings and Convertible Debt
While the Company intends to continue capitalising itself by issuing Shares
to investors at or above NAV or at or above market price where this is the most
appropriate method, the Company also has the additional flexibility of raising
capital through Rights Offerings (i.e., by reserving for existing Shareholders a
preferential and ratable right to subscribe for new Shares). With respect to
existing Shareholders who elect not to exercise any rights to subscribe for new
Shares in a Rights Offering, the Company would, in accordance with Luxembourg
law, be required to ensure that such nonparticipating Shareholders would receive
value for such rights which they do not exercise, including arranging for such
rights to be publicly sold on the LSE. The Company retains the right to do
Rights Offerings for financing flexibility, but has not done a Rights Offering
and has no current plans to do a Rights Offering.
If the Company issued Shares at a price below NAV, existing Shareholders of
the Company would experience some reduction in the NAV of outstanding Shares.
This is because in determining NAV after the issuance of new Shares, the assets
of the Company would be divided by a larger number of Shares. Although the
assets of the Company would have been increased by the proceeds of the offering,
the proceeds would not be sufficient to maintain the pre-offering NAV because
the Shares issued in the offering would have been issued at a price below the
pre-offering NAV.
The Articles also permit the Board of Directors to issue debt securities
convertible into Shares at a conversion price which is above the last reported
sales price (on the stock exchange having the highest average daily volume in
Shares), reported on the last trading day preceding the time upon which the
Directors approved the pricing of the convertible debt securities and provided
further that the price per Share which such debt securities are convertible into
shall be capable of adjustment or deemed fit by the Directors in order to
prevent the holders of the convertible debt securities from being diluted.
Typically, an offering of convertible debt securities would provide conversion
rights that could be exercised by the holders at any time after issuance of the
securities, but prior to maturity (normally five to ten years after issuance).
If, after the Company issued convertible debt securities, NAV increased to
a level above the conversion price, then the potential conversion of such debt
securities would impact NAV growth, diluting it from what it would be without
such conversion. This is because although the Company's net assets would
increase upon conversion of such convertible debt securities (as a result of
canceling the indebtedness represented by such convertible debt securities),
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the increase in the Company's net assets would be less than the aggregate NAV of
the Shares issued upon conversion of the convertible debt securities. However,
the Company and its Shareholders would have benefitted from the issue of the
convertible debt securities as such would give the Company access to an
additional source of funds at a lower interest rate than, in the Directors'
judgement, would have been available in a conventional borrowing transaction.
The Company would have used these funds to make additional investments intended
to increase NAV for the benefit of all Shareholders.
Trading through ASAS
The Shares are traded on the AEX through ASAS. This system was developed by
the AEX to enable foreign companies with registered shares to list their shares
on the AEX. The Shares do not therefore trade on the AEX in physical form.
Under ASAS, the legal owner of the Shares is Nominee Amsterdam Stock
Exchange N.V. ("Nominee"), a wholly-owned subsidiary of the AEX-Clearing and
Depository N.V. which acts exclusively as depositary company. Nominee keeps
accounts on behalf of its participants (Dutch and foreign financial institutions
which meet certain criteria) in which it has booked such number of Shares to
which each participant is entitled. Nominee may, however, only book credits on
the accounts of participants of ASAS when the Shares are deposited with a
custodian in its name and/or on its behalf.
Participants in ASAS have a claim against Nominee for delivery of the
Shares. An investor has an account with an ASAS participant (the "Account
Holder"), to which the Shares to which it is entitled are credited. Investors
have a claim against the Account Holder for delivery of the Shares to which they
are entitled. Transfers of Shares are effected through book entries.
All payments made in respect of the Shares by the Company are effected
through ASAS. This means that payments on behalf of the investor by the Company
will be made via the Account Holder.
If the investor holds its Shares through ASAS, notice and other information
from the Company will not be sent directly to the relevant investor by the
Company. The Company will publish notices to Shareholders in the Daily Official
List (Officiele Prijscourant) of the Amsterdam Exchanges N.V. and at least one
Dutch newspaper, which notice will also indicate, when appropriate, where
Shareholders can obtain copies of the documents to which the notice refers.
Clearing and Settlement through Euroclear and Cedel
Transfers of Shares held within Euroclear and Cedel will be in accordance
with the usual rules and operating procedures of the relevant system. Cross-
market transfers between investors who hold Shares through Euroclear and/or
Cedel will be effected through the respective depositaries of Euroclear and
Cedel.
Share Ownership Limitations
Article 9 of the Articles contains certain provisions restricting the
transfer and the voting power of the Shares, including the Shares to be acquired
upon conversion of convertible debt securities, to help prevent the Company from
being treated as a personal holding company ("PHC"), a foreign personal holding
company ("FPHC") or a controlled foreign corporation ("CFC") for U.S. federal
income tax purposes. If the Company were treated as a PHC, FPHC or CFC, such
treatment could result in adverse U.S. federal income tax consequences to some
U.S. Shareholders.
Article 9 of the Articles provides that any transfer is not enforceable
against the Company if such transfer would result in any person (other than
Security Capital Group) "beneficially owning" more than 9.5% of the outstanding
Shares. If the transfer cannot be unenforceable against the Company because
transfer occurred through the facilities of a stock exchange or for some other
reason, the Shares become "Excess Shares" and are transferred to the "Excess
Shares Fiduciary" as described in Article 9 of the Articles. "Beneficial
ownership" is defined in the Articles based on the rules contained in the U.S.
Internal Revenue Code.
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Redemption of Shares
The Company is a closed-end undertaking for collective investment;
consequently, the Shares shall not be redeemable at the request of a
Shareholder. The Company may however determine to purchase shares on a stock
exchange at market price; provided, however, that such market price is not above
NAV.
Pro Rata Redemptions
Pursuant to Article 8 of the Articles, the Company may redeem the Shares
within the limits of Luxembourg law and the Articles whenever the Directors
consider a redemption to be in the best interests of the Company. Shares may, in
particular and at the option of the Directors, be redeemed, on a pro rata basis
as between existing Shareholders, in order to return to Shareholders the
proceeds of the disposal by SC-U.S. Realty of investment assets.
The Company does not currently intend to redeem any Shares.
Special ERISA Redemptions
The U.S. Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Code prohibit certain transactions between (a) employee
benefit plans (as defined in the section 3(3) of ERISA), (b) plans described in
section 4975 (e)(1) of the Code, (c) any entities whose underlying assets
include Plan Assets in accordance with ERISA by reason of a plan's investment in
such entities (each a "Plan") and (d) persons who have certain specified
relations to such Plans ("Parties in Interest" under ERISA and "Disqualified
Persons" under the Code). Such transactions are known as "Prohibited
Transactions" under ERISA and the Code. ERISA also imposes certain duties on
persons who are fiduciaries of Plans subject to ERISA.
Based on an opinion of counsel and on the Company's operating policies, the
Company qualifies as a "venture capital operating company" ("VCOC") under
regulations issued by the U.S. Department of Labor under ERISA, and therefore
the underlying assets of the Company will not be Plan Assets in accordance with
ERISA and will be exempt from the application of ERISA. If it is determined that
the Company failed or will fail to qualify as a VCOC and no other exemption from
ERISA is applicable, the Company will redeem Shares held by pension plans and
other U.S. and non-U.S. benefit funds pro rata to the extent necessary to cause
such investors, as a group, thereafter to own less than 25% of the outstanding
Shares. This action will make ERISA inapplicable to the assets of the Company.
Redemption Price
The redemption price will be the NAV as determined by applying the
provisions of Article 10 of the Articles calculated on the relevant Valuation
Day, less an amount equal to any duties and charges which would be incurred upon
the disposal of SC-U.S. Realty's investments in order to fund such a redemption;
provided, however, that if Shares are redeemed otherwise than on a pro rata
basis from all existing shareholders, the Board of Directors may elect, if it
considers this to be necessary for the protection of the interests of the
remaining shareholders to fix a redemption price below NAV but no less than the
last available sales price (on the stock exchange having the highest average
daily trading volume in the Shares) reported on such trading day as specified by
the Directors in their discretion. No fee shall be payable in respect of any
redemption.
The redemption price may be higher or lower than the price paid by the
redeeming Shareholder at the time of subscription or acquisition.
Redemptions may take place at market price if the Company elects to
purchase Shares on a stock exchange; provided, however, that such market price
is not above NAV.
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Effect of Redemption
In the unlikely event of a redemption, the redemption will be effected in
accordance with the Articles and the provisions of Luxembourg law, including
such publication of notice in newspapers as may be required or determined by the
Directors.
The monies payable on redemption shall be paid against production of
relevant transfer documents and Share certificates, if any, within a period as
determined by the Directors but which shall not exceed 14 Business Days from the
relevant Valuation Day.
Payment shall be made by cheque mailed to the Shareholder or by bank
transfer to an account indicated by the Shareholder. The redemption price shall
be payable in U.S. Dollars. If, however, a Shareholder requests to be repaid in
any other freely convertible currency, the necessary foreign source exchange
transaction shall be arranged by the Custodian for the account and at the
expense of such Shareholder without any responsibility of the Company.
The provisions of the above two paragraphs do not apply to Shares redeemed
by virtue of purchases on a stock exchange.
Shares redeemed by the Company shall remain in existence but shall not have
any voting rights or any right to participate in any dividends declared by the
Company or in any distribution paid upon the liquidation or winding up of the
Company and shall be disregarded for purposes of determining the NAV, in each
case, for so long as such Shares are held by the Company. If such Shares are
reissued by the Company, the consideration received in respect of such Shares
shall be no less than the NAV as determined by the Board of Directors as of the
Valuation Day immediately preceding the date of such reissue or the price which
is no less than the last available sales price (on the stock exchange having the
highest average trading volume in the Shares) reported on the last trading day
preceding the time upon which the Directors priced the reissue of Shares, unless
such Shares are reissued by way of Rights Offerings.
Distribution Policy
Luxembourg law requires that 5% of the annual net profits of the Company be
allocated to a special reserve. This allocation shall cease to be required as
soon and so long as such surplus reserve equals or exceeds 10% of the issued
capital of the Company as such capital is increased or reduced from time to
time.
The general meeting of Shareholders shall, within the limits provided by
law, determine how the balance of net profits of the Company shall be disposed
of, and may from time to time declare or authorise the Directors to declare
dividends and distributions in respect of such amounts.
SC-U.S. Realty expects to have opportunities to make further investments in
its strategic investment positions. In addition, SC-U.S. Realty will continue to
research other opportunities, consistent with its operating strategy. While
opportunities are available which are consistent with its strategy, the Company
currently intends to re-invest earnings and not pay dividends for the
foreseeable future. This dividend policy will be carefully and prudently
monitored by the Directors in light of the foregoing and the reasonable needs of
the business, including the fact that affiliated real estate companies may
require significant capital commitments on short notice.
Meetings of and Reports to Shareholders
Notice of any general meeting of Shareholders (including those considering
amendments to the Articles or the dissolution and liquidation of the Company)
are mailed to each registered Shareholder at least eight days prior to the
meeting and are published in the "Memorial, Recueil Special des Societes et
Associations" (the "Memorial") and at least one Luxembourg newspaper (in
accordance with Luxembourg law), in the Daily Official List (Officiele
Prijscourant) 20.
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If the Articles are amended, such amendments shall be filed with the
Chancery of the District Court of Luxembourg and published in the Memorial.
The Company publishes annually a consolidated report on its activities and
on the management of its assets; such report includes, among other things, the
audited consolidated annual accounts relating to SC-U.S. Realty, a detailed
description of the assets of SC-U.S. Realty and a report from the Company's
auditors. The most recent annual report was published as of 31 December 1998.
The Company further publishes semi-annual unaudited consolidated reports,
including, among other things, a description of SC-U.S. Realty's assets and the
number of Shares issued, disposed of and redeemed in the Company since the last
publication. The most recent semi-annual report was published as of 30 June
1998.
In its annual and semi-annual reports, SC-U.S. Realty clearly explains the
accounting principles applied for the consolidation of its own accounts and its
consolidated subsidiaries.
The inventory of properties included in the annual and semi-annual reports
indicate, for each category of property held by SC-U.S. Realty or its affiliated
real estate companies, the aggregate of the purchase price or cost, the insured
value (if applicable) and the valuation.
In the financial statements, properties are shown as valued.
The annual and semi-annual reports are sent to registered Shareholders
within four and two months, respectively, of the dates thereof and copies may be
obtained free of charge by any person at the registered office of the Company.
Shareholders who hold their Shares through ASAS can obtain copies via their
Account Holder (see "--Trading through ASAS" above).
The Company will further publish quarterly reports summarising the
consolidated financial information of SC-U.S. Realty.
The accounting year of the Company commences on the first day of January of
each year and terminates on the last day of December of the same year.
The annual general meeting of Shareholders takes place in Luxembourg City
at a place specified in the notice of meeting on the last Wednesday in the month
of June at 11:00 a.m.
The consolidated accounts of the Company are maintained in U.S. Dollars,
being the reference currency of the share capital.
In the event that the Company requests the Dutch Central Bank pursuant to
Section 15(a) of the Investment Institution Supervision Act to revoke its
authorisation, the Company will announce such request through an advertisement
in a Dutch national newspaper.
ITEM 7. TAXATION
The following summary discusses the material United States federal tax
considerations and the material Luxembourg and United Kingdom tax considerations
relating to an investment in Securities. This summary does not address all
possible United States federal income tax consequences or Luxembourg or United
Kingdom income tax consequences relating to an investment in Securities. In
particular, the discussion does not address the tax consequences to any
investors under state, local and other national (i.e., non-United States) tax
laws. The summary of the material United States federal income tax consequences
is based upon the current provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), its legislative history, Treasury regulations,
administrative pronouncements and judicial decisions, all of which are subject
to change, possibly with retroactive effect. This summary does not purport to
be a
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complete discussion of all United States federal income tax consequences or
Luxembourg or United Kingdom income tax consequences relating to making an
investment in Securities. In addition, this summary may not apply, in whole or
in part, to particular categories of persons, such as financial institutions,
broker-dealers, life insurance companies, tax-exempt organisations, investment
companies, foreign persons and other special status taxpayers. Finally, a tax
ruling from the United States Internal Revenue Service (the "Service" or the
"IRS") has not been requested. The discussion in this section concerning
certain tax consequences with respect to an investment in Securities is
included for general information only. All persons are urged to consult their
own tax advisors to determine the specific tax consequences of making an
investment in Securities, including any U.S., state, local or non-U.S. tax
consequences.
For purposes of the following discussion, a "United States Holder" is any
person other than a "Non-U.S. Holder". A "Non-U.S. Holder" is any person other
than (i) a citizen or resident of the United States, (ii) a corporation,
partnership or other entity created or organised in the United States or under
the laws of the United States or any state, (iii) an estate whose income is
includible in gross income for United States tax purposes regardless of source
or (iv) a "United States Trust". A United States Trust includes a trust if, and
only if, (i) a court within the United States is able to exercise primary
supervision over the administration of the trust and (ii) one or more U.S.
persons have the authority to control all substantial decisions of the trust.
United States Federal Income Taxation of Securityholders
General
A securityholder who sells or exchanges its Securities will recognise gain
or loss for federal income tax purposes equal to the difference, if any, between
the amount realised from the sale or exchange and such securityholder's tax
basis in the Securities that are sold or exchanged. Such gain or loss will be a
capital gain or loss, provided that the Securities are held as capital assets.
Such gain or loss will be long-term capital gain or loss if the securityholder's
holding period is more than 12 months. For individual securityholders, long-
term capital gains are subject to a maximum federal income tax rate of 20
percent. The deduction of capital losses may be subject to limitation.
If distributions are made by the Company, a securityholder will recognise
ordinary income to the extent of current and accumulated earnings and profits of
the Company and any amounts distributed in excess of current and accumulated
earnings and profits will be considered a tax-free return of capital, reducing
the tax basis in the securityholder's Securities by the amount of the
distribution (but not below zero), with distributions in excess of the
securityholders' tax basis taxable as capital gains (if such stock is held as a
capital asset). Dividends paid or deemed paid by the Company will not be
eligible for the dividends received deduction available to corporations
receiving dividends.
In general, holders of ADRs evidencing ADSs will be treated as the owners
of the Shares represented by those ADSs, and exchanges of Shares for ADSs, and
ADSs for Shares, will not be subject to taxation.
Various provisions contained in the Code may impose special taxes in
certain circumstances on non-United States corporations and their
securityholders. The following is a general summary of these provisions.
Personal Holding Company
If the Company were classified as a PHC within the meaning of section
542(a) of the Code, it would be subject to a personal holding company tax equal
to 39.6 percent of its undistributed taxable income subject to certain
adjustments under section 545(b) of the Code. The Company generally would be
classified as a PHC if (i) at least 60 percent of its adjusted ordinary gross
income for a taxable year was passive income such as dividends and capital gains
from the sale or exchange of stock and (ii) at any time during the last half of
such taxable year more than 50 percent in value of its outstanding Securities
were owned, directly or indirectly, by or for not more than five individuals.
The Company intends that its Securities will be widely held, and that it will
not be classified as a PHC. To this end, the Company has adopted ownership and
transfer restrictions on Securities in its Articles intended to prevent possible
classification as a PHC, including a 9.5 percent limitation on ownership,
prohibitions on any transfers that would cause ownership to exceed 9.5
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percent, and informational reporting requirements for securityholders owning 5
percent or more of the Securities. (Certain of these ownership and transfer
restrictions do not apply to Security Capital Group.) The Company believes that,
based upon the current ownership of Securities and the ownership and transfer
restrictions on Securities described above, which the Company intends to monitor
and enforce, the Company will not be classified as a PHC.
Foreign Personal Holding Company
If the Company were classified as a FPHC within the meaning of section
552(a) of the Code, the Company would be deemed to distribute certain types of
undistributed income including dividends and capital gains from the sale or
exchange of Securities as a dividend on a pro rata basis to all of its
securityholders on the last day of its taxable year. A securityholder would be
required to include its pro rata share of the dividend in income even though the
Company would not actually have paid a dividend. A securityholder would
increase its tax basis by the amount of the deemed dividend. A securityholder
who acquires Securities from decedents would be denied the step-up of the tax
basis for such Securities to fair market value at the date of death which would
otherwise have been available, and instead would have a tax basis equal to the
lower of fair market value or the decedent's basis. The Company generally would
be classified as a FPHC if (i) at least 60 percent of its gross income for a
taxable year was passive income such as dividends and capital gains from the
sale or exchange of stock and (ii) at any time during the taxable year more than
50 percent of either (A) the total combined voting power of all classes of
Securities of the Company entitled to vote or (B) the total value of the
Securities of the Company was owned, directly or indirectly, by or for more than
five individuals who are citizens or residents of the United States. The
Company intends that its Securities will be widely held, and that it will not be
classified as a FPHC. To this end, the Company has adopted ownership and
transfer restrictions on Securities in its Articles intended to prevent possible
classification as a FPHC, including a 9.5 percent limitation on ownership,
prohibitions on any transfers that would cause ownership to exceed 9.5 percent,
voting cut-back provisions that limit voting power to under 10 percent, and
informational reporting requirements for securityholders owning 5 percent or
more of the Securities. (Certain of these ownership and transfer restrictions
do not apply to Security Capital Group.) The Company believes that, based upon
the current ownership of Securities and the ownership and transfer restrictions
on Securities described above, which the Company intends to monitor and enforce,
the Company will not be classified as a FPHC.
Controlled Foreign Corporation
If the Company were classified as a CFC within the meaning of section
957(a) of the Code, 10% securityholders (as defined below) would be required to
currently include their pro rata share of certain types of undistributed income,
including dividends and capital gains from the sale or exchange of stock in
income as a dividend even though the Company would not actually have paid a
dividend. In addition, where a 10% securityholder sells or exchanges Securities
or receives a distribution that is treated as an exchange of Securities, the
gains on such exchange which would otherwise qualify for capital gains treatment
will be recharacterised as dividend income to the extent of the Company's
current or accumulated earnings and profits. The Company generally would be
classified as a CFC if more than 50 percent of (i) the total combined voting
power of all classes of Securities of the Company, or (ii) the total value of
the Securities of the Company, is owned or considered owned by 10% holders on
any day during its taxable year. A 10% securityholder is a U.S. person who owns
or is considered to own at least 10 percent of the total combined voting power
of all classes of Securities of the Company entitled to vote. The Company
intends that its Securities will be widely held, and that it will not be
classified as a CFC. To this end, the Company has adopted ownership and
transfer restrictions on Securities in its Articles intended to prevent possible
classification as a CFC, including a 9.5 percent limitation on ownership,
prohibitions on any transfers that would cause ownership to exceed 9.5 percent,
voting cut-back provisions that limit voting power to under 10 percent, and
informational reporting requirements for securityholders owning 5 percent or
more of the Securities. (Certain of these ownership and transfer restrictions
do not apply to Security Capital Group.) The Company believes that, based upon
the current ownership of Securities and the ownership and transfer restrictions
on Securities described above, which the Company intends to monitor and enforce,
the Company will not be classified as a CFC.
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Accumulated Earnings Tax
If the Company were classified as a corporation subject to the accumulated
earnings tax ("AET") within the meaning of section 532(a) of the Code, the
Company would be subject to a tax equal to 39.6 percent of its undistributed
taxable income subject to certain adjustments under section 535(b) and 535(c) of
the Code. The Company generally would be classified as a corporation subject to
the AET if the Company were formed or availed of for the purpose of avoiding
income tax, with respect to its individual securityholders, by permitting
earnings to accumulate instead of being distributed to such securityholders.
Case law suggests that such individual tax avoidance can be shown only if some
individual or group of individuals, by virtue of his or their control over the
corporation, purposely causes the corporation to unreasonably accumulate its
earnings and profits. In addition, a tax avoidance purpose is presumed where a
corporation accumulated its earnings and profits "beyond the reasonable needs of
its business." Finally, prima facie evidence of a tax avoidance purpose exists
where a corporation is a "mere holding or investment company." The Company
believes that it should not be classified as a corporation subject to the AET.
Foreign Investment Company
If the Company were classified as a foreign investment company ("FIC")
within the meaning of section 1246(b) of the Code, a securityholder's gain on
the sale or exchange of Securities (including a distribution treated as an
exchange of Securities) generally would be taxed as ordinary income to the
extent of such securityholder's ratable share of the accumulated earnings and
profits of the Company.
In addition, a securityholder who acquires Securities from a decedent would
be required to reduce the fair market value tax basis of such Securities by such
decedent's ratable share of earnings and profits of the Company. The Company
generally would be classified as a FIC if (i) the Company was registered under
the Investment Company Act as a management company or as a unit investment
trust, or (ii) the Company was engaged (or holding itself out as being engaged)
primarily in the business of investing, reinvesting, or trading securities,
commodities or any interest therein, at a time when 50 percent or more of the
total combined voting power of all classes of stock entitled to vote, or the
total value of all classes of stock, was held, directly or indirectly, by U.S.
persons (as defined in Section 7701(a)(30) of the Code). The Company is not
registered under the Investment Company Act as a management company or as a unit
investment trust. While the Company expects that 50 percent or more of the
total combined voting power of all classes of its Securities entitled to vote or
the total value of all classes of its Securities will be held by U.S. persons,
the Company does not believe, based on its anticipated method of operation and
the nature of its investments, that it should be considered engaged primarily in
the business of investing, reinvesting or trading securities, commodities or any
interest therein. The Company believes that it should not be considered to be
engaged in the business of investing in securities within the meaning of section
3(a)(1) of the Investment Company Act. The Company believes that a
determination under section 3(a)(1) of the Investment Company Act will be
determinative of whether or not the Company will be considered engaged primarily
in the business of investing, reinvesting or trading securities, commodities or
any interest therein for purposes of being classified as a FIC and, accordingly,
the Company should not be a FIC.
Passive Foreign Investment Company
If the Company were classified as a passive foreign investment company
("PFIC") within the meaning of section 1297(a) of the Code, a securityholder
would, upon certain distributions by the Company and upon disposition of his
Securities, be liable to pay, in addition to the tax otherwise due at the then
prevailing rates, interest on the tax, and additional tax based on the highest
rate of individual or corporate tax, as the case may be, as if the distribution
or gain had been recognised ratably over the taxpayer's holding period for the
Securities. The Company generally would be classified as a PFIC if (i) 75
percent or more of the gross income of the Company for the taxable year is
passive income, or (ii) the average percentage of assets held by the Company
during the taxable year which produce passive income or which are held for the
production of passive income is at least 50 percent. In general, "passive
income" is defined to include the following: (i) dividends, interest (and income
equivalent to interest such as income from commitment fees), royalties, rents
(except active rents as discussed below), and annuities; (ii) net gains from the
sale or exchange of property (other than inventory) that produces dividends,
interest, royalties, rents (except for active rents as discussed
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below) or annuities, or that produces no income; (iii) net gains from the sale
or exchange of an interest in a trust or partnership; and (iv) net gains from
certain commodity and foreign currency transactions. Rents are considered
"active rents" if such rents are derived from leasing (i) property that the
lessor has manufactured or produced, or has acquired and added substantial value
to, but only if the lessor is regularly engaged in the manufacture or production
of, or in the acquisition and addition of substantial value to, property of such
kind, or (ii) real property with respect to which the lessor, through its own
officers or staff of employees, regularly performs active and substantial
management and operation functions while the property is leased. In general, an
asset will be characterised as a "passive asset" if it has generated (or is
reasonably expected to generate in the reasonably foreseeable future) passive
income as defined above. For purposes of determining whether the Company is a
PFIC, if the Company owns, directly or indirectly, at least 25 percent by value
of the stock of another corporation, the Company would be treated as if it
(i) held its proportionate share of the assets of such other corporation, and
(ii) received directly its proportionate share of the income of such other
corporation. The Company believes that it should not be classified as a PFIC.
However, because classification of the Company as a PFIC depends in significant
part upon the investments and activities of the various strategic positions in
which the Company invests and because changes with respect to such investments
and activities may occur as a result of circumstances beyond the control of the
Company, there can be no assurance the Company will be able to avoid PFIC
classification. However, the Company's strategic investees have contractually
agreed to certain limitations designed to help ensure the Company will not be a
PFIC as a result of changes in their investment and activities.
The Company will use its best efforts to notify securityholders if it
concludes that it will be treated as a PFIC for any taxable year to enable
affected taxpayers to consider whether to elect to treat the Company as
"qualified electing fund" for U.S. income tax purposes. A securityholder of a
qualified electing fund is required in each taxable year to include in income a
pro rata share of the ordinary earnings and net capital gains of the PFIC. The
Company will use its best efforts to provide appropriate information and
reporting to enable securityholders to make the qualified electing fund
election.
U.S. Federal Information Reporting and Withholding
Under current United States federal income tax law, a 31% backup
withholding tax requirement may apply to certain payments of dividends paid on
Securities, and the proceeds of a sale, exchange or redemption of, the
Securities. In addition, certain persons making such payments are required to
submit information returns (i.e., IRS Forms 1099) to the Service with regard to
those payments.
Backup withholding and information reporting will generally not apply with
respect to payments made to certain exempt recipients such as corporations or
certain exempt entities. In the case of a non-corporate United States Holder,
information reporting normally will apply, but backup withholding generally will
apply only if such holder (i) fails to furnish its Taxpayer Identification
Number ("TIN") which, for an individual, would be his Social Security number,
(ii) furnishes an incorrect TIN, (iii) is notified by the Service that it has
failed to properly report payments of interest and dividends or (iv) under
certain circumstances, fails to certify (on IRS Form W-9 or a proper substitute
form), under penalties of perjury, that is has furnished a correct TIN and has
not been notified by the Service that it is subject to backup withholding for
failure to report interest and dividend payments.
In the case of a Non-U.S. Holder, information reporting on IRS Form 1099
(including IRS Form 1099B) and backup withholding should not apply to payments
of dividends on a Share made outside the United States. Such payments made
inside the United States will not be subject to information reporting or backup
withholding if such Holder has provided the required certification on IRS Form
W-8 under penalties of perjury that it is not a United States Holder or has
otherwise established an exemption, provided in each case that the payor does
not have actual knowledge that the payee is a United States Holder.
The United States Treasury Department adopted new Regulations (the "New
Regulations") which affect the United States tax requirements with respect to
information reporting and backup withholding. As promulgated, the New
Regulations are generally effective, subject to certain transition rules, for
payments made after 31 December 1998, regardless of the issue date of the
instrument with respect to which such payments are made. The Service recently
announced its intention to amend the New Regulations to extend the effective
date to those payments made after 31
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December 1999, subject to certain transition rules. The New Regulations
generally have similar rules to those described in the preceding paragraphs.
Payments on the sale, exchange or other disposition of a Share made to or
through a foreign office of a broker generally will not be subject to backup
withholding. Such payments, however, will be subject to information reporting
if the broker is a United States person, a controlled foreign corporation for
United States federal income tax purposes or a foreign person 50% or more of
whose gross income is effectively connected with the conduct of a United States
trade or business for a specified three year period, unless the broker has in
its records documentary evidence that the beneficial owner is not a United
States person and certain other conditions are met, or the beneficial owner
otherwise establishes an exemption. Under the New Regulations, backup
withholding will apply if such broker has actual knowledge that the payee is a
United States Holder and fails to otherwise establish an exemption. Payments on
the sale, exchange or other disposition of a Share to or through the United
States office of a broker will be subject to backup withholding and information
reporting unless the holder certifies (i.e., on IRS Form W-8) under penalties of
perjury, that it is not a United States Holder and the payor does not have
actual knowledge to the contrary or otherwise establishes an exemption (e.g., a
United States Holder may certify its exemption on IRS Form W-9 or may be
identified as an "exempt recipient").
Any amounts withheld under the backup withholding rules from a payment to a
holder will be refunded (or credited against the holder's United States federal
income tax liability, if any) provided that the amount withheld is claimed as
federal taxes withheld on the holder's United States federal income tax return
relating to the year in which the backup withholding occurred. A holder who is
not otherwise required to file a United States income tax return must generally
file a claim for refund, or in the case of Non-U.S. Holders, an income tax
return, in order to claim refunds of withheld amounts. A taxpayer
identification number must be reported on such claim for refund which may
require Non-U.S. Holders who are individuals in certain instances to obtain an
IRS individual taxpayer identification number (ITIN).
Holders of Securities should consult their tax advisors regarding the
application of information reporting and backup withholding in their particular
situations, the availability of an exemption therefrom, and the procedure for
obtaining such an exemption, if available.
Assuming that less than 25% of the gross income of the Company and its
subsidiaries is effectively connected or treated as effectively connected with a
United States trade or business (including as effectively connected income for
this purpose capital gains subject to the Foreign Investment in Real Property
Tax Act of 1980 including capital gain distributions from a REIT) for the three
taxable years of the Company prior to the taxable year of declaration of any
distribution, any such distributions made by the Company with respect to the
Securities will not be subject to United States withholding tax.
U.S. Federal Information Requirements
The acquisition of 10 percent or more of the (i) total combined voting
power of all classes of Securities of the Company entitled to vote or (ii) total
value of the outstanding Securities of the Company by a United States Holder may
trigger certain reporting requirements which may necessitate the filing of Form
5471 with the annual tax return of the holder.
U.S. Federal Income Taxation of the Company and its Subsidiaries
The Company and its subsidiaries have conducted, and will continue to
conduct, their affairs with the intent that income realised will not be
effectively connected with the conduct of a United States trade or business or
otherwise subject to regular United States Federal income taxation on gross
income less allowable deductions. If any such corporation were considered
engaged in a United States trade or business all or part of the income from the
U.S. investments could be considered effectively connected income which would be
subject to regular United States federal income taxation and could also be
subject to branch profits tax at a rate of 30% on any "dividend equivalent
amount."
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Foreign corporations are generally subject to U.S. income tax on all income
that is effectively connected with the conduct of a U.S. trade or business.
Stock and securities transactions of the type engaged in by the Company's
subsidiaries do not constitute a U.S. trade or business for this purpose if such
transactions constitute "investment" as opposed to "trading" in such stocks and
securities. The distinction between investing and trading for this purpose is a
question of fact. Under case law, the more frequent the purchases and sales of
stocks and securities and the shorter the period of time between the purchase
and sale of each stock and security, the more likely the activity constitutes a
trading activity rather than a mere investment activity. It is uncertain whether
the transactions of the Company's subsidiaries in stocks and securities
constitute "trading" in stocks and securities. However, even if such activities
did constitute "trading" in stocks and securities, a safe harbor provision in
Section 864(b)(2)(A) of the Code provides that a foreign corporation will not be
considered to be engaged in a trade or business within the United States solely
because such foreign corporation trades in the United States in stocks and/or
securities for the corporation's own account, whether by the corporation or its
employees or through a resident broker, commission agent, custodian or other
agent, and whether or not any such employee or agent has discretionary authority
to make decisions in effecting the transactions, provided that the corporation
is not a dealer in stocks or securities. The stock and securities transactions
of the Company's subsidiaries should qualify for the safe harbor.
HOLDINGS has acquired and will acquire certain contractual rights with
respect to its strategic investees in order to obtain board and committee
representation to give effect to the operating strategy of such investee
companies. Examples of the type of rights which have been and will be acquired
are the right to consult on or approve annual budgets and strategy plans, the
right to nominate directors for approval pursuant to the usual procedures for
election of directors in the investee company, the right to receive financial
information, the right to approve major capital investments or other material
matters and the right to meet with principal officers of the investee companies
on policy matters. In order to comply with the ERISA requirements and ensure the
Company qualifies as a "venture capital operating company", the Company is and
will be a party to the contract between HOLDINGS and the investee company
pursuant to which the Company has and will acquire and exercise such rights
directly with the investee companies. Under the applicable case law and IRS
regulations, activities of this type should constitute monitoring, supervisory
and stewardship activities with respect to the investments of the Company's
subsidiaries which would not cause the Company or its subsidiaries to be engaged
in a United States trade or business.
The Company believes that the current method of operation of the Company
and its subsidiaries and their intended method of operation does not and will
not result in any corporation being considered engaged in a United States trade
or business.
As described in detail elsewhere in this document, the Company, through its
wholly owned direct and indirect subsidiaries, owns, or will primarily own,
shares in United States real estate companies, most of which are or intend to
become REITs as defined in the Code. Assuming the subsidiaries of the Company
are not considered engaged in a United States trade or business, it will
generally be subject to United States withholding taxes on dividends from the
REITs in which it invests and proposes to invest.
A REIT's distributions may be comprised of returns of capital, capital
gains dividends arising from the sale or exchange of United States real property
interests by a REIT, and dividends of operating income. Distributions in excess
of current and/or accumulated earnings and profits will be treated as a non-
taxable return of capital to the Company's subsidiaries to the extent of its tax
basis in the shares of the REIT and any remaining distributions would be treated
as amounts received in exchange for the shares of the subsidiary in the REIT.
Distributions from a REIT to the extent attributable to gain from sales or
exchanges by the REIT of United States real property interests (e.g., capital
gains dividends by a REIT) are subject to income and withholding taxes pursuant
to the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). As a
result, the Company's subsidiaries will generally be subject to a 35% United
States federal income tax with respect to any such distribution received from a
REIT and may also be subject to a 30% United States branch profits tax with
respect to such distribution. The Company's strategic investees have agreed to
use reasonable efforts to structure their transactions to minimise capital gain
dividends and such dividends are not expected to be material.
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<PAGE>
With respect to dividends of operating income paid by a REIT, which are
generally subject to a 30% United States withholding tax unless a lower treaty
rate is applicable, the Company's subsidiaries will be entitled to claim the
lower 15% withholding tax rate under Article IX of the current United States-
Luxembourg tax treaty provided that, in addition to meeting any other conditions
of the treaty, the Company's subsidiaries (rather than the Company, which would
not qualify for treaty benefits) are treated for U.S. federal income tax
purposes as the beneficial owners of such dividends. The Company believes that
the Company's subsidiaries are the beneficial owners of the strategic investment
positions and otherwise meet the conditions for a 15% rate of dividend
withholding tax under Article IX of the current United States-Luxembourg tax
treaty.
Under certain "conduit" income tax regulations promulgated by the U.S.
Treasury Department, if the Company's subsidiaries are an "intermediate"
corporation which is a "conduit" in a "financing arrangement" which had as a
principal purpose tax avoidance and which results in a reduction of withholding
tax on its income compared to the tax which would have been imposed if such
income were attributed to the Company, the Service could assert that such income
should be attributed to the Company for U.S. Federal income tax purposes and be
subject to the higher tax. A financing arrangement consists of two "financing
transactions". Under the regulations, a financing transaction includes a loan
(i.e., debt) and may include stock if such stock is subject to certain
redemption rights.
The Company's subsidiaries have been capitalised with a combination of
equity and debt from the Company. Such debt could constitute a financing
transaction, but should not be considered part of a financing arrangement unless
the underlying proceeds are used by the subsidiaries of the Company in a second
financing transaction. Investments by the Company's subsidiaries in U.S. stocks
which do not have certain redemption rights should not constitute financing
transactions. The Company and its subsidiaries, intend that the investments of
the subsidiaries primarily are and will be U.S. stocks, and that such stocks
will not include those certain redemption rights which could cause the
investments to be considered part of a "financing arrangement". In the case of
U.S. debt instruments in which the Company's subsidiaries may invest, the
conduit regulations are not an issue if the interest on such debt is portfolio
interest. Portfolio interest is exempt from U.S. withholding tax, although it
does not include interest on debt obligations of U.S. companies in which the
Company's subsidiaries own directly or by attribution more than 10% of the
voting stock. In any event, the Company's subsidiaries do not intend to invest
in any debt instruments where, for whatever reason, U.S. withholding tax could
be imposed.
The United States-Luxembourg tax treaty has been under renegotiation and on
3 April 1996 both countries signed a proposed new treaty and a memorandum of
understanding thereto. The proposed new treaty will not become effective until
the necessary procedures to effect ratification in both jurisdictions are
completed and instruments of ratification are exchanged. In this regard, it
should be noted that an exchange of instruments with respect to the tax treaty
is conditional on an exchange of instruments between the United States and
Luxembourg in connection with a "Mutual Legal Assistance in Criminal Matters"
treaty. On 21 October 1998, the U.S. Senate approved the "Mutual Legal
Assistance in Criminal Matters" treaty (sometimes referred to herein as the
"MLAT").
The ratification process in connection with the proposed tax treaty has
been completed in the United States. The treaty was ratified by the U.S. Senate
on 31 October 1997, subject to a reservation regarding the taxation of dividends
paid by a REIT (the "Senate Reservation"), upon which Senate approval was
conditional. Luxembourg recently approved the treaty but has not yet approved
the MLAT. The Company believes that the Company's subsidiaries should, under the
revised terms of the proposed new treaty and the Senate Reservation (if
implemented), qualify for a 15% rate of withholding tax on dividends of
operating income from most (if not all) of the REIT investments currently held
by the Company's subsidiaries. Furthermore, under the revised terms of the
proposed new treaty, the Company believes that HOLDINGS (or other subsidiaries
of the Company) should also be able to qualify for the 15% rate for future REIT
investments. The Company's beliefs are based upon the manner in which the
management of SC-U.S. Realty intends to operate SC-U.S. Realty, but there can be
no assurance that these favourable rates will be achieved as to any or all such
investments. Moreover, the proposed treaty and the Senate Reservation will only
be effective upon approval by Luxembourg of the MLAT and the exchange of
instruments of ratification.
The proposed treaty generally provides for a reduction in the 30% U.S.
withholding tax rate to 15% on dividends paid by U.S. companies, but states
that, in general, no reduction applies in the case of dividends paid by a
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<PAGE>
REIT. However, the Senate Reservation provides that REIT dividends paid to a
resident of Luxembourg would be eligible for the 15% rate of withholding tax in
three cases. First, the 15% withholding tax rate would apply to REIT dividends
if the Luxembourg resident beneficially holds an interest of 5 percent or less
in each class of the REIT's stock and such dividends are paid with respect to a
class of the REIT's stock that is publicly traded. Second, the 15% withholding
tax rate would apply to REIT dividends if the Luxembourg resident beneficially
holds an interest of 10 percent or less in the REIT and the REIT is diversified,
regardless of whether the REIT's stock is publicly traded. Third, the 15%
withholding tax would apply to dividends paid with respect to an interest in a
REIT if the beneficial owner of the dividends owned such interest as of 30 June
1997, the REIT is diversified, and, for dividends paid after 31 December 1999,
the REIT is publicly traded on 31 December 1999 and thereafter. The special rule
for dividends on existing REIT investments will apply to an existing investment
in a REIT as of 30 June 1997, and to reinvestment in the REIT of both ordinary
and capital gain dividends paid with respect to that investment, and if a REIT
in which there is a qualifying investment as of 30 June 1997 goes out of
existence in a nonrecognition transaction, the special rule will continue to
apply to the investment in the successor REIT, if any.
For purposes of these rules, the U.S. Senate Foreign Relations Committee
Report on the proposed treaty (the "Committee Report") states that a REIT will
be considered diversified if the value of no single interest in real property
held by the REIT exceeds 10 percent of the value of the REIT's total interests
in real property. An interest in real property will not include a mortgage,
unless the mortgage has substantial equity components, and also will not include
foreclosure property. The diversification rule will be applied by looking
through a partnership interest held by a REIT to the underlying interests in
real property held by the partnership. Finally, the reduced withholding tax rate
will apply to a REIT dividend if the REIT's trustees or directors make a good
faith determination that the diversification requirement is satisfied as of the
date the dividend is declared.
HOLDINGS (or any other subsidiary of the Company claiming the reduced
treaty rate) will be eligible for benefits under the proposed treaty including
the reduced withholding rate on dividends of operating income from current or
future REIT investments only if it is treated as the beneficial owner of the
dividends and meets the tests for treaty eligibility prescribed in Article 24
concerning "limitation on benefits". Article 24 is intended to limit indirect
use of the treaty by persons who are not entitled to its benefits. Article 24 of
the proposed treaty generally provides that a treaty country resident is
entitled to all treaty benefits in the other country only if it is a "qualified
resident" as defined in the proposed treaty.
Generally, a company that is a resident of either country is a "qualified
resident" if it falls within one of the following categories: (1) a company that
satisfies an ownership test and a base erosion test; (2) a company that
satisfies a public company test, (3) a company that is controlled by certain
public companies and also satisfies a base erosion test; or (4) a not-for-
profit, tax-exempt organisation that satisfies an ownership test.
To meet the ownership test, it is necessary that at least 50 percent of the
principal class of shares in the entity is ultimately owned by persons that
qualify as treaty residents or U.S. citizens.
To meet the base erosion test, not more than 50 percent of the gross income
of the company for the year may be paid or accrued by the company as deductible
amounts (under the laws of the company's residence country) to persons other
than qualified residents or U.S. citizens. For purposes of the base erosion
test, arm's length payments in the ordinary course of business for services or
purchase or rentals of tangible property including immovable property are not
taken into account in determining the amount of deductible payments made by the
company. This test is intended to prevent a corporation, for example, from
distributing most of its income in the form of deductible payments such as
interest, royalties, service fees, or other amounts to persons not entitled to
benefits under the proposed treaty.
The diplomatic notes included at the time the proposed treaty was signed
(the "Diplomatic Notes") provide that a taxpayer claiming benefits under the
ownership and base erosion tests of the proposed treaty may be denied treaty
benefits unless such a taxpayer demonstrates that the required percentage of its
shares (including bearer shares) is beneficially owned by qualified residents.
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<PAGE>
The tests prescribed by Article 24, particularly in terms of stock
ownership requirements, base erosion and publicly traded criteria, are
inherently factual in nature. Such tests will need to be applied to HOLDINGS (or
other subsidiaries of the Company) only at a future point in time and will be
dependent on the particular facts at such time. However, management of SC-U.S.
Realty will use its best efforts to ensure HOLDINGS (or other subsidiaries of
the Company) meets the conditions for claiming the reduced treaty withholding
rate at the relevant time. The Company currently believes that such conditions
will be met.
It should be noted that although the proposed treaty recently was approved
by the government of Luxembourg, the current provisions in the proposed treaty
still could be modified or amended and it is possible such treaty will never
become effective due to a failure to exchange instruments or because instruments
are not exchanged with respect to the "Mutual Legal Assistance in Criminal
Matters" treaty referred to above.
However, assuming the proposed treaty and the Senate Reservation approved
by Luxembourg remain unchanged and that instruments are exchanged during 1999,
and assuming the Company's subsidiaries elect, in accordance with Article 30(3)
of the proposed treaty, to continue to receive benefits under the current treaty
for an additional year, the new treaty will only be effective as to the
Company's subsidiaries for its U.S. source income, including dividends of
operating income from REITs, received on or after 1 January 2001.
Generally, gains on the sale of shares of a REIT by a Company subsidiary
will not be subject to tax provided the REIT is "domestically-controlled" or the
subsidiary owns 5% or less of a class of stock of the REIT which is publicly
traded (otherwise a 35% tax is expected to be due). Although certain REITs in
which the Company's subsidiaries holds investments are not currently
domestically controlled, it is such subsidiaries' intention to own investments
only in REITs which are properly considered domestically-controlled REITs or
will be so considered prior to any disposition of shares by such subsidiary. A
REIT generally qualifies as "domestically-controlled" so long as less than 50%
in value of its shares is held by foreign persons (i.e., non-resident aliens and
foreign corporations, partnerships, trusts and estates) at all times for a five-
year period prior to the date of disposition. While no assurances can be given
that any REIT in which a Company subsidiary holds an interest in fact is, or
will continue to be throughout such five-year period, "domestically-controlled,"
certain ownership restrictions in the articles of incorporation of certain
strategic positions are designed to help ensure such REITs will be considered so
domestically-controlled. Gains on investments made by a Company subsidiary in
special opportunity positions in REITs would generally not be subject to tax,
since such REITs are generally publicly traded and such subsidiary owns, or will
own, a 5% or less interest.
To the extent a Company subsidiary invests in United States real estate
operating companies which do not qualify as REITs, dividends of current and/or
accumulated earnings and profits will generally be subject to a 15% withholding
tax under the current United States-Luxembourg treaty. Under the proposed treaty
all such dividends will be subject to a 30% withholding tax, unless a Company
subsidiary were to meet the tests for treaty eligibility prescribed in Article
24 concerning "limitation on benefits", in which case all such dividends would
be subject to a 5% withholding tax if such subsidiary owned directly at least
10% of the voting stock of the company paying the dividend, or 15% in other
cases. Distributions in excess of current and/or accumulated earnings and
profits will be treated as a non-taxable return of capital to the Company
subsidiary to the extent of its tax basis in the shares of such companies. It is
anticipated that these real estate companies, with the possible exception of
Security Capital Group, would generally constitute United States Real Property
Holding Companies ("USRPHCs") under FIRPTA. Accordingly, a Company subsidiary
will be subject to United States federal income tax of 35% to the extent there
is gain on the sale or exchange of the shares in such USRPHCs. However, to the
extent possible, the Company expects that all such USRPHCs, with the exception
of Security Capital Group, will ultimately elect REIT status. HOLDINGS currently
owns publicly traded shares of Security Capital Group. Provided HOLDINGS owns 5%
or less of such shares at all times during a specified testing period, any gain
on disposition of such shares will not be subject to U.S. taxation under FIRPTA
(even if Security Capital Group is otherwise considered a USRPHC).
Other than the investments in United States REITs and real estate operating
companies, which are described above, neither the Company nor any Company
subsidiary intends to make any other investments in United States securities or
other United States investments which would be subject to United States
withholding or other federal income taxes.
-54-
<PAGE>
Luxembourg Taxation of the Company and its Subsidiaries
Taxation of the Company
The Company is not liable to any Luxembourg tax on profits or income, nor
are distributions or interest payments paid by the Company liable to any
Luxembourg withholding tax. The Company is, however, liable in Luxembourg to a
tax of 0.06% per annum of its net asset value, such tax being payable quarterly
on the basis of the value of the aggregate net assets of the Company at the end
of the relevant calendar quarter. No stamp duty or other tax is payable in
Luxembourg on the issue of the Securities. No Luxembourg tax is payable on the
realised capital appreciation of the assets of the Company.
The Company was liable to an initial capital tax of LUF 50,000, which was
paid upon incorporation.
Taxation of HOLDINGS
As described above, the Company owns and expects to own interests in REITs
through HOLDINGS, an ordinary corporate taxpayer under Luxembourg law.
Corporations which are resident Luxembourg taxpayers are taxed on their
worldwide net income, determined on the basis of gross income less costs
incurred. Certain items of income and capital gains are excluded from the
calculation of income received, including income and capital gains from REIT
investments which meet certain holding period (generally one calendar year) and
size requirements. This exclusion, together with the treatment of interest paid
to the Company as a deductible expense, has been verified by a ruling from the
Luxembourg Tax Inspector. The Company intends that substantially all of
HOLDINGS' investments will qualify for the exclusion from taxation of dividends.
Any income not so excluded, net of operating expenses and interest expense of
HOLDINGS, would be subject to tax at an aggregate current rate of 37.45%.
Income paid from HOLDINGS to the Company will be subject to various levels
of tax withholding depending upon its character. The Luxembourg Tax Inspector
has confirmed that interest payments from HOLDINGS to the Company will be
subject to tax at a rate of 3.75%. Any dividends paid will be subject to tax at
a rate of 25%. Based on the Company's operating strategy, payments from HOLDINGS
to the Company for operating needs are expected to be minimal and consist of
interest payments. As a result, based on its intended operating methods and
capital structure, SC-U.S. Realty's consolidated taxation in Luxembourg will
approximate a maximum of 3.75% of dividends and capital gains realised from its
REIT investments. No assurance can be given that actual operating requirements
will not result in a higher level of taxation.
United Kingdom Taxation of the Company and its Subsidiaries
It is the intention of the directors of the Company and HOLDINGS to conduct
the affairs of both companies such that they are managed and controlled from
Luxembourg. That being the case and in light of the proposed investment strategy
which at present does not envisage any investment or operations in the United
Kingdom, neither the Company nor HOLDINGS will be subject to tax on their net
income or capital gains in the United Kingdom.
General
Dividends and interest received by the Company or one of its subsidiaries
on their investments may be subject to non-recoverable withholding or other
taxes in the countries of origin.
Taxation of Non-United States Holders
Luxembourg
Under current legislation, investors who are not resident in Luxembourg are
not subject to any capital gains, income or withholding tax in Luxembourg on the
Securities except for (i) those domiciled, resident or having a permanent
establishment in Luxembourg, or (ii) non-residents of Luxembourg who hold more
than 25% of the Shares and who
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<PAGE>
dispose of all or part of their holdings within six months of the date of
acquisition or (iii) in some limited cases, certain former residents of
Luxembourg who held more than 25% of the Shares. For purposes of (ii) and (iii)
above, ownership of Securities is disregarded when calculating the 25% ownership
tests.
United Kingdom
Tax Treatment of Companies
Interest receivable on the Securities will be chargeable to corporation
tax. The amount of interest received during a company's accounting period will
be calculated in accordance with an authorised accruals basis of accounting
whether or not such amounts are actually received.
United Kingdom resident companies may claim relief for overseas withholding
tax deducted at source from interest payments derived from the Securities. The
relief may be claimed by way of an expense or as a credit against United Kingdom
corporation tax, however, this will be restricted to the rate of United Kingdom
corporation tax payable on income from the same source.
Where the Securities are transferred or redeemed, a company will be subject
to tax on the amount realised less any amounts previously subject to corporation
tax.
The above discussion does not apply to corporate share dealers or insurance
companies. Any such company wishing to purchase Securities should consult its
professional advisors as to the likely tax treatment.
Tax Treatment of Pension Funds
Pension funds in the United Kingdom are exempt from capital gains tax and
income tax on receipts derived from investments provided that such income is not
deemed to amount to a trading receipt (i.e. the activities of the pension funds
are not in the ordinary course of business).
ITEM 8. SELECTED FINANCIAL DATA
The following consolidated financial data of the Company, insofar as it
relates to each of the years ended 31 December 1998, 1997 and 1996 and for the
period from 7 July 1995 (date of incorporation) through 31 December 1995, set
forth below have been derived from the Company's consolidated financial
statements audited by Price Waterhouse SARL, independent accountants, including
the audited Consolidated Financial Statements and notes included in Item 18.
The Consolidated Financial Statements are presented in accordance with
GAAP. The financial data reflect past operating results and are not necessarily
indicative of future results.
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<PAGE>
SECURITY CAPITAL U.S. REALTY
(in thousands $, except per share amounts)
<TABLE>
<CAPTION>
7 July
(date
incorporated)
Year ended 31 December through
-------------------------------------- 31 December
1998 1997 1996 1995
------------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Total Revenues(1)................................ $ 156,825 $ 102,917 $ 34,836 $ 588
Total Expenses................................... (78,926) (42,608) (21,897) (512)
Net Realised Gains on Special Opportunity
Positions...................................... 32,878 41,073 3,480 --
Net (Decrease)/Increase in Appreciation on
Strategic Investment Positions and
Special Opportunity Positions(2)............... (642,372) 264,974 252,294 126
---------- ---------- ---------- -------
(Decrease)/Increase in Net Assets Resulting
from Operations.................................. $ (531,595) $ 366,356 $ 268,713 $ 202
========== ========== ========== =======
Statement of Net Assets Data:
Total Assets(2).................................. $2,873,628 $2,901,820 $1,494,257 $63,400
Total Liabilities................................ (647,243) (143,400) (175,158) (252)
---------- ---------- ---------- -------
Total Net Assets (Shareholders' Equity)......... $2,226,385 $2,758,420 $1,319,099 $63,148
========== ========== ========== =======
</TABLE>
- ----------------
(1) Revenues include dividends from strategic investment and special
opportunity positions (net of withholding tax) and interest and other
income. Due to the timing of investment dates and dividend record dates,
dividends received on investments for a period of less than one year are
not necessarily indicative of dividends to be received for an entire year.
(2) Investments are reflected at value, as described in Note 2A to the
Consolidated Financial Statements included in Item 18.
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the information
contained in "Selected Financial Data" included in Item 8 and the Consolidated
Financial Statements included in Item 18. Historical results and percentage
relationships set forth below and in "Selected Financial Data" and the
Consolidated Financial Statements are not necessarily indicative of the future
operations of the Company.
Introduction
The Company is a research-driven, growth-orientated real estate company
focused on taking significant strategic investment positions (with board
representation, consultation and other rights) in value-added real estate
operating
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<PAGE>
companies based in the United States. The Company's primary capital deployment
objective is to take a proactive ownership role in businesses that it believes
can potentially generate above-average rates of return.
The Company, which was incorporated in July 1995, completed a $509.5
million initial private offering in October 1995 and has since funded the
following strategic investment positions:
<TABLE>
<CAPTION>
Initial Total Cost as at Total Value as at
Initial Funding Commitment 31 December 1998 31 December 1998
Company Date (in millions)(1) (in millions) (in millions)
------- --------------- ---------------- ------------------ --------------------
<S> <C> <C> <C> <C>
CarrAmerica................ April 1996 $ 250 $ 700 $ 686(2)
City Center Retail......... April 1997 $ 150 $ 304 $ 304(3)
CWS Communities............ December $ 300 $ 154 $ 154(3)
1997
Pacific Retail............. October 1995 $ 200 $ 524 $ 502(3)
Regency.................... July 1996 $ 132 $ 236 $ 261(2)
Storage USA................ March 1996 $ 220 $ 394 $ 380(2)
Urban Growth Property...... April 1997 $ 150 $ 181 $ 181(3)
------ ------
Total................... $2,493 $2,468
====== ======
</TABLE>
- ------------------
(1) See "--Capital Deployment Activities" below for additional information
regarding commitments.
(2) Based on the closing price on the NYSE of common shares held on such date.
(3) Private REIT or real estate operating company. See Note 2A to the
Consolidated Financial Statements for the methodology utilised to assess
the value of investments in private entities. On 24 September 1998 it was
announced that Regency agreed to merge with Pacific Retail. Pursuant to the
terms of the merger agreement, a holder of Pacific Retail common shares
received 0.48 shares of Regency common stock for each common share of
Pacific Retail. The merger occurred on 28 February 1999. Since the merger
had not occurred at 31 December 1998, but the exchange rate was agreed to
prior to such date, Pacific Retail is valued based on the exchange ratio
and the closing stock price of Regency on the NYSE on that date.
In addition to its strategic investment positions, SC-U.S. Realty also
invests 10%-15% of its assets through special opportunity positions primarily in
publicly traded REITs and other publicly traded U.S. real estate companies.
As of 31 December 1998, the approximate value of SC-U.S. Realty's special
opportunity positions of $262.5 million represented approximately 9.1% of SC-
U.S. Realty's total assets. SC-U.S. Realty has also invested in the common
shares and subordinated debentures of Security Capital Group, which in aggregate
accounted for approximately 4.0% of SC-U.S. Realty's total assets as of 31
December 1998.
As of 31 December 1997, SC-U.S. Realty had committed an aggregate of $2.8
billion to both its strategic investment and special opportunity positions, of
which $2.4 billion had been funded, as compared to an aggregate commitment of
$3.2 billion as of 31 December 1998, of which $3.0 billion had been funded.
Operating Results
Years ended 31 December 1998 and 1997
Net operating income increased by $17.6 million, or 29.2%, to $77.9 million
for the year ended 31 December 1998 as compared to $60.3 million for the year
ended 31 December 1997. The increase is mainly attributable to an increase in
dividends derived from a higher level of fundings to strategic investees.
Gross dividends from strategic investment positions increased $48.6 million, or
49.1%, to $147.5 million for the year ended 31 December 1998 as compared to
$98.9 million
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<PAGE>
for the year ended 31 December 1997. Fundings to strategic investees increased
by $564.6 million at cost, or 29.3%, to $2.5 billion as of 31 December 1998 as
compared to $1.9 billion as of 31 December 1997.
Net Operating Income
Net operating income represents the difference between total revenues and
total expenses.
The following table sets forth information regarding SC-U.S. Realty's net
operating income during the years ended 31 December 1998 and 1997:
<TABLE>
<CAPTION>
Year ended 31 December
-----------------------------------
1998 1997
--------------- ----------------
Amount % Amount %
-------- ---- -------- -----
(in thousands $, except %)
<S> <C> <C> <C> <C>
Total Revenues........ $156,825 100% $102,917 100%
Total Expenses........ 78,926 50 42,608 41
-------- --- -------- ----
Net Operating Income.. $ 77,899 50% $ 60,309 59%
======== === ======== ====
</TABLE>
The net operating income margin decreased to 50% in 1998 from 59% in 1997.
This is due to a higher interest expense resulting from increased levels of
borrowing on the $700 million secured line of credit of HOLDINGS that was
guaranteed by the Company (the "HOLDINGS Line") and the $400 million unsecured
line of credit of the Company which is guaranteed by HOLDINGS (the "Line of
Credit"), which replaced the HOLDINGS Line in December 1998, as well as interest
expense on the 2% Senior Unsecured Convertible Notes due 2003 ($450 million
aggregate principal amount at maturity) (the "Convertible Notes") issued in May
1998. These increases were partially offset by lower interest rates on the
HOLDINGS Line and the Line of Credit.
Total Revenues. The following table sets forth information regarding SC-
U.S. Realty's total revenues during the years ended 31 December 1998 and 1997:
<TABLE>
<CAPTION>
Year ended 31 December
------------------------------------
1998 1997
----------------- -----------------
Amount % Amount %
--------- ------ --------- ------
(in thousands $, except %)
<S> <C> <C> <C> <C>
Gross dividends from strategic investment positions
CarrAmerica.................................... $ 51,999 33.2% $ 41,412 40.2%
CWS Communities................................ 4,783 3.0 -- --
Pacific Retail................................. 36,178 23.1 21,576 21.0
Regency........................................ 20,244 12.9 11,441 11.1
Storage USA.................................... 29,934 19.1 24,497 23.8
Urban Growth Property.......................... 4,338 2.8 -- --
-------- ----- -------- -----
Subtotal.................................. $147,476 94.1% $ 98,926 96.1%
Gross dividends from special opportunity positions.. 20,908 13.3 17,594 17.1
-------- ----- -------- -----
Total Gross Dividends..................... $168,384 107.4% $116,520 113.2%
Interest income from affiliate...................... 3,575 2.3 2,896 2.8
Interest income from non-affiliate and other income. 1,132 0.7 805 0.8
-------- ----- -------- -----
Total Gross Revenues...................... $173,091 110.4% $120,221 116.8%
Withholding tax on dividends received............... (16,266) (10.4) (17,304) (16.8)
-------- ----- -------- -----
Total Revenues............................ $156,825 100.0% $102,917 100.0%
======== ===== ======== =====
</TABLE>
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<PAGE>
As the table indicates, most of SC-U.S. Realty's total revenues during 1998
and 1997 were derived from dividends from its strategic investment positions.
The increase is mainly attributable to an increase in dividends derived from a
higher level of average fundings to strategic investees as well as increased
REIT dividend requirements from improved operating results at the strategic
investees.
"Interest income from affiliate" represents interest earned on SC-U.S.
Realty's $55 million aggregate principal investment in 6.5% convertible
subordinated debentures due 2016 issued by Security Capital Group. The
debentures were purchased by SC-U.S. Realty in April 1996 ($11 million aggregate
principal amount) and in March 1997 ($44 million aggregate principal amount) and
are currently convertible into shares of Class A common stock of Security
Capital Group, at the option of HOLDINGS. (See Note 3(b) to the Consolidated
Financial Statements.)
"Interest income from non-affiliate and other income" consists of interest
earned on cash balances and convertible debt. The increase in this item between
the year ended 31 December 1997 and the corresponding year in 1998 is
attributable to interest on convertible debt held by SC-U.S. Realty during the
second half of 1997 and in 1998.
In assessing the performance of the Company, management also considers
realised gains on investment positions to be an important component of its total
gross revenues. During the year ended 31 December 1998, total gross revenues
totaled $206.0 million inclusive of net realised gains of $32.9 million (as
discussed below). During the year ended 31 December 1997, total gross revenues
totaled $161.3 million inclusive of net realised gains of $41.1 million (as
discussed below).
Total Expenses. For the year ended 31 December 1998, total expenses
amounted to $78.9 million, of which $35.2 million, or 44.6%, represented fees
paid to the Operating Advisor and $35.9 million, or 45.5%, represented (i)
interest on the Convertible Notes, (ii) interest on the HOLDINGS Line, (iii)
interest on the Line of Credit and (iv) related expenses. During the year,
general and administrative expenses were approximately $4.4 million, or 5.6% of
total expenses, taxes were $2.4 million, or 3.0% of total expenses, and
amortisation of Convertible Notes deferred costs were $1.0 million, or 1.3% of
total expenses.
For the year ended 31 December 1997, total expenses amounted to $42.6
million, of which $24.6 million, or 57.8%, were accounted for by fees paid to
the Operating Advisor and $13.6 million, or 31.9%, were accounted for by
interest on the HOLDINGS Line and related expenses. During the year, general and
administrative expenses were $2.5 million, or 5.9% of total expenses, and taxes
were $1.9 million, or 4.4% of total expenses.
The increase in fees paid to the Operating Advisor over the prior year is
primarily a result of the increased level and value of fundings to strategic
investees. Interest expense increased as a result of new borrowings under the
Convertible Notes and an increased average balance on the HOLDINGS Line and the
Line of Credit, the proceeds of which were utilised to fund a portion of the new
investments. These increases in interest expense were partially offset by a
decline in the average interest rates on the HOLDINGS Line and the Line of
Credit.
Net Realised Gains on Special Opportunity Positions
Special opportunity positions, other than investments in Security Capital
Group, are primarily investments in publicly traded REITs, which are generally
held for an intermediate term of 12 to 18 months, although sale of such
positions may occur sooner or later, depending on market or business conditions
and on whether the return objectives have been realised. The objective of these
special opportunity positions is to realise attractive total returns through
dividends and share price appreciation and to provide SC-U.S. Realty with an
efficient method of maintaining a portion of its assets in relatively liquid
investments (which assets may be redeployed on short notice).
During the years ended 31 December 1998 and 1997, net realised gains on
special opportunity positions were $32.9 million and $41.1 million,
respectively. In both cases, these gains were derived exclusively from the
disposition of certain publicly traded special opportunity positions.
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<PAGE>
Decrease/Increase in Appreciation on Strategic Investment and Special
Opportunity Positions
During the years ended 31 December 1998 and 1997, the principal factor
behind the movement in net assets resulting from operations was the change in
the unrealised appreciation of SC-U.S. Realty's strategic investment and special
opportunity positions.
During the year ended 31 December 1998, the largest part of the decrease of
$642 million in the unrealised appreciation was attributable to the decrease in
the appreciation of SC-U.S. Realty's investment in CarrAmerica ($215 million,
or 33.5% of the total decrease), followed by the special opportunity positions
($170 million, or 26.5%), Pacific Retail ($110 million, or 17.1%), Storage USA
($88 million, or 13.7%) and Regency ($62 million, or 9.7%). This decrease in the
unrealised appreciation of the strategic investment and special opportunity
positions is the result of a decrease in the stock prices of the investments
principally due to the general decline in the REIT market.
During the year ended 31 December 1997, the main factor behind the
increase of $265 million in the unrealised appreciation of SC-U.S. Realty's
strategic investment and special opportunity positions was the increase in the
appreciation in SC-U.S. Realty's investment in Pacific Retail ($89 million, or
33.4% of the total increase), followed by CarrAmerica ($76 million, or 28.6%),
Regency ($55 million, or 20.7%), Storage USA ($24 million, or 9.1%), and the
special opportunity positions ($24 million, or 9.1%).
Although the reduction in stock prices of SC-U.S. Realty's strategic
investment and special opportunity positions for the year ended 31 December 1998
does not affect SC-U.S. Realty's net operating income, it does adversely impact
its net assets resulting from operations on its Consolidated Statement of
Operations. SC-U.S. Realty cannot predict the future stock prices of its
strategic investment and special opportunity positions. Additional reductions in
such stock prices would continue to reduce net assets resulting from operations
and, as a result, could have a materially adverse impact on SC-U.S. Realty's
Consolidated Statement of Operations.
Years ended 31 December 1997 and 1996
Net operating income increased by $47.4 million to $60.3 million for the
year ended 31 December 1997 as compared to $12.9 million for the year ended 31
December 1996. The increase is mainly attributable to an increase in dividends
derived from a higher level of fundings to strategic investees as well as
increased REIT dividend requirements from improved operating results at the
strategic investees.
Net Operating Income
Net operating income represents the difference between total revenues and
total expenses.
The following table sets forth information regarding SC-U.S. Realty's net
operating income during the years ended 31 December 1997 and 1996:
<TABLE>
<CAPTION>
Year ended 31 December
------------------------------------
1997 1996
---------------- ----------------
Amount % Amount %
-------- ---- ------- -----
(in thousands $, except %)
<S> <C> <C> <C> <C>
Total Revenues......... $102,917 100% $34,836 100%
Total Expenses......... 42,608 41 21,897 63
-------- --- ------- ----
Net Operating Income... $ 60,309 59% $12,939 37%
======== === ======= ====
</TABLE>
As the table indicates, the net operating income margin rose from 37% for
the year ended 31 December 1996 to 59% for 1997 principally due to an increase
in dividends derived from a higher level of fundings to strategic investees.
Total Revenues. The following table sets forth information regarding
SC-U.S. Realty's total revenues during the years ended 31 December 1997 and
1996:
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<PAGE>
<TABLE>
<CAPTION>
Year ended 31 December
-----------------------------------
1997 1996
----------------- ----------------
Amount % Amount %
--------- ------ -------- ------
(in thousands $, except %)
<S> <C> <C> <C> <C>
Gross dividends from strategic investment positions..
CarrAmerica..................................... $ 41,412 40.2% $13,567 38.9%
CWS Communities................................. -- -- -- --
Pacific Retail.................................. 21,576 21.0 9,482 27.2
Regency......................................... 11,441 11.1 773 2.2
Storage USA..................................... 24,497 23.8 8,700 25.0
Urban Growth Property........................... -- -- -- --
-------- ----- ------- -----
Subtotal................................... $ 98,926 96.1% $32,522 93.3%
Gross dividends from special opportunity positions... 17,594 17.1 5,192 14.9
-------- ----- ------- -----
Total Gross Dividends...................... $116,520 113.2% $37,714 108.2%
Interest income from affiliate....................... 2,896 2.8 504 1.4
Interest and other income............................ 805 0.8 2,169 6.2
-------- ----- ------- -----
Total Gross Revenues....................... $120,221 116.8% $40,387 115.8%
Withholding tax on dividends received................ (17,304) (16.8) (5,551) (15.8)
-------- ----- ------- -----
Total Revenues............................. $102,917 100.0% $34,836 100.0%
======== ===== ======= =====
</TABLE>
As the table indicates, most of SC-U.S. Realty's total revenues during the
years indicated were derived from dividends from its strategic investment
positions. The increase is mainly attributable to an increase in dividends
derived from a higher level of average fundings to strategic investees as well
as increased REIT dividend requirements from improved operating results at the
strategic investees.
"Interest income from affiliate" represents interest earned on SC-U.S.
Realty's $55 million aggregate principal investment in 6.5% convertible
subordinated debentures due 2016 issued by Security Capital Group. The
debentures were purchased by SC-U.S. Realty in April 1996 ($11 million aggregate
principal amount) and in March 1997 ($44 million aggregate principal amount) and
are currently convertible into shares of Class A common stock of Security
Capital Group, at the option of HOLDINGS.
"Interest and other income" consists of interest earned on cash balances.
The decrease in this item between the year ended 31 December 1996 and the
corresponding period in 1997 is attributable to lower cash balances, resulting
from the Company's increased capital deployment.
In assessing the performance of the Company, management also considers
realised gains on investment positions to be an important component of its total
gross revenues. During the year ended 31 December 1997, total gross revenues
totaled $161.3 million inclusive of net realised gains of $41.1 million (as
discussed below). During the year ended 31 December 1996, total gross revenues
totaled $43.9 million inclusive of net realised gains of $3.5 million (as
discussed below).
Total Expenses. For the year ended 31 December 1997, total expenses
amounted to $42.6 million, of which $24.6 million, or 57.8%, were accounted for
by fees paid to the Operating Advisor and $13.6 million, or 31.9%, were
accounted for by interest on the HOLDINGS Line and related expenses. During the
year, general and administrative expenses were $2.5 million, or 5.9% of total
expenses, and taxes were $1.9 million, or 4.4% of total expenses.
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<PAGE>
During the year ended 31 December 1996, total expenses amounted to $21.9
million, of which $8.0 million, or 36.7%, were primarily accounted for by fees
paid to the Operating Advisor and $9.2 million, or 41.8%, were accounted for by
interest on the HOLDINGS Line and related expenses. During the year, general and
administrative expenses were $2.2 million, or 10.2% of total expenses, and taxes
were $0.6 million, or 2.9% of total expenses.
The increase in fees paid to the Operating Advisor over fiscal 1996 is
primarily a result of the increased level and value of fundings to strategic
investees. Interest expense increased as a result of an increased average
balance on the HOLDINGS Line, the proceeds of which were utilised to fund a
portion of the new investments, and an increase in average interest rates on the
HOLDINGS Line.
Net Realised Gains on Special Opportunity Positions
During the years ended 31 December 1997 and 1996, net realised gains on
special opportunity positions were $41.1 million and $3.5 million, respectively.
In both cases, these gains were derived exclusively from the disposition by SC-
U.S. Realty of certain publicly traded special opportunity positions. The lower
gains realised during 1996 were due to the fact that SC-U.S. Realty had very few
sales because it had only begun to accumulate its special opportunity positions.
Increase in Appreciation on Strategic Investment and Special Opportunity
Positions
During the years ended 31 December 1997 and 1996, the principal factor
behind the increase in net assets resulting from operations was the increase in
the unrealised appreciation of SC-U.S. Realty's strategic investment and special
opportunity positions (contributing $265 million, or 72.3%, and $252 million, or
93.9%, of the total increase in net assets in the years ended 31 December 1997
and 1996, respectively).
During the year ended 31 December 1997, the largest part of the increase in
the unrealised appreciation was attributable to the increase in the appreciation
of SC-U.S. Realty's investment in Pacific Retail ($89 million, or 33.4% of the
total increase), followed by CarrAmerica ($76 million, or 28.6%), Regency ($55
million, or 20.7%), Storage USA ($24 million, or 9.1%) and special opportunity
positions ($24 million, or 9.1%).
During the year ended 31 December 1996, the main factor behind the increase
in the unrealised appreciation of SC-U.S. Realty's strategic investment and
special opportunity positions was the increase in the appreciation in SC-U.S.
Realty's investment in CarrAmerica ($126 million, or 50.0%, of the total
increase). The balance of the increase was attributable to Storage USA ($50
million, or 19.8%), special opportunity positions ($46 million, or 18.1%) and
Regency ($32 million, or 12.6%).
Liquidity and Capital Resources
SC-U.S. Realty's total indebtedness as of 31 December 1998 was
approximately $632 million. The value of SC-U.S. Realty's total assets was $2.9
billion and the closing share price on the AEX was $9.90 as of 31 December 1998.
SC-U.S. Realty expects its principal sources of liquidity to be from its receipt
of dividends from strategic investment and special opportunity positions,
fundings from the Line of Credit and proceeds from potential sales of its liquid
special opportunity positions. SC-U.S. Realty expects that these sources will
enable it to meet both its short-term and long-term cash requirements for its
funding commitments, working capital and debt repayment for the next twelve
months.
In an effort to secure investment-grade credit ratings, on 8 December 1998,
SC-U.S. Realty converted the HOLDINGS Line into the Line of Credit. SC-U.S.
Realty received investment-grade ratings from each of Moody's Investors Service
(Baa3), Standard & Poor's Ratings Services (BBB-) and Duff & Phelps Credit
Rating Co. (BBB-).
The lenders under the Line of Credit are Commerzbank Aktiengesellschaft and
a consortium of European and international banks. As of 31 December 1998, $262.5
million was drawn and outstanding under the Line of Credit. The earliest date
on which the Line of Credit will expire is 8 December 2000, but SC-U.S. Realty
has the right on 8 December 1999 to convert the then outstanding borrowings into
a term loan with quarterly amortisation payments to be made over a four-year
period, which would effectively extend the final loan payment to 8 December
2003. Borrowings
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<PAGE>
under the Line of Credit (and the four-year term loan, if applicable) bear
interest at (a) the sum of (x) the greater of the federal funds rate plus 0.5%
or the United States prime rate and (y) a margin of 0% to 0.625% per annum
(based on SC-U.S. Realty's current senior unsecured long-term debt ratings) or
(b) at SC-U.S. Realty's option, LIBOR plus a margin of 0.85% to 1.625% per annum
(also based on SC-U.S. Realty's current senior unsecured long-term debt rating).
Additionally, there is a commitment fee of 0.15% to 0.25% per annum (based on
the amount of the line which remains undrawn). All borrowings under the Line of
Credit are subject to covenants that SC-U.S. Realty must maintain at all times,
including: (i) unsecured liabilities may not exceed 40% of the market value of a
borrowing base of owned securities, (ii) shareholders' equity must exceed the
sum of 75% of shareholders' equity as of 8 December 1998 and 75% of the net
proceeds of sales of equity securities thereafter, (iii) a ratio of total
liabilities to net worth of not more than 1:1, (iv) a fixed charge coverage
ratio of not less than 1.5:1, (v) an interest coverage ratio of not less than
2:1 and (vi) secured debt may not exceed 10% of consolidated market net worth.
As of 31 December 1998, SC-U.S. Realty was in compliance with these covenants.
Average daily borrowings under the HOLDINGS Line and the Line of Credit for
the year ended 31 December 1998 were $274.4 million, at a weighted average
interest rate of 6.67% per annum.
Through offerings of its Shares, the Company received gross equity proceeds
aggregating $2.1 billion in the period between 1 January 1996 and 31 December
1997, of which $1.1 billion was received in 1997 and $1.0 billion in 1996. In
addition, during May 1998, the Company issued $450 million (aggregate principal
amount at maturity) of Convertible Notes. The Convertible Notes were issued at a
discount to their aggregate principal amount at maturity. SC-U.S. Realty used
the net proceeds of approximately $352.7 million to repay borrowings under the
HOLDINGS Line which were incurred principally for the purpose of funding
commitments both to existing and new strategic investment positions. Under the
terms of the Convertible Notes, the Company is not permitted to incur Senior
Indebtedness (as defined in that certain Indenture dated as of 22 May 1998,
between the Company and State Street Bank and Trust Company, as trustee, as
amended, the "Indenture") that is not subordinated to the same extent as the
Convertible Notes or to incur Secured Indebtedness (as defined in the Indenture)
that is by its terms senior in right of payment to the Convertible Notes, except
that the Company is permitted to guarantee, on a secured and/or senior
unsubordinated basis, the obligations of any wholly owned subsidiary with
respect to any Permitted Indebtedness (as defined in the Indenture). As of and
for the period ended 31 December 1998, SC-U.S. Realty was in compliance with
these covenants. The Convertible Notes are convertible into Shares at the
option of the holder at any time prior to maturity, unless previously redeemed,
at a conversion rate equal to 52.7819 Shares per $1,000 aggregate principal
amount at maturity. The Convertible Notes may be redeemed, in whole or in part,
at the option of the Company on or after 23 May 2001 at the accreted value
thereof, together with accrued and unpaid interest. Upon a change in control of
SC-U.S. Realty, each holder of the Convertible Notes has the right, at the
holder's option, to require SC-U.S. Realty to repurchase such holder's
Convertible Notes, in whole or in part, at a purchase price equal to the
accreted value thereof, together with accrued and unpaid interest through the
repurchase date. Effective 1 January 1999, the interest rate payable on the
Convertible Notes increased from 2.0% to 2.5% per annum. The 2.5% interest rate
will be in effect until SC-U.S. Realty lists certain equity securities on the
NYSE and registers the Convertible Notes and related equity securities for
resale.
Capital Deployment Activities
During the year ended 31 December 1998, SC-U.S. Realty deployed a total of
$595.9 million, of which $564.6 million was deployed in strategic investment
positions and $31.3 million (net of dispositions) was deployed in special
opportunity positions. As of 31 December 1998, SC-U.S. Realty had outstanding
contractual obligations of $192.9 million ($46.1 million to City Center Retail
and $146.8 million to CWS Communities).
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<PAGE>
SC-U.S. Realty's existing and committed fundings at cost as of 31 December
1998 were as follows:
<TABLE>
<CAPTION>
Total Total Cost
Amount (Amount Amount to
Committed Funded)(1) be Funded(1)
---------- -------------- -------------
(in thousands $)
<S> <C> <C> <C>
CarrAmerica (NYSE:CRE)............. $ 699,851 $ 699,851 $ --
City Center Retail (Private)(2).... 350,135 304,035 46,100(3)
CWS Communities (Private).......... 300,329 153,563 146,766(3)
Pacific Retail (Private)(4)........ 524,038 524,038 --
Regency (NYSE:REG)(4).............. 235,750 235,750 --
Storage USA (NYSE:SUS)............. 394,272 394,272 --
Urban Growth Property (Private).... 181,082 181,082 --
Special opportunity positions(5)... 479,031 479,031 --
---------- ---------- --------
Total........................... $3,164,488 $2,971,622 $192,866
========== ========== ========
</TABLE>
(1) Included in Total Amount Committed.
(2) In January 1999, the contractual obligation in respect of City Center
Retail was increased by up to $25 million.
(3) Represents a contractual obligation.
(4) On 28 February 1999, Regency merged with Pacific Retail. See Note 3A and
Note 13 to the Consolidated Financial Statements.
(5) Includes an aggregate of $165 million invested in shares of common stock
and convertible subordinated debentures of Security Capital Group.
Capital deployed to additional strategic investment positions, as well as
further funding to existing strategic investees, will generally be initially
funded with borrowings under the Line of Credit. These borrowings are expected
to be reduced by internally generated free cash flow and the proceeds of future
issuances of debt or equity securities.
Impact of Year 2000 and the Euro
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Certain computer
programs that have time-sensitive software may recognise a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar business activities. It could also result in various mechanical
malfunctions occurring in the property operations of SC-U.S. Realty's strategic
investees.
SC-U.S. Realty has reviewed the impact of the Year 2000 issue on its
operations, accounting and financial reporting by interviewing Banque
Internationale a Luxembourg ("BIL"), which provides all custodial duties for
SC-U.S. Realty, such as custody of cash, securities deposits and financial
transactions, as well as certain administrative duties, such as bookkeeping and
the calculation of NAV. In addition, the Operating Advisor uses BIL for its
accounting and financial reporting. BIL has informed SC-U.S. Realty that its
core system, on which all custodial services are reliant, is Euro compliant with
effect from 1 January 1999 and will be Year 2000 compliant by 30 June 1999. BIL
is in the process of carrying out detailed checks to ensure that the system is
and will function as designed. BIL has a separate accounting system called
"MULTIFONDS" which BIL confirmed is fully Year 2000 compliant. BIL installed an
updated version of "MULTIFONDS" in October 1998 in order to meet Euro compliance
requirements. BIL's communications system, BCS2000, is also Euro and Year 2000
compliant. SC-U.S. Realty therefore does not expect to incur any significant
Year 2000 project costs.
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<PAGE>
SC-U.S. Realty has reviewed the Year 2000 issue with each of its strategic
investees and has determined that there will be minimal, if any, financial
impact on SC-U.S. Realty. SC-U.S. Realty has initiated formal communications
with all of its significant suppliers to determine the extent to which SC-U.S.
Realty's interface systems are vulnerable to those third parties' failure to
remedy their own Year 2000 issues, but is not currently in a position to
determine what, if any, the ultimate effect of the suppliers' failure to
adequately address the Year 2000 issue will be on SC-U.S. Realty.
SC-U.S. Realty's strategic investees have been reviewing, and continue to
review, the operations of their individual properties in order to determine
whether such operations are Year 2000 compliant. In the currently expected worst
case scenarios, either a computer program or software could malfunction, or a
strategic investee's mechanical operations, such as elevators, electronic
locking or entry systems and HVAC systems, could malfunction. SC-U.S. Realty
believes that each of these problems can be temporarily corrected manually, and
repaired permanently in a short period of time. SC-U.S. Realty has not developed
any specific contingency plans to address a worst case scenario, since even such
a scenario is not expected to have a material adverse effect on SC-U.S. Realty.
SC-U.S. Realty and each of its strategic investees are continuing to monitor
their systems for Year 2000 compliance, as well as for the likelihood of a
development of a worst case scenario. In the event that the likelihood of a
further worst case scenario develops that could have a material adverse impact
on SC-U.S. Realty, it plans to develop promptly a contingency plan to address
such a scenario.
SC-U.S. Realty has reviewed the impact of the Euro and has determined that
it is limited to Euro denominated transactions with third parties, generally
limited to administrative expenses since the Company's investments are U.S.
dollar denominated. These Euro denominated transactions are expected to be
minimal and adequately dealt with as discussed above.
ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the exposure to loss resulting from changes in interest
rates, foreign currency exchange rates, commodity prices and equity prices. In
the course of its operations, SC-U.S. Realty is exposed to interest rate risk,
equity price risk and, to a limited extent, currency exchange risk, all as
described below. While it is not precluded from doing so, SC-U.S. Realty has not
had any involvement with derivative financial instruments. To the extent
utilised in the future, derivative financial instruments would be used to hedge
specific risks or exposures and would not be used for speculative or trading
purposes.
The following discussion only addresses the market risk faced by SC-U.S.
Realty. However, SC-U.S. Realty is dependent on the cash flow created by the
dividends and distributions paid by its strategic investment and special
opportunity positions. Each of these entities is subject to its own specific
market risks that could impact its ability to pay dividends or distributions to
SC-U.S. Realty. As a result, SC-U.S. Realty could indirectly be impacted by the
market risk facing the strategic investment and special opportunity positions in
the future.
Interest Rate Sensitive Assets and Liabilities
SC-U.S. Realty is exposed to interest rate changes primarily as a result of
its unsecured credit facility used to finance its investment activity and
maintain financial liquidity. SC-U.S. Realty's interest rate risk management
objective is to limit the impact of interest rate changes on earnings and cash
flows and to lower its overall borrowing costs. To achieve its objectives, SC-
U.S. Realty borrows primarily at variable rates. In future transactions, SC-
U.S. Realty may utilise derivative financial instruments as hedges in
anticipation of debt transactions to manage well-defined interest rate risk or
to minimise exposure to variable rate debt.
At 31 December 1998 the only interest rate sensitive asset or liability of
SC-U.S. Realty was the Line of Credit. At 31 December 1998 the outstanding
balance on the Line of Credit of $262.5 million bore an average nominal interest
rate of 6.67%. All borrowings under the Line of Credit at 31 December 1998 will
be repriced in 1999. The carrying
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<PAGE>
value and the estimated fair value of the Line of Credit at 31 December 1998 was
$262.5 million. The preceding information is of limited predictive value. As a
result, SC-U.S. Realty's ultimate realized gain or loss with respect to interest
rate fluctuations will depend on the exposures that arise during a future
period, hedging strategies at the time, and prevailing interest rates.
Equity Price Sensitive Assets and Liabilities
SC-U.S. Realty is exposed to equity price changes primarily as a result of
the Convertible Notes and strategic investment positions for non-trading
purposes and special opportunity positions for trading purposes. SC-U.S. Realty
accounts for its investments at fair value in accordance with the United States
specialised industry accounting rules prescribed by the American Institute of
Certified Public Accountants Audit and Accounting Guide for Investment
Companies.
At 31 December 1998 the equity price sensitive assets and liabilities were
as follows:
<TABLE>
<CAPTION>
Assets: Fair Value
<S> <C>
Strategic investment positions 2,467,920,000
Special opportunity positions
Security Capital Group 116,245,000
Other 262,480,000
-------------
Total 2,846,645,000
Liabilities:
Convertible Notes 355,500,000
</TABLE>
The fair value of the Convertible Notes was derived based on the mid-point
of the bid/ask spread provided by broker. This does not represent the amount at
which the Company could settle the obligation. See Note 7 to the Consolidated
Financial Statements. For a discussion of terms of the Convertible Notes, see
"Item 9. Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
A change in the equity price (determined by market quotations for public
company investments and other appropriate indicators of fair market value for
private company investments) of any of the investments in the asset category
above will impact SC-U.S. Realty's Consolidated Statement of Net Assets by an
equivalent amount as well as its Consolidated Statement of Operations by the
amounts of the change plus its increasing or decreasing effect on the operating
advisor fees. An increase in the equity price of the Shares could make it more
likely that a holder of Convertible Notes would convert those notes into Shares.
To the extent any Convertible Notes are converted, the amount of the carrying
value of the Convertible Notes, as well as their fair value, would be reduced
and the amount of interest payable in the future would also be reduced. The
preceding information is of limited predictive value. As a result, the impact
on SC-U.S. Realty of equity price changes is dependent upon equity prices of SC-
U.S. Realty's investments and upon the quoted equity price of SC-U.S. Realty in
effect during future periods and the decisions of note holders whether or not to
convert their Convertible Notes into Shares.
Currency Exchange Sensitive Liabilities
SC-U.S. Realty is exposed to currency exchange changes primarily as a
result of certain administrative expenses and tax liabilities payable in its
country of organisation, Luxembourg, since the functional currency of SC-U.S.
Realty is the U.S. Dollar. To date, the amount of administrative expenses and
taxes paid by SC-U.S. Realty in Luxembourg have not been material and, as a
result, SC-U.S. Realty has not taken steps to minimise its exposure to currency
exchange fluctuations. In the future, SC-U.S. Realty's ultimate realised gain or
loss resulting from currency exchange fluctuations will depend on the change in
currency exchange rates between the U.S. Dollar and the Luxembourg Franc that
arise.
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<PAGE>
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT
Directors and Managers
The Board of Directors of the Company and the board of directors of
Security Capital Holdings S.A. have the broadest powers to act in any
circumstances on behalf of the Company and of HOLDINGS, respectively, subject to
the powers expressly assigned by applicable law to the general meetings of
shareholders.
The boards of directors are responsible for the overall investments and
administration of SC-U.S. Realty and for the adoption and implementation of
policies of SC-U.S. Realty.
The Directors must review and, if appropriate, approve, among other
matters: the Company's overall investment strategy and annual strategic plans
and budgets; the appointment of the Operating Advisor, the Custodian, Paying
Agent, the Corporate Agent, the Domiciliary and Service Agent and the Registrar
and Transfer Agent of the Company, and its officers; all the Company's issuances
of Shares and its borrowings, as well as the engagement of any underwriters,
placement agents or bankers; the proposed directors to be appointed to the board
of directors of HOLDINGS; any loans to or equity investments in HOLDINGS or
other companies; and, in cases where the Company has rights to nominate
directors or trustees of strategic investees and approve or consult on
management or investment matters of strategic investees, the exercise of such
rights.
The Directors have appointed Jeffrey A. Cozad as Managing Director of the
Company, in which capacity he is responsible for the day-to-day investment and
operating oversight of the Company. Mr. Cozad is also Managing Director of the
Operating Advisor.
The board of directors of Security Capital Holdings S.A., all of whom are
Directors of the Company, are responsible for reviewing and, if appropriate,
approving, among other matters, all investments and dispositions; annual
budgets; the appointment of the Operating Advisor, the Custodian, Paying Agent,
the Corporate Agent, the Domiciliary and Service Agent and the Registrar and
Transfer Agent as well as of the Auditors and officers; all borrowings or stock
issuances; and all voting of shares and other exercises of normal shareholder
rights with respect to strategic positions.
Security Capital Holdings S.A.'s board of directors has appointed Mr. Cozad
as Managing Director, in which capacity he is responsible for day-to-day
investment and operating oversight.
The Company believes that Directors should have financial interests closely
aligned with Shareholders. To help to assure this alignment, the Company has
granted Share option equivalents to its independent Directors at the time of the
Company's initial private equity offering in October 1995 and at certain later
dates, as described below. Each such Director received a Share option equivalent
of 50,000 Shares ($500,000 at the initial private offering price of $10 per
Share). The Share option equivalent does not represent a right to purchase
50,000 Shares at $10 per Share; rather, it represents the right to receive a
restricted cash payment equal to the excess, if any, of the NAV of 50,000 Shares
on the day of exercise over $500,000. The restricted cash payment must be
applied by the Director to the purchase of the relevant number of Shares to be
issued at the NAV as of the date of exercise of the Share option equivalent.
Directors were granted a vested right to exercise one-half of their Share option
equivalents at the completion of the initial equity offering, but have no right
to exercise the other one-half of their Share option equivalents until the
fourth anniversary of such completion, and a Director will forfeit all rights to
the second half if he resigns or is removed as a Director prior to such fourth
anniversary unless such Director is appointed as an advisory director. The right
to exercise any Share option equivalent will expire on the fifth anniversary of
the completion of the initial private equity offering. Dr. Jay O. Light, who was
originally appointed by the general meeting of Shareholders of 26 June 1996, has
received Share option equivalents similar to the Share option equivalents
described above. These Share option equivalents (of $547,500) were priced at the
NAV at which the Shares were sold in the June 1996 offering ($10.95 per Share).
Mr. Didier J. Cherpitel, currently an advisory director, who was appointed as a
Director of the Company by the general meeting of Shareholders of 25 June 1997,
has received Share option equivalents similar to the Share option equivalents
described above. These Share option equivalents (of $722,000) were priced at the
NAV on 30 June 1997 ($14.44 per Share). Dr. Erich Coenen and Francois Moes, who
were appointed as Directors on 16 October 1998 when Didier J. Cherpitel and
Alfred Knor
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retired as Directors, received Share option equivalents (of $430,000) that were
priced at the closing stock price on the AEX on 16 October 1998 ($8.60 per
Share). Claude Kremer, who was appointed as a Director on 6 January 1999,
received Share option equivalents (of $490,000) that were priced at the closing
stock price on the AEX on 6 January 1999 ($9.80 per Share). Mr. Knor has
exercised share option equivalents representing a restricted cash payment of
$47,750 (25,000 shares multiplied by the difference in NAV on the date he
received the share option equivalent and 31 December 1998) pursuant to
which he can purchase 3,713 shares. The Share option equivalents granted to
Messrs. Coenen, Moes and Kremer are similar to the Share option equivalents
described above except that the pricing and exercise thereof is based on the
closing stock price of the Shares rather than NAV. The Company intends to base
future grants of Share option equivalents (and the exercise of such Share option
equivalents) on the closing stock price of the Shares, rather than NAV.
The Company does not have any employees. Its custodial and administrative
activities are handled by BIL (except for certain domiciliary agent and service
agent services that are handled by an affiliate of the Operating Advisor) and
its operating advisory activities are handled by the Operating Advisor and the
Sub-Advisor. The Directors and officers of the Company and the Sub-Advisor are
listed below. Each Director is elected annually at the general meeting of
shareholders and serves for a term of one year. The officers of the Company work
under the supervision of the Managing Director of the Company and do not
themselves make policy decisions on behalf of the Company.
Security Capital U.S. Realty
Directors
Erich Coenen (56) has been a Director of the Company since October 1998.
Dr. Coenen has been a Member of the Board of Managing Directors of Commerzbank
AG based in Frankfurt am Main since 1982. Dr. Coenen received a doctorate in
law, having studied at the Universities of Munich, Bonn and Cologne.
Jeffrey A. Cozad (34) has been a Director of the Company since June 1996
and of Security Capital Holdings S.A. since April 1997. Mr. Cozad has been the
Managing Director of the Company and Security Capital Holdings S.A. since June
1996, where he is responsible for the day-to-day investment and operating
oversight. Previously, he was Senior Vice President of Security Capital Markets
Group Incorporated in its New York office from June 1995 to June 1996, where he
was head of capital markets activities and from December 1991 to June 1995 he
was Vice President, where he provided capital markets services for affiliates of
Security Capital Group. Prior to joining Security Capital Group, Mr. Cozad was
with LaSalle Partners Incorporated, where he provided corporate real estate
services to major institutions. Mr. Cozad received his M.B.A. from the
University of Chicago Graduate School of Business and his B.A. in Economics and
Management from DePauw University. Mr. Cozad is a member of the board of
directors of Regency. Mr. Cozad and his family own 20,000 Shares.
Claude Kremer (42) has been a Director of the Company since January 1999.
Mr. Kremer has been a partner with the law firm of Arendt & Medernach in
Luxembourg and Brussels since 1982, where he practices corporate, investment
fund and securities law. Mr. Kremer received his Masters degrees in Law and
History from the University of Grenoble (France) and in Accounting and Finance
from the London School of Economics and Political Science.
Jay O. Light (57) has been a Director of the Company and Security Capital
Holdings S.A. since June 1996. Dr. Light is a Professor of Business
Administration at Harvard University, Graduate School of Business Administration
since 1970, where his teaching and research concentration is investment
management and capital markets. Dr. Light previously served as Director of
Investment and Financial Policies at the Ford Foundation from 1977 to 1979, and
is currently a trustee or director of the following organisations: Teachers'
Insurance and Annuity Association/The College Retirement Equity Fund, Harvard
Management Company, the Baupost Fund, the GMO Trust, Jeffrey Company, Brigham &
Women's Hospital and United Asset Management. Dr. Light also serves as a
consultant to various investment management firms, endowments and pension plan
sponsors.
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Francois Moes (51) has been a Director of the Company since October 1998
and of Security Capital Holdings S.A. since January 1999. Mr. Moes has been a
member of the executive board of BIL since October 1990, where his
responsibilities include credit policy and risk management, planning, budgeting
and human resources. Mr. Moes is a board member of Banque Internationale a
Luxembourg BIL Asia Ltd. Singapore. Prior to 1990, he was responsible for the
international and corporate lending department of BIL. Mr. Moes is a Graduate of
Ecole des Hautes Etudes Commerciales (HEC), Paris and of the Institut Europeen
d'Administration des Affaires (INSEAD) in Fontainebleau, France and attended the
Advanced Management Program of the Harvard Business School.
William D. Sanders (57) has been Non-Executive Chairman of the Company
since July 1995. He is the founder and Chairman of Security Capital Group. Mr.
Sanders retired on 1 January 1990 as Chief Executive Officer of LaSalle
Partners Incorporated, a firm he founded in 1968. Mr. Sanders is a director of
R.R. Donnelley & Sons Company and was formerly a director of Continental Bank
Corporation, Continental Bank, N.A., King Ranch, Inc., LaSalle Partners
Incorporated and certain of its affiliates and Lone Star Technologies, Inc. Mr.
Sanders is a former trustee and member of the executive committee of the
University of Chicago and a former trustee fellow of Cornell University. Mr.
Sanders received his B.S. from Cornell University. Mr. Sanders is a member of
the boards of directors of CarrAmerica and Storage USA and is an advisory
director of Regency.
Executive Officers
Eleanor Evans (32) has been a Vice President of the Company since May 1997
where she is responsible for legal, regulatory and operational matters. Prior
to joining the Company, Ms. Evans was an assistant solicitor with the law firm
of Norton Rose and practised corporate and financial law in both London and Hong
Kong from September 1988 to May 1997. Ms. Evans received her law degree from the
University of London and is admitted as a solicitor in both England and Wales,
and Hong Kong.
Christopher Fell (42) has been Treasurer of the Company and HOLDINGS since
January 1999, where he is responsible for treasury and cash management
functions. Mr. Fell joined the Company in September 1997 with cash management
responsibilities. Prior to joining the Company, from 1992 to September 1997,
Mr. Fell was an interim manager providing corporate treasury services to major
corporations in the United Kingdom. Mr. Fell is a member of the Association of
Corporate Treasurers.
W. Scott Hartman (34) has been a Vice President of the Company since April
1999, and with the Operating Advisor since November 1998, where he is
responsible for corporate finance initiatives. Prior thereto, Mr. Hartman was
Vice President of Security Capital Global Capital Management Group Incorporated
from March 1998 to November 1998, Vice President of Security Capital Atlantic
Incorporated from September 1996 to March 1998, an associate with Security
Capital Atlantic Incorporated from May 1995 to September 1996, in Security
Capital's Management Development Program from July 1994 to May 1995 and a
research analyst with AMB Institutional Realty Advisors from May 1993 to May
1994. Mr. Hartman received his M.B.A. from the Haas School of Business at the
University of California, a J.D. from Hastings College of Law at the University
of California and a B.A. from Stanford University.
Susan Liow (36) has been a Vice President--Finance of the Company since
March 1996. Prior to joining the Company, Ms. Liow was the U.K. Financial
Controller for Arthur Andersen Corporate Financial Services practice from April
1994 to March 1996. Prior to joining Arthur Andersen, Ms. Liow was a manager in
Deloitte & Touche where she was responsible for the U.K. Partnership's profit
plans and treasury functions from February 1992 to March 1994. Ms. Liow trained
as an auditor with Deloitte & Touche and Neville Russell and received her
accountancy qualifications from the Institute of Chartered Accountants in
England and Wales. She worked for more than two years in the Loans and
Securities division of Public Bank Berhad, Malaysia, before obtaining her BSc in
Economics with an award and honours from the University of Surrey, U.K.
Gerald R. Morgan, Jr. (36) has been a Senior Vice President of the Company
since December 1997, where he has financial and operating responsibilities. Mr.
Morgan was Vice President of Security Capital Group from March 1995 until
December 1997. Prior thereto he was in Security Capital's Management Development
Program since July 1993.
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Mr. Morgan received an M.B.A. from Stanford University Graduate School of
Business and a B.S. with distinction from Stanford University.
Sub-Advisor
Thomas B. Allin (49) has been Managing Director of Security Capital Global
Strategic Group Incorporated since December 1998. From April 1998 to December
1998, Mr. Allin was President and Chief Operating Officer for Strategic Hotel
Capital Incorporated. From April 1996 to December 1997, Mr. Allin was President
and Chief Executive Officer for Gordon Biersch. From 1973 to April 1996, Mr.
Allin was affiliated with McDonald's Corp., most recently as Senior Vice
President and Zone Manager. Mr. Allin received his B.S. from Duke University.
Mr. Allin is a member of the board of directors of Regency.
C. Ronald Blankenship (49) has been Vice Chairman and Chief Operating
Officer of Security Capital Group since June 1998. He was Managing Director of
Security Capital Group from March 1991 to June 1998 and Non-Executive Chairman
of Archstone Communities Trust (formerly Security Capital Pacific Trust) from
June 1997 to June 1998 and Chairman of Archstone Communities Trust from June
1991 to June 1997. He is also Co-Head of Security Capital Global Strategic Group
Incorporated. Mr. Blankenship received his B.B.A. from the University of Texas
at Austin. Mr. Blankenship is a member of the board of directors of Security
Capital Group and Storage USA and the board of trustees of City Center Retail.
Stephen F. Dichter (46) has been a Managing Director of Security Capital
Global Strategic Group Incorporated since January 1998, where he conducts global
real estate and economic research and manages operations for companies in which
Security Capital Group has direct or indirect ownership positions. Prior
thereto, from 1979 to January 1998, he was a partner with McKinsey & Company,
Inc. Mr. Dichter received his M.B.A. from Harvard Graduate School of Business
Administration and his B.A. from Swarthmore College. Mr. Dichter is a member of
the board of trustees of City Center Retail, CWS Communities and Urban Growth
Property.
Jeff A. Jacobson (37) has been a Managing Director of Security Capital
Global Strategic Group Incorporated since June 1998, where he is responsible for
researching strategic investment opportunities in the U.S. and abroad and
providing investment oversight to certain real estate operating companies and
from September 1997 to June 1998, Mr. Jacobson was Senior Vice President. Prior
thereto, from September 1990 to May 1997, Mr. Jacobson was with LaSalle Partners
Limited where his most recent position was Managing Director of LaSalle Advisors
Limited.
Anthony R. Manno Jr. (47) has been a Managing Director of Security Capital
Global Capital Management Group Incorporated since January 1995, where he is
responsible for overseeing all investment and capital allocation recommendations
for passive public market securities activities, company and industry analysis,
market strategy, trading and reporting. Mr. Manno was a member of Security
Capital Group's investment committee from March 1994 to June 1996. Prior to
joining Security Capital Group, Mr. Manno was a managing director of LaSalle
Partners Incorporated from March 1980 to March 1994. Mr. Manno received his
M.B.A., with a concentration in Finance, from the University of Chicago Graduate
School of Business and his M.A. and B.A. in Economics from Northwestern
University. Mr. Manno is also a certified public accountant.
Caroline S. McBride (45) has been a Managing Director of Security Capital
Global Strategic Group Incorporated since March 1997 and is responsible for
investment oversight of strategic investment positions in public and private
U.S. real estate operating companies. Prior to joining Security Capital Group in
June 1996, Ms. McBride was the director of private market investments for the
IBM Retirement Fund, where she was responsible for a $3.7 billion real estate
and private equity portfolio. Prior to that, Ms. McBride was director of
Finance, Investments and Asset Management for IBM's corporate real estate
division. Ms. McBride was with IBM from July 1978 to May 1996. Ms. McBride
received a B.A. from Middlebury College and an M.B.A. in Finance from New York
University School of Business Administration. Ms. McBride is a member of the
board of directors of the Pension Real Estate Association (PREA) and the Real
Estate Research Institution. Ms. McBride is a member of the boards of directors
of CarrAmerica and Storage USA and the board of trustees of CWS Communities.
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Daniel F. Miranda (45) has been a Managing Director of Security Capital
Global Capital Management Group Incorporated since September 1996, where he is
responsible for operating oversight of various investments relating to public
and private U.S. real estate operating companies. Prior to joining Security
Capital Group, Mr. Miranda was a managing director of GE Capital Finance from
September 1991 to September 1996, where he was responsible for national real
estate services, and prior thereto for a $1.2 billion real estate portfolio in
the fourteen-state Midwest region. Previously, Mr. Miranda developed commercial
real estate as president of First Columbia Corporation, a firm which he founded,
served as vice president and general counsel of the Westport Company, a publicly
traded REIT, and practised law with the firm of Sonnenschein Nath & Rosenthal in
Chicago. Mr. Miranda received his law degree from Columbia University Law School
and his undergraduate degree from the University of California, Berkeley.
Constance B. Moore (43) has been a Managing Director of Security Capital
Global Strategic Group Incorporated since January 1999. From July 1998 to
December 1998, Ms. Moore was Co-Chairman, Chief Operating Officer and Trustee of
Archstone Communities Trust. From January 1996 to July 1998, Ms. Moore was Co-
Chairman, Chief Operating Officer and Director of Security Capital Atlantic
Incorporated, and from May 1994 to December 1995, she was Managing Director of
Archstone Communities Trust. From March 1993 to April 1994, Ms. Moore was Senior
Vice President of Security Capital Group. Ms. Moore received her M.B.A. from the
University of California at Berkeley and her B.S. in Real Estate Finance, with
honours, from San Jose State University.
A. Richard Moore, Jr. (52) has been a Managing Director of Security Capital
Global Strategic Group Incorporated since May 1998. Prior thereto, from March
1990 to May 1998, Mr. Moore was a Vice President with Goldman, Sachs & Co.,
where his most recent position was in the Equity Research Department.
Charles I. Stannard (55) has been a Senior Vice President and head of
Security Capital Real Estate Research Group Incorporated in the United States
since November 1997. Prior to joining Security Capital Group, Mr. Stannard was
Senior Vice President and Director of Research with D'Arcy Masius Benton and
Bowles, an advertising agency in Detroit, Michigan, from April 1993 to November
1997, where he was actively involved in D'Arcy's General Motors account and new
business. Prior thereto Mr. Stannard worked in Chicago for Leo Burnett as a
member of its research department. Mr. Stannard received his Ph.D. in Sociology
from Northwestern University, his M.B.A. from Cornell University and his B.A. in
Sociology from Colgate University.
Kenneth D. Statz (40) has been a Managing Director of Security Capital
Global Capital Management Group Incorporated since December 1997, where he is
responsible for researching corporate and portfolio acquisitions. From July 1996
to December 1997 he was Senior Vice President of such entity. Prior to joining
Security Capital Group, from February 1993 to January 1995, Mr. Statz was a Vice
President in the investment research department of Goldman, Sachs & Co.,
concentrating on research and underwriting for the REIT industry. Prior thereto,
Mr. Statz was a real estate stock portfolio manager and a managing director of
Chancellor Capital Management. Mr. Statz received his M.B.A. and B.B.A. in
Finance from the University of Wisconsin.
Paul E. Szurek (38) has been Managing Director of SCGroup Incorporated and
Chief Financial Officer of Security Capital Group since July 1997. From January
1996 through June 1997, he was a Managing Director of the Company and HOLDINGS
where he was responsible for operations, corporate finance and mergers and
acquisitions. Prior thereto, from June 1993 to January 1996, Mr. Szurek was a
Senior Vice President of Security Capital Group, where he supervised corporate
finance and corporate acquisitions and oversaw legal services for affiliates of
the firm. Prior to joining Security Capital Group, Mr. Szurek was a shareholder
and attorney in the law firm of Kemp, Smith, Duncan & Hammond in El Paso, Texas,
where he practised securities and mergers and acquisitions law. Mr. Szurek
received his law degree from the Harvard University Law School and his B.A. in
Government from the University of Texas at Austin.
Robert S. Underhill (43) has been Managing Director of Security Capital
Global Strategic Group Incorporated since August 1997, where he is responsible
for researching corporate and portfolio acquisitions. Prior thereto, from March
1997 to August 1997, he was Senior Vice President of such entity. Mr. Underhill
was a consultant for affiliates of Security Capital Group from November 1994 to
February 1997. Prior to joining Security Capital Group, from September 1984 to
October 1994, Mr. Underhill was a Senior Vice President of LaSalle Partners
Incorporated, where he was responsible for the investment management of a $3.5
billion portfolio of office and retail properties. Prior thereto,
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Mr. Underhill was responsible for directing LaSalle Partners Corporate Services'
activity in Europe. Mr. Underhill received his M.B.A. from Northwestern
University and his B.A. from Colby College.
Thomas G. Wattles (47) has been a Managing Director of Security Capital
Group since March 1991 and Trustee of ProLogis Trust (formerly Security Capital
Industrial Trust) since January 1993. Mr. Wattles is also Co-Head of Security
Capital Global Strategic Group Incorporated. Mr. Wattles was Non-Executive
Chairman of ProLogis Trust from March 1997 to May 1998 and Co-Chairman and Chief
Investment Officer of ProLogis Trust from November 1993 to March 1997. Prior
thereto, he was Managing Director of ProLogis Trust from January 1993 to
November 1993. He received his M.B.A. from Stanford University Graduate School
of Business and his B.A. (with distinction) from Stanford University. Mr.
Wattles is a member of the board of trustees of CWS Communities and Urban Growth
Property.
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
Information concerning compensation of directors is set forth below under
"--Charges and Expenses--Director Compensation" and information concerning the
Share option equivalents granted to Directors is set forth under the heading
"Directors and Managers" which is incorporated by reference from ("Item 10--
Directors and Officers of the Registrant") above. The Company does not
separately compensate its officers and therefore no information has been
provided. Information concerning compensation paid to the Operating Advisor is
also provided below.
Charges and Expenses
General
As more fully described hereinafter, the Company and/or HOLDINGS, as
appropriate, will pay out of their assets all expenses which shall include, but
not be limited to, (i) the fees and expenses payable or reimbursable to the
Operating Advisor and expenses payable to the Sub-Advisor, (ii) fees payable to
the Custodian and its correspondents, the Paying Agent, Corporate Agent,
Domiciliary and Service Agent, the Registrar and Transfer Agent, and any other
agent employed by the Company or HOLDINGS, (iii) any fees and expenses involved
in registering and maintaining the registration of the Company with any
governmental agency or stock exchange in Luxembourg, the United States and in
any other country, (iv) fees for legal, accounting and auditing services,
reporting and publishing expenses, including the costs of preparing, printing
and distributing prospectuses, explanatory memoranda, other promotional
material, including advertisements in newspapers and journals, periodic reports
or registration statements, and the costs of any reports to the shareholders of
the Company and of HOLDINGS, (v) all taxes, duties, governmental and similar
charges, and (vi) all other operating expenses, as more fully described
hereinafter, including all costs of buying and selling assets or raising
capital, interest, bank charges and brokerage, postage, telephone and telex. The
Company and HOLDINGS may calculate administrative and other expenses of a
regular or recurring nature on an estimated figure for yearly or other periods
in advance, and may accrue the same in equal proportions over any such period.
The Company shall pay, or cause to be paid out of the assets of the
Company, the following operating and administrative expenses or investment and
financing costs (regardless of whether such expenses or costs are capitalised or
expensed under GAAP) of the Company and HOLDINGS and, if the Operating Advisor
advances money for any of such expenses or costs, it shall be entitled to
reimbursement by the Company for the following:
(i) travel and other out-of-pocket expenses incurred by the directors,
officers and employees of the Operating Advisor or its subcontractors in
connection with securing financing (including debt and equity) for the Company
and HOLDINGS or evaluating, investigating, negotiating or closing the purchase,
financing, refinancing or sale of an investment of the Company or HOLDINGS;
(ii) all other costs and expenses relating to the operations of the Company
and HOLDINGS, including, without limitation, travel, appraisal, reporting,
accounting, auditing and legal fees and financing and capital raising costs
(including, without limitation, sales commissions payable in connection with the
issuance of Shares);
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(iii) expenses in connection with payments of distributions in cash or any
other form made or caused to be made by the Boards of Directors of the Company
and HOLDINGS to or on account of holders of shares of the Company or HOLDINGS,
respectively;
(iv) expenses connected with communications to holders of shares of the
Company and HOLDINGS and the investment community in general (including meetings
between affiliates of the Operating Advisor and investors or securities
analysts) and other bookkeeping and clerical work necessary in maintaining
relations with holders of shares and in complying with the continuous reporting
and other requirements of governmental bodies or agencies, including the cost of
printing and mailing certificates for shares and proxy solicitation materials
and reports to holders of shares of the Company and HOLDINGS;
(v) the fees of the Custodian, Paying Agent, Corporate Agent, Domiciliary
and Service Agent, as well as the fees of the Registrar and Transfer Agent,
which are payable quarterly and are computed, in accordance with customary
banking practice in Luxembourg, as a percentage based on SC-U.S. Realty's gross
assets. In addition, the Custodian, Paying Agent, Corporate Agent, Domiciliary
and Service Agent, as well as the Registrar and Transfer Agent, are entitled to
be reimbursed for their reasonable out-of-pocket expenses and disbursements and
for the charges of any correspondents; and
(vi) expenses relating to any office or office facilities maintained for
the Company and/or HOLDINGS separate from the office or offices of the Operating
Advisor.
Director Compensation
Each of the Directors will be paid a remuneration by the Company at such
rate as may from time to time be determined by a resolution of the Shareholders
to be adopted during a general meeting (currently $15,000 per year, plus an
additional fee of $1,000 per meeting ($5,000 per meeting for directors not
resident in Europe) for in-person attendance at each quarterly board meeting).
The Directors may also be repaid all reasonable out-of-pocket expenses,
insurance coverage, travel, hotel and other expenses properly incurred by them
in attending meetings of the Company. SC-U.S. Realty paid a total of $103,000 as
compensation to all Directors as a group during 1998. SC-U.S. Realty has no
employees and therefore does not compensate any officers.
Operating Advisor Fees
The Operating Advisor will receive for the services it provides pursuant to
the Advisory Agreement a fee of 1.25% per annum, payable quarterly in arrears,
of the average monthly value of funds invested by the Company and/or HOLDINGS
(other than funds placed in liquid, short-term investments pending further
investment, or investments in Security Capital Group securities) for the
immediately preceding month. Half of this fee shall be payable by the Company
and half by HOLDINGS. The Operating Advisor has received fees for these services
for the periods from 7 July 1995 (the date of incorporation of the Company) to
31 December 1995, from 1 January 1996 to 31 December 1996, from 1 January 1997
to 31 December 1997 and from 1 January 1998 to 31 December 1998 of $99,000,
$8,041,000, $24,632,000 and $35,220,000, respectively.
The Company and/or HOLDINGS shall pay or reimburse the Operating Advisor,
as appropriate, for the operating and administrative expenses or costs described
above in U.S. Dollars, provided that the Company and/or HOLDINGS shall not pay
or reimburse the Operating Advisor any such operating and administrative
expenses in any calendar year (other than expenses related to specific
investment, financing or share issuance transactions which are appropriately
capitalised, expensed as interest or other general debt costs or included in the
investment cost of an asset under GAAP) to the extent that such operating and
administrative expenses exceed 0.25% per annum of the average monthly value of
funds invested by the Company and/or HOLDINGS (other than funds placed in
liquid, short-term investments pending further investment, or investments in
Security Capital Group securities) for such calendar year (as calculated in
respect of each calendar month of such calendar year), and, to the extent that
the Company and/or HOLDINGS incur or incurs such operating and administrative
expenses (other than expenses relating to specific investment, financing or
share issuance transactions which are appropriately capitalised, expensed as
interest or other general debt costs or included
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in the investment cost of an asset under GAAP) in any calendar year in excess of
the aforementioned amount, the Operating Advisor shall reduce its fee described
above in relation to such calendar year, with respect to the Company and/or
HOLDINGS, as appropriate, in the amount of the excess of such expenses, in order
that the Operating Advisor thereby effectively pays such additional operating
and administrative expenses up to the amount of the Operating Advisor's fee.
Other than the expenses payable to the Operating Advisor, the other costs of the
Company and/or HOLDINGS are not expected to exceed 0.25% per annum of the
average monthly value of funds invested by the Company and/or HOLDINGS (other
than funds placed in liquid, short-term investments pending further investment,
or investments in Security Capital Group securities) in any calendar year.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
The Company has no outstanding options to purchase securities.
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Directors
Erich Coenen has been a Director of the Company since October 1998 and has
been a member of board of managing directors of Commerzbank AG since 1982.
Commerzbank AG is the arranger and administrative agent for the Line of Credit
and acted in a similar capacity with regard to the HOLDINGS Line.
Claude Kremer has been a Director of the Company since January 1999 and has
been a partner with the law firm of Arendt & Medernach since 1982. Arendt &
Medernach has provided legal services to the Company since its formation.
Francois Moes has been a Director of the Company since October 1998 and has
been a member of the executive board of BIL since 1990. BIL provides all
custodial duties for SC-U.S. Realty, such as custody of cash, securities
deposits and financial transactions, as well as certain administrative duties,
such as bookkeeping and the calculation of NAV. In addition, BIL performs
accounting and financial reporting.
None of Messrs. Coenen, Kremer or Moes had or has a direct or indirect
material interest in any of the respective transactions described above.
Operating Advisor
The Operating Advisor provides SC-U.S. Realty with advice with respect to
strategy, investments, financing and certain other administrative matters
affecting SC-U.S. Realty. The Operating Advisor advises only SC-U.S. Realty.
The Operating Advisor and its U.S. affiliates have identified many tangible
investment opportunities with the potential to generate significant returns by
deploying capital into U.S. real estate companies. The Operating Advisor and its
affiliates have committed significant resources to researching and developing
SC-U.S. Realty's strategy, and the Operating Advisor advises on the management
of SC-U.S. Realty's operations to execute this strategy.
The Operating Advisor analyses potential opportunities for SC-U.S. Realty
to deploy capital in strategic investment positions in U.S. real estate
companies, including privately held REITs, and publicly traded positions in
REITs. The Operating Advisor seeks to identify geographic and/or product type
niches which offer the most attractive opportunities for SC-U.S. Realty to
deploy its capital. The Operating Advisor believes that there are a number of
specific additional opportunities in which SC-U.S. Realty could generate
significant returns by strategically deploying its capital.
-75-
<PAGE>
Within a given niche, the Operating Advisor evaluates companies'
competitive positions, management expertise, strategic direction, financial
strength and, most importantly, their prospects for long-term, sustainable per
share cash flow growth. SC-U.S. Realty believes that growth in long-term,
sustainable cash flow is a function of a company's ability to be a leader in its
market niche with the best service, marketing and product and should be
reflected in long-term dividend growth and stock appreciation. Meetings between
the Operating Advisor and a company's senior management are an integral part of
the Operating Advisor's preliminary analysis.
The Operating Advisor advises SC-U.S. Realty on obtaining board and
committee representation and other management rights with respect to strategic
investment positions to impact the research, development and implementation of
long-term, focused operating strategies consistent with SC-U.S. Realty's
investment criteria.
The Operating Advisor provides services to SC-U.S. Realty under an
agreement dated 1 July 1997. The term of this agreement is two years from the
date of its signature. The agreement is automatically renewed for successive
periods of two years, unless the Company and HOLDINGS, acting together, give
written notice that the agreement will not be renewed; however, at any time
after the first anniversary date of the agreement both the Company and HOLDINGS,
acting together, may terminate the agreement on not less than sixty days' prior
written notice to the Operating Advisor.
The Operating Advisor is a public limited holding company (societe anonyme)
incorporated under the laws of Luxembourg on 26 June 1997 for an unlimited
period of time.
Its registered office is located at 25b, boulevard Royal, L-2449
Luxembourg. Its current directors are Jeffrey A. Cozad, Christopher W. House and
William D. Sanders.
Subject to the prior approval of the board of directors of the Company or
HOLDINGS, as the case may be, the Operating Advisor may subcontract part or all
of its duties, functions, powers or privileges to other persons or entities on
terms and conditions as the Operating Advisor determines. In all cases, however,
the Operating Advisor shall be responsible for the performance of such duties
and responsibilities.
See "Item 1--Operating Advisor" and "Item 1--Relationship with Security
Capital Group" for more information concerning the relationship of the Company,
the Operating Advisor and Security Capital Group.
Operating Advisor Affiliates
The Operating Advisor has stated that it currently intends to continue to
contract with the Sub-Advisor and other real estate and business consulting
services to assist in the research, identification and evaluation of strategic
investment positions. The Sub-Advisor is a resource for SC-U.S. Realty,
conducting strategic real estate market research, investment research and due
diligence. The Operating Advisor uses this information to evaluate potential
strategic investment positions in U.S. real estate companies and publicly traded
positions in REITs.
SC-U.S. Realty has appointed Security Capital European Services S.A. as its
domiciliary agent (the "Domiciliary Agent") and service agent (the "Service
Agent") responsible for the domiciliation of SC-U.S. Realty and the performance
of certain of the administrative duties not performed by the Corporate Agent.
The rights and duties of Security Capital European Services S.A., as
Domiciliary and Service Agent, are governed by an agreement for an unlimited
period of time which may be terminated by SC-U.S. Realty or Security Capital
European Services S.A. by giving not less than 90 days' prior written notice.
Security Capital European Services S.A. is a public limited company
(societe anonyme) incorporated under the laws of the Grand Duchy of Luxembourg
on 18 March 1997. It presently exists for an unlimited period of time. Its
registered office is at 25b, boulevard Royal, L-2449 Luxembourg. Its share
capital amounted to $50,000 as of 31 December 1998.
Also see "Charges and Expenses" in Item 11.
-76-
<PAGE>
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
Incorporated by reference to Item 6 above.
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES AND USE OF PROCEEDS
Not applicable.
-77-
<PAGE>
GLOSSARY
AEX................. AEX Stock Exchange, Amsterdam.
ADRs................ American Depositary Receipts evidencing interests in ADSs.
ADSs................ American Depositary Shares.
Articles............ The Articles of Incorporation of the Company, as amended
at an extraordinary general meeting of the Company held on
24 June 1998.
ASAS................ The Amsterdam Security Account System.
BIL................. Banque Internationale a Luxembourg.
Board of Directors.. The Board of Directors of the Company.
Business Day........ Any day on which banks are open for business in Luxembourg
City, Amsterdam and New York City.
CarrAmerica......... CarrAmerica Realty Corporation, a Maryland corporation
(NYSE:CRE).
Cedel............... Cedel Bank, societe anonyme.
City Center Retail.. City Center Retail Trust, a Maryland real estate
investment trust.
Code................ The U.S. Internal Revenue Code of 1986, as amended.
Commission.......... The U.S. Securities and Exchange Commission.
Company............. Security Capital U.S. Realty, organised in Luxembourg as a
Societe d'Investissement a Capital Fixe.
Consolidated
Financial
Statements.......... The audited consolidated financial statements of SC-U.S.
Realty as of 31 December 1998, 1997 and 1996 and for the
years then ended.
Convertible Notes... The 2% Senior Unsecured Convertible Notes due 2003 of the
Company.
Custodian........... The Depositary's custodian.
CWS Communities..... CWS Communities Trust, a Maryland real estate investment
trust.
Deposit Agreement... The Deposit Agreement dated as of _______ __, 1999 among
the Company, the Depositary and the holders from time to
time of ADRs.
Depositary.......... The Bank of New York.
DTC................. The Depository Trust Company.
Directors........... The individual members of the Board of Directors of the
Company.
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<PAGE>
Euroclear........... Morgan Guaranty Trust Company of New York, Brussels
Office, or its successor as operator of the Euroclear
system.
Exchange Act........ The U.S. Securities Exchange Act of 1934, as amended.
GAAP................ Generally accepted accounting principles in the United
States.
HOLDINGS............ Security Capital Holdings S.A., a Luxembourg corporation
which is a wholly-owned subsidiary of the Company,
including all of HOLDINGS' wholly-owned subsidiaries,
unless the context otherwise indicates.
HOLDINGS Line....... The $700 million secured line of credit of HOLDINGS that
was guaranteed by the Company.
Indenture........... The Indenture dated as of 22 May 1998, between the Company
and the Trustee, as amended by the First Supplemental
Indenture, dated as of 22 May 1998.
Investment Company
Act................. The U.S. Investment Company Act of 1940, as amended.
LSE................. The Luxembourg Stock Exchange.
Luxembourg.......... The Grand Duchy of Luxembourg.
Luxembourg francs
or LUF.............. The legal currency of Luxembourg.
Management.......... The Managing Director and Directors of the Company.
NAV................. Net asset value per Share, or the value of SC-U.S.
Realty's net assets, being the total asset value less the
total liabilities, divided by the number of Shares
outstanding as of each Valuation Day, as calculated in
accordance with Articles 10 and 11 of the Articles and as
described under the heading "Valuation and Investment
Restrictions--Valuation" in Item 1.
NYSE................ The New York Stock Exchange.
Operating Advisor... Security Capital U.S. Realty Management S.A., a Luxembourg
corporation which is a wholly-owned subsidiary of Security
Capital Group.
Pacific Retail...... Pacific Retail Trust, a Maryland real estate investment
trust.
Regency............. Regency Realty Corporation, a Florida corporation
(NYSE:REG).
REITs............... Entities taxed as "real estate investment trusts" under
the Code.
Rights Offering..... The issue (if any) by the Company of Shares for
subscription at a price per Share which is below NAV by
reserving for existing Shareholders the right to subscribe
for new Shares on a preferential and ratable basis in
compliance with the provisions of Article 7 of the
Articles.
Rule 144A ADRs...... Rule 144A American Depositary Receipts representing
interests in Rule 144A ADSs.
Rule 144A ADSs...... Rule 144A American Depositary Shares.
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<PAGE>
Rule 144A Deposit
Agreement........... The Rule 144A Deposit Agreement between the Company and
The Bank of New York.
Securities.......... The Shares together with the ADSs.
SC-U.S. Realty...... The Company and its wholly-owned direct and indirect
subsidiaries.
Securities Act...... The U.S. Securities Act of 1933, as amended.
Security Capital
Group............... Security Capital Group Incorporated (NYSE:SCZ/A and SCZ/B)
(or, where applicable, SC Realty Incorporated, its wholly-
owned subsidiary), the Company's principal beneficial
Shareholder, which, as of 31 December 1998, owned
approximately 35.01% of the outstanding Shares.
Shareholder......... A registered holder of Shares and, unless the context
demands otherwise, a person who holds Shares through ASAS,
Euroclear or Cedel.
Shares.............. Shares having a par value of $2.00 per share, of the
Company.
SICAF............... Societe d'Investissement a Capital Fixe.
SICAV............... Societe d'Investissement a Capital Variable.
Storage USA......... Storage USA, Inc., a Tennessee corporation (NYSE:SUS).
Sub-Advisor......... Security Capital Investment Research Incorporated and,
where the context requires, its wholly-owned subsidiaries
Security Capital Global Strategic Group Incorporated,
Security Capital Global Capital Management Group
Incorporated and Security Capital Real Estate Research
Group Incorporated.
Trustee............. State Street Bank and Trust Company.
United States....... The United States of America (including the States and the
District of Columbia), its territories, its possessions
and other areas subject to its jurisdiction.
Urban Growth
Property............ Urban Growth Property Trust, a Maryland real estate
investment trust.
U.S. Dollars or $... The legal currency of the United States of America.
Valuation Day....... The day as of which NAV is calculated in accordance with
Article 11 of the Articles until a subsequent Valuation
Day. Valuation Days generally occur on the last business
day in Luxembourg of each quarter.
-80-
<PAGE>
PART IV
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants........................................... 82
Consolidated Statements of Net Assets at 31 December 1998 and 1997.......... 83
Consolidated Statements of Operations for the years ended
31 December 1998, 1997 and 1996........................................... 84
Consolidated Statements of Cash Flows for the years ended
31 December 1998, 1997 and 1996........................................... 85
Consolidated Statements of Changes in Net Assets for the years ended
31 December 1998, 1997 and 1996........................................... 86
Consolidated Statements of Changes in Shares Outstanding for the
years ended 31 December 1998, 1997 and 1996............................... 86
Consolidated Financial Highlights for the years ended
31 December 1998, 1997 and 1996........................................... 86
Consolidated Schedules of Strategic Investment Positions at
31 December 1998 and 1997................................................. 87
Consolidated Schedules of Special Opportunity Positions at
31 December 1998 and 1997................................................. 88
Notes to the Consolidated Financial Statements.............................. 89
-81-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of SECURITY CAPITAL U.S. REALTY
In our opinion, the consolidated statements of net assets (including the
consolidated schedules of strategic investment positions and of special
opportunity positions) and the related consolidated statements of operations, of
cash flows, of changes in net assets and of changes in shares outstanding, and
the consolidated financial highlights present fairly, in all material respects,
the financial position of SECURITY CAPITAL U.S. REALTY (the "Company") and its
wholly-owned subsidiaries at 31 December 1998 and 1997, and the results of
operations and their cash flows and financial highlights for each of the three
years ended 31 December 1998, 1997 and 1996, in conformity with accounting
principles generally accepted in the United States. These financial statements
and financial highlights (hereafter collectively referred to as "financial
statements") are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
International Standards on Auditing, which are substantially equivalent to
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE SARL
Luxembourg
10 March 1999
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<PAGE>
SECURITY CAPITAL U.S. REALTY
CONSOLIDATED STATEMENTS OF NET ASSETS
(in thousands $, except per share amounts)
<TABLE>
<CAPTION>
At 31 December
-------------------------
A S S E T S 1998 1997
----------- ------------ -----------
<S> <C> <C>
Strategic investment positions at value:
CarrAmerica (Cost $699,851 and $636,387, respectively)..................... $ 686,482 $ 838,343
City Center Retail (Cost $304,035 and $83,665, respectively)............... 304,035 83,300
CWS Communities (Cost $153,563 and $92,600, respectively).................. 153,563 91,646
Pacific Retail (Cost $524,038 and $523,459, respectively).................. 501,805 610,811
Regency (Cost $235,750 and $225,695, respectively)......................... 260,775 312,438
Storage USA (Cost $394,272 and $348,444, respectively)..................... 380,178 422,265
Urban Growth Property (Cost $181,082 and $17,703, respectively)............ 181,082 17,241
Special opportunity positions at value:
Security Capital Group Incorporated (Cost $165,000 and $165,000,
respectively)............................................................ 116,245 165,000
Other special opportunity positions (Cost $314,031 and $282,708,
respectively)............................................................ 262,480 352,010
---------- ----------
Total investments............................................................ $2,846,645 $2,893,054
Cash and cash equivalents.................................................... 2,994 1,970
Accounts receivable and other................................................ 23,989 6,796
---------- ----------
TOTAL ASSETS................................................................. $2,873,628 $2,901,820
---------- ----------
L I A B I L I T I E S
---------------------
Accounts payable and accrued expenses........................................ $ 13,497 $ 12,382
Taxes payable................................................................ 1,306 1,018
Line of credit............................................................... 262,500 130,000
Convertible notes............................................................ 369,940 --
---------- ----------
TOTAL LIABILITIES............................................................ $ 647,243 $ 143,400
---------- ----------
TOTAL NET ASSETS (SHAREHOLDERS' EQUITY)...................................... $2,226,385 $2,758,420
========== ==========
SHARES
Authorised 500,000,000 shares, $2.00 par value, 173,123,743 shares
issued and outstanding at 31 December 1998 and 31 December 1997............ $ 346,247 $ 346,247
Legal reserve................................................................ 30,375 27,304
Share premium account........................................................ 1,749,158 1,749,598
---------- ----------
PAID-IN CAPITAL.............................................................. $2,125,780 $2,123,149
Undistributed net operating income........................................... $ 148,152 $ 73,324
Accumulated net realised gain................................................ 77,431 44,553
Unrealised (depreciation)/appreciation on strategic investment and special
opportunity positions....................................................... (124,978) 517,394
---------- ----------
TOTAL NET ASSETS............................................................. $2,226,385 $2,758,420
========== ==========
Net Asset Value per share.................................................... $12.86 $15.93
</TABLE>
The accompanying notes form an integral part of the financial statements.
-83-
<PAGE>
SECURITY CAPITAL U.S. REALTY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands $, except per share amounts)
<TABLE>
<CAPTION>
For the years ended 31 December
-----------------------------------
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Gross dividends from strategic investment positions:
CarrAmerica........................................................ $ 51,999 $ 41,412 $ 13,567
CWS Communities.................................................... 4,783 -- --
Pacific Retail..................................................... 36,178 21,576 9,482
Regency............................................................ 20,244 11,441 773
Storage USA........................................................ 29,934 24,497 8,700
Urban Growth Property.............................................. 4,338 -- --
--------- -------- --------
$ 147,476 $ 98,926 $ 32,522
Gross dividends from special opportunity positions.................. 20,908 17,594 5,192
--------- -------- --------
$ 168,384 $116,520 $ 37,714
Interest income from affiliate...................................... 3,575 2,896 504
Interest income from non-affiliate and other income................. 1,132 805 2,169
--------- -------- --------
TOTAL GROSS REVENUES................................................ $ 173,091 $120,221 $ 40,387
Withholding tax on dividends received (Note 9)...................... (16,266) (17,304) (5,551)
--------- -------- --------
TOTAL REVENUES...................................................... $ 156,825 $102,917 $ 34,836
========= ======== ========
EXPENSES
Operating advisor fees (Note 8)..................................... $ 35,220 $ 24,632 $ 8,041
Custodian fees...................................................... 459 470 318
Directors' fees..................................................... 103 85 57
Professional expenses............................................... 1,843 810 1,023
Administrative expenses............................................. 2,057 1,159 845
Amortisation of convertible notes deferred costs.................... 959 -- --
Amortisation of formation expenses.................................. -- -- 1,654
Formation expenses.................................................. -- -- 172
Taxes............................................................... 2,429 1,857 628
Line of credit arrangement and commitment fees...................... 2,561 2,259 2,991
Interest on line of credit.......................................... 18,434 11,336 6,168
Interest on convertible notes....................................... 14,861 -- --
--------- -------- --------
TOTAL EXPENSES...................................................... $ 78,926 $ 42,608 $ 21,897
--------- -------- --------
NET OPERATING INCOME................................................ $ 77,899 $ 60,309 $ 12,939
NET REALISED AND UNREALISED (LOSS)/GAIN ON STRATEGIC
INVESTMENT AND SPECIAL OPPORTUNITY POSITIONS
Net realised gain on special opportunity positions.................. $ 32,878 $ 41,073 $ 3,480
Net (decrease)/increase in appreciation on strategic investment and
special opportunity positions...................................... (642,372) 264,974 252,294
--------- -------- --------
NET (LOSS)/GAIN ON STRATEGIC INVESTMENT AND SPECIAL
OPPORTUNITY POSITIONS.............................................. $(609,494) $306,047 $255,774
--------- -------- --------
(DECREASE)/INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS........................................................ $(531,595) $366,356 $268,713
========= ======== ========
</TABLE>
The accompanying notes form an integral part of the financial statements.
-84-
<PAGE>
SECURITY CAPITAL U.S. REALTY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands $, except per share amounts)
<TABLE>
<CAPTION>
For the years ended 31 December
---------------------------------------
1998 1997 1996
----------- ------------ ------------
Operating Activities:
<S> <C> <C> <C>
(Decrease)/Increase in net assets resulting from
operations.......................................... $(531,595) $ 366,356 $ 268,713
Adjustments to reconcile (decrease)/increase in net
assets resulting from operations to net cash
provided by operating activities:
Movement in unrealised gain........................ 642,372 (264,974) (252,294)
Movement in accretion on convertible notes......... 9,387 -- --
Movement in convertible notes deferred costs....... 959 -- --
Amortisation of formation expenses................. -- -- 1,654
Changes in operating assets and liabilities:
Accounts receivable and other.................... (10,266) 1,498 (8,289)
Interest receivable from affiliate............... -- 366 (366)
Accounts payable and accrued expenses............ (256) 2,488 2,426
Operating advisor fees payable................... 1,371 4,629 2,594
Taxes payable.................................... 286 625 386
--------- ----------- -----------
Net cash provided by operating activities...... $ 112,258 $ 110,988 $ 14,824
--------- ----------- -----------
Investing Activities:
Fundings in strategic investment positions:
CarrAmerica......................................... $ (63,464) $ (207,971) $ (428,416)
City Center Retail.................................. (220,370) (83,665) --
CWS Communities..................................... (60,963) (92,600) --
Pacific Retail...................................... (579) (313,145) (157,255)
Regency............................................. (10,055) (158,596) (67,098)
Storage USA......................................... (45,828) (76,561) (271,883)
Urban Growth Property............................... (163,379) (17,703) --
Fundings in Security Capital Group................... -- (142,500) (22,500)
Fundings in other special opportunity positions, net. (31,323) (104,700) (176,413)
--------- ----------- -----------
Net cash used in investing activities.......... $(595,961) $(1,197,441) $(1,123,565)
--------- ----------- -----------
Financing Activities:
Net proceeds from share offerings................... $ -- $ 1,072,966 $ 987,238
Net proceeds from convertible notes offering........ 352,667 -- --
Offering expenses charged against the share
premium account................................... (440) -- --
Drawdowns from line of credit....................... 340,000 1,425,000 376,500
Repayment of line of credit......................... (207,500) (1,464,500) (207,000)
--------- ----------- -----------
Net cash provided by financing activities......... 484,727 1,033,466 $ 1,156,738
--------- ----------- -----------
Net increase/(decrease) in cash and cash equivalents.. $ 1,024 $ (52,987) $ 47,997
Cash and cash equivalents, beginning of the year...... 1,970 54,957 6,960
--------- ----------- -----------
Cash and cash equivalents, end of the year............ $ 2,994 $ 1,970 $ 54,957
========= =========== ===========
Supplemental disclosure of cash flow information:
Tax paid............................................. $ 2,141 $ 1,232 $ 242
========= =========== ===========
Interest paid on borrowings........................... $ 22,987 $ 11,929 $ 5,522
========= =========== ===========
</TABLE>
The accompanying notes form an integral part of the financial statements.
-85-
<PAGE>
SECURITY CAPITAL U.S. REALTY
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(in thousands $)
<TABLE>
<CAPTION>
For the years ended
31 December
--------------------------------------
1998 1997 1996
------------ ----------- -----------
(in thousands $, except per share amount)
<S> <C> <C> <C>
OPERATIONS:
Net operating income............................................... $ 77,899 $ 60,309 $ 12,939
Realised gain on special opportunity positions..................... 32,878 41,073 3,480
(Decrease)/Increase in appreciation on strategic investment
and special opportunity positions................................. (642,372) 264,974 252,294
---------- ---------- ----------
(Decrease)/Increase in net assets resulting from operations........ $ (531,595) $ 366,356 $ 268,713
CAPITAL TRANSACTIONS:
Net proceeds from offerings........................................ $ -- $1,072,965 $ 987,238
(Decrease)/Increase in share premium account....................... (440) -- --
---------- ---------- ----------
(Decrease)/Increase in net assets resulting from capital
transactions...................................................... $ (440) $1,072,965 $ 987,238
NET ASSETS:
(Decrease)/Increase in net assets during the year.................. $ (532,035) $1,439,321 $1,255,951
Net assets at the beginning of the year............................ 2,758,420 1,319,099 63,148
---------- ---------- ----------
Net assets at the end of the year (includes undistributed net
operating income of $148,252 for 1998, $73,324 for 1997, and $2,226,385 $2,758,420 $1,319,099
$13,015 for 1996)................................................. ========== ========== ==========
</TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHARES OUTSTANDING
<TABLE>
<CAPTION>
Number of shares
------------------------------------
For the years ended 31 December
------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
At the beginning of the year 173,123,743 96,492,710 6,294,573
Issued during the year -- 76,631,033 90,198,137
----------- ----------- ----------
At the end of the year 173,123,743 173,123,743 96,492,710
=========== =========== ==========
</TABLE>
CONSOLIDATED FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the years ended 31 December
--------------------------------
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Per share data:
Net asset value per share at the beginning of the year.... $15.93 $13.67 $10.03
Net operating income...................................... 0.45 0.37 0.12
Net change in movement in unrealised appreciation and
realised gain on strategic investment and special
opportunity positions in the year........................ (3.52) 1.89 3.52
------ ------ ------
Net asset value per share at the end of the year.......... $12.86 $15.93 $13.67
====== ====== ======
</TABLE>
The accompanying notes form an integral part of the financial statements.
-86-
<PAGE>
SECURITY CAPITAL U.S. REALTY
CONSOLIDATED SCHEDULES OF STRATEGIC INVESTMENT POSITIONS
At 31 December 1998
(in thousands $, except shares held and percentages)
<TABLE>
<CAPTION>
Number of Percentage
Shares of Total
Strategic Investment Positions Security Type Held Cost Value Assets
- ------------------------------ ------------- ---------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
CarrAmerica......................... Common Stock 28,603,417 $ 699,851 $ 686,482 23.9%
City Center Retail.................. Common Stock 30,390,000 304,035 304,035 10.6%
CWS Communities..................... Common Stock 15,323,358 153,563 153,563 5.3%
Pacific Retail(1)................... Common Stock 46,985,459 524,038 501,805 17.5%
Regency(1).......................... Common Stock 11,720,216 235,750 260,775 9.1%
Storage USA......................... Common Stock 11,765,654 394,272 380,178 13.2%
Urban Growth Property............... Common Stock 18,074,100 181,082 181,082 6.3%
---------- ---------- ----
Total investment in strategic....... $2,492,591 $2,467,920 85.9%
investment positions.............. ========== ========== ====
</TABLE>
(1) See Note 3A and Note 13 to the Consolidated Financial Statements
regarding the merger of Pacific Retail and Regency.
At 31 December 1997
(in thousands $, except shares held and percentages)
<TABLE>
<CAPTION>
Number of Percentage
Shares of Total
Strategic Investment Positions Security Type Held Cost Value Assets
- ------------------------------ ------------- ---------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
CarrAmerica....................... Common Stock 26,456,583 $ 636,387 $ 838,343 28.9%
City Center Retail................ Common Stock 8,330,000 83,665 83,300 2.9%
CWS Communities................... Common Stock 9,164,597 92,600 91,646 3.2%
Pacific Retail.................... Common Stock 46,985,459 523,459 610,811 21.0%
Regency........................... Common Stock 11,284,439 225,695 312,438 10.8%
Storage USA....................... Common Stock 10,573,154 348,444 422,265 14.6%
Urban Growth Property............. Common Stock 1,724,100 17,703 17,241 0.6%
---------- ---------- ----
Total investment in strategic..... $1,927,953 $2,376,044 82.0%
investment positions............. ========== ========== ====
</TABLE>
The accompanying notes form an integral part of the financial statements.
-87-
<PAGE>
CONSOLIDATED SCHEDULES OF SPECIAL OPPORTUNITY POSITIONS
At 31 December 1998
(In thousands $, except percentages)
<TABLE>
<CAPTION>
Percentage
of Total
Property Type Cost Value Assets
- ------------- ------ ------- -----------
<S> <C> <C> <C>
Companies in which SC-U.S. Realty owns a 5% or greater interest:
Retail........................................................... $ 35,493 $ 37,646 1.3%
Other............................................................ 14,446 14,446 0.5%
Companies in which SC-U.S. Realty owns less than a 5% interest:
Office/Industrial................................................ 107,905 97,658 3.4%
Hotel............................................................ 79,600 41,356 1.4%
Multifamily...................................................... 29,044 28,727 1.0%
Diversified...................................................... 13,683 11,004 0.4%
Storage.......................................................... 10,227 11,350 0.4%
Retail........................................................... 8,406 6,949 0.2%
Other............................................................ 15,227 13,344 0.5%
-------- -------- ----
Total investment in other special opportunity positions............ $314,031 $262,480 9.1%
Investment in Security Capital Group Incorporated.................. 165,000 116,245 4.0%
-------- -------- ----
Total investment in special opportunity positions.................. $479,031 $378,725 13.1%
======== ======== ====
</TABLE>
At 31 December 1997
(In thousands $, except percentages)
<TABLE>
<CAPTION>
Percentage
of Total
Property Type Cost Value Assets
- ------------- ------ ------- -----------
<S> <C> <C> <C>
Companies in which SC-U.S. Realty owns a 5% or greater interest:
Other............................................................. $ 7,506 $ 7,049 0.2%
Companies in which SC-U.S. Realty owns less than 5% interest:
Office/Industrial................................................. 81,558 112,635 3.9%
Storage........................................................... 53,311 63,045 2.2%
Retail............................................................ 48,265 63,026 2.2%
Multifamily....................................................... 45,646 58,117 2.0%
Hotel............................................................. 46,422 48,138 1.7%
-------- -------- ----
Total investment in other special opportunity positions............. $282,708 352,010 12.2%
Investment in Security Capital Group Incorporated................... 165,000 165,000 5.7%
-------- -------- ----
Total investment in special opportunity positions................... $447,708 $517,010 17.9%
======== ======== ====
</TABLE>
The accompanying notes form an integral part of the financial statements.
-88-
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ORGANISATION
Security Capital U.S. Realty (the "Company") (Amsterdam Stock Exchange ISIN
Code: LU0060100673, Bloomberg Symbol: SCUS NA, Reuters Symbol: CAPAu.AS) was
incorporated on 7 July 1995 and is a research-driven, growth-orientated real
estate company focused on taking significant strategic investment positions
(with board representation, consultation and other rights) in value-added real
estate operating companies based in the United States. The Company's primary
capital deployment objective is to take a proactive ownership role in businesses
that it believes can potentially generate above-average rates of return. The
Company is organised in Luxembourg as a Societe d'Investissement a Capital Fixe
(a company with a fixed capital).
The Company owns its assets through its direct and indirect wholly owned
subsidiaries, including Security Capital Holdings S.A. (such subsidiaries
collectively referred to herein as "HOLDINGS"). All accounts of HOLDINGS have
been consolidated with the Company and all significant intercompany transactions
have been eliminated upon consolidation. References herein to SC-U.S. Realty are
to the consolidated entity consisting of Security Capital U.S. Realty and
HOLDINGS, unless noted otherwise.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") in the United States and with Luxembourg
regulatory requirements. The preparation of financial statements in accordance
with GAAP requires the Company's management to make estimates of certain
reported amounts in the financial statements. Actual results may differ from
those estimates.
A. Fair Value Basis of Presentation
SC-U.S. Realty accounts for its investments at fair value in accordance
with the U.S. specialised industry accounting rules prescribed by the American
Institute of Certified Public Accountants (AICPA) Audit and Accounting Guide for
Investment Companies (the "Guide"). Thus, SC-U.S. Realty's investments in
publicly traded companies are valued at market determined by using closing
market prices on the New York Stock Exchange ("NYSE") or other recognised stock
exchange when appropriate as of the balance sheet date, subject to an
appropriate adjustment for trade restrictions, if any. Except for Pacific
Retail, which is valued based on the exchange ratio and the closing stock price
of Regency on the NYSE (see Note 3A and Note 13 below), for privately held
investments in which SC-U.S. Realty has an ownership interest, SC-U.S. Realty
will, whenever the Board of Directors believes significant developments have
occurred affecting the value of an investment and on at least an annual basis,
utilise valuation evidence and methodologies appropriate to the nature of the
investment to derive fair value. These will include external valuations, cash
flow valuation techniques and valuation information derived through placements
of private companies' securities as well as review by management for other
specific indicators of changes in value relating to property performance and/or
significant changes in local or general market conditions. The Board of
Directors, in its discretion, may permit some other method of valuation to be
used, if it determines that such valuation better reflects the fair value of any
assets of the Company.
Under fair value accounting, unrealised gains or losses are determined by
comparing the fair value of the securities held to the cost of such securities.
Unrealised gains or losses relating to changes in fair value of SC-U.S. Realty's
investments are reported as a component of net earnings. Deferred income taxes,
if any, are recorded at the applicable statutory rate as the estimate of taxes
payable as if such gains were realised. Under current tax laws, and in light of
SC-U.S. Realty's operating methods and plans, SC-U.S. Realty's investment gains
generally are not subject to income taxes.
-89-
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of 31 December 1998 and 1997, 40.6% (23.0% excluding the investment in
Pacific Retail which merged with Regency on 28 February 1999, see Note 3A and
Note 13) and 27.8%, respectively, of SC-U.S. Realty's investments were in
private or untraded securities valued at their fair value as determined by the
Board of Directors, using the methodology described above. This value may differ
from the value that would have been used had a trading market for these
securities existed. The valuation of assets assumes that any assets disposed of
would be sold in an orderly process; any forced sale of assets under short-term
pressures, which is not foreseen, could adversely affect realisable values.
B. Accounting for Investments and Income
All purchases and sales of publicly traded securities are recorded as of
the trade date (i.e., the date that SC-U.S. Realty's broker actually executes an
order to buy or sell). All purchases and sales of privately held securities are
recorded as of the date the actual purchase or sale is made. Dividend income is
recorded on the ex-dividend date for each dividend declared by an issuer.
HOLDINGS may be entitled to refunds on a portion of the withholding tax because
the withholding tax is not levied on the portion of dividends which is a return
of capital. Interest income is recorded on the accrual basis. Interest received
is stated net of withholding taxes. Realised gains and losses on sales of shares
are determined on the average cost method.
C. Cash and Cash Equivalents
SC-U.S. Realty considers all cash on hand, demand deposits with financial
institutions and short-term, highly liquid investments with original maturities
of three months or less to be cash equivalents.
D. Deferred Financing Costs/Discounts
Underwriting fees relating to the issue of the $450 million aggregate
principal amount at maturity of the Company's 2% Senior Unsecured Convertible
Notes due 2003 (the "Convertible Notes") are capitalised and amortised using the
effective interest method over the term of the obligation. Discounts on the
Convertible Notes are accreted as a component of interest expense using the
effective interest method over the term of the obligation.
E. New Accounting Pronouncements
During June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities".
This statement provides new accounting and reporting standards for the use of
derivative instruments. Adoption of this statement is required by the Company
effective 1 January 2000. Management intends to adopt the statement as required
in fiscal 2000. Although the Company has not historically used such instruments,
it is not precluded from doing so. Management believes that the impact of such
adoption will not be material to the financial statements.
NOTE 3--INVESTMENTS
SC-U.S. Realty aims to have 85% to 90% of its assets deployed in strategic
investment positions and 10% to 15% invested in special opportunity positions.
A. Strategic Investment Positions
Strategic investment positions represent significant (minimum of 25% to a
general maximum of 49% of each issuer's fully diluted common stock outstanding)
equity ownership positions in public companies, or in private companies that
-90-
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
will be positioned to be taken public. With private companies which SC-U.S.
Realty sponsors, it expects to own substantially more than 50% of the voting
shares until such companies become publicly traded, at which time SC-U.S. Realty
expects its ownership of such shares will begin to be diluted until it reaches
35% to 45% on a fully diluted basis. SC-U.S. Realty will be the largest
shareholder of its strategic investees, have representation on their boards of
directors, and influence their operations and strategies through ongoing
consultation and research. Strategic investees are characterised by the
perceived potential for a superior market niche and the ultimate potential for
market preeminence with a focused strategy and product.
On 24 September 1998, it was announced that Regency agreed to merge with
Pacific Retail in a tax-free transaction. The merger occurred on 28 February
1999. Pursuant to the terms of the merger agreement, shareholders of Pacific
Retail received 0.48 shares of Regency common stock for each common share of
Pacific Retail they owned. Since the merger had not occurred at 31 December
1998, SC-U.S. Realty has reflected in its financial statements the number of
shares and value of its investment in Pacific Retail using the market price of
Regency's common stock and the exchange ratio of 0.48.
B. Special Opportunity Positions
Special opportunity positions primarily consist of ownership positions of
less than 10% of the fully diluted stock in publicly traded entities taxed as
real estate investment trusts under the U.S. Internal Revenue Code of 1986, as
amended ("REITs") and other publicly traded U.S. real estate companies. The
investments have and will take the form of either direct investments in, or
public market purchases of, shares of companies that SC-U.S. Realty believes
possess the requisite fundamentals to generate strong cash flow growth and/or
value appreciation. In exceptional circumstances, and to a very limited extent,
SC-U.S. Realty may make special opportunity investments in companies which are
not publicly traded. Typically such an investment would be in a company which
does not at the time of investment fulfill the criteria for a strategic
investment position, but in which SC-U.S. Realty may take a strategic investment
position in the future.
As of 31 December 1998 and 1997, SC-U.S. Realty had deployed a total of
$165 million in securities of Security Capital Group. This amount is made up of
an investment of $110 million (representing 52,430.9 shares of Class A common
stock and $55 million aggregate principal amount of 6.5% convertible
subordinated debentures due 2016) and an additional $55 million (representing
1,964,286 shares of Class B common stock) invested during Security Capital
Group's initial public offering in September 1997.
NOTE 4--ACCOUNTS RECEIVABLE AND OTHER
<TABLE>
<CAPTION>
At 31 December
----------------------------------
1998 1997
---------------- ----------------
(in thousands $) (in thousands $)
<S> <C> <C>
Dividends....................................... $ 8,162 $1,668
Receivable from brokers on investments sold..... 8,219 4,905
Deferred issue costs on Convertible Notes (1)... 6,927 --
Interest........................................ 580 --
Refund of withholding tax....................... 97 223
Other........................................... 4 --
------- ------
$23,989 $6,796
======= ======
</TABLE>
- ------------
-91-
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(1) Represents the underwriting fees of $7.9 million relating to the issuance
of Convertible Notes (see Note 7). The fees have been deferred and will be
fully amortised over a period of five years starting from the date of issue
on 22 May 1998.
NOTE 5--ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
At 31 December
----------------------------------
1998 1997
---------------- ----------------
(in thousands $) (in thousands $)
<S> <C> <C>
Operating advisor fees................. $ 8,614 $ 7,243
Offering expenses...................... -- 1,739
Line of credit arrangement fees........ -- 860
Interest payable on line of credit..... 762 53
Interest payable on Convertible Notes.. 975 --
Custodian fees......................... 110 110
Other.................................. 3,036 2,377
------- -------
$13,497 $12,382
======= =======
</TABLE>
NOTE 6--LINE OF CREDIT
SC-U.S. Realty's total indebtedness under the line of credit as of
31 December 1998 and 1997 was $262.5 million and $130.0 million, respectively.
In an effort to secure investment-grade credit ratings, on 8 December 1998,
SC-U.S. Realty converted its $700 million secured line of credit into a $400
million unsecured line of credit from Commerzbank Aktiengesellschaft and a
consortium of European and international banks, of which $262.5 million was
drawn and outstanding as of 31 December 1998. SC-U.S. Realty received
investment-grade ratings from each of Moody's Investors Service (Baa3), Standard
& Poor's Ratings Services (BBB-) and Duff & Phelps Credit Rating Co. (BBB-). The
earliest date on which this line of credit will expire is 8 December 2000, but
SC-U.S. Realty has the right on 8 December 1999 to convert the then outstanding
borrowings into a four-year term loan with quarterly amortisation payments to be
made over the four-year period, which would effectively extend the final loan
payment to 8 December 2003. Borrowings under the line of credit (and the four-
year term loan, if applicable) bear interest at (a) the sum of (x) the greater
of the federal funds rate plus 0.5% or the United States prime rate and (y) a
margin of 0% to 0.625% per annum (based on SC-U.S. Realty's current senior
unsecured long-term debt ratings) or (b) at SC-U.S. Realty's option, LIBOR plus
a margin of 0.85% to 1.625% per annum (also based on SC-U.S. Realty's current
senior unsecured long-term debt). Additionally, there is a commitment fee of
0.15% to 0.25% per annum (based on the amount of the line which remains
undrawn). All borrowings under the line of credit are subject to covenants that
SC-U.S. Realty must maintain at all times, including: (i) unsecured liabilities
may not exceed 40% of the market value of a borrowing base of owned securities,
(ii) shareholders' equity must exceed the sum of 75% of shareholders' equity as
of 8 December 1998 and 75% of the net proceeds of sales of equity securities
thereafter, (iii) a ratio of total liabilities to net worth of not more than
1:1, (iv) a fixed charge coverage ratio of not less than 1.5:1, (v) an interest
coverage ratio of not less than 2:1 and (vi) secured debt may not exceed 10% of
consolidated market net worth. As of 31 December 1998, SC-U.S. Realty was in
compliance with these covenants.
-92-
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Average daily borrowings under the line of credit were $274.4 million, $136.2
million and $84.9 million for the years ended 31 December 1998, 1997 and 1996,
respectively. The weighted average interest rates for these same periods were
6.67%, 7.27% and 7.18%, respectively.
NOTE 7--CONVERTIBLE NOTES
<TABLE>
<CAPTION>
At 31 December
----------------
1998
----------------
(in thousands $)
----------------
<S> <C>
Convertible Notes proceeds................... $360,553
Accumulated accretion on Convertible Notes... 9,387
--------
$369,940
========
</TABLE>
The Company completed a convertible debt offering in May 1998. The
Convertible Notes are convertible at the option of the holder at any time prior
to maturity at a conversion rate equal to 52.7819 Shares per $1,000 aggregate
principal amount at maturity of the Convertible Notes. Interest is payable
semi-annually at the rate of 2% per annum on 22 May and 22 November of each year
commencing on 22 November 1998. Effective 1 January 1999, the interest rate
payable on the Convertible Notes was increased to 2.5% per annum. The 2.5%
interest rate will be in effect until SC-U.S. Realty lists certain equity
securities on the NYSE and registers the Convertible Notes and related equity
securities for resale. The Convertible Notes were sold at a discount to their
principal amount at maturity and additional interest will accrete at a rate of
4.75%, compounded semi-annually, to par by 22 May 2003. The Convertible Notes
may be redeemed, in whole or in part, at the option of the Company on or after
23 May 2001 at the accreted value, together with accrued and unpaid interest.
Upon a change in control of the Company, each holder of Convertible Notes shall
have the right, at the holder's option, to require the Company to repurchase
such holder's Convertible Notes, in whole or in part, at a purchase price equal
to the accreted value, together with accrued and unpaid interest through the
repurchase date.
Conversion of the Convertible Notes would be anti-dilutive for the year
ended 31 December 1998.
NOTE 8--ADVISORY AGREEMENT
SC-U.S. Realty has an advisory agreement with Security Capital U.S. Realty
Management S.A. (the "Operating Advisor"), a wholly owned subsidiary of Security
Capital Group. This agreement requires the Operating Advisor to provide SC-U.S.
Realty with advice with respect to strategy, investments, financing and certain
other administrative matters affecting SC-U.S. Realty. The Operating Advisor has
agreed to identify tangible capital deployment opportunities in U.S. real estate
companies and evaluate such companies' competitive positions, management
expertise, strategic direction, financial strength and prospects for long-term
sustainable per share cash flow growth. The Operating Advisor also advises SC-
U.S. Realty on obtaining board and committee representation and management
rights from strategic investees. The agreement automatically renews for
successive two-year periods unless either party gives notice it will not renew.
The Operating Advisor subcontracts for certain services through affiliates based
in London, United Kingdom and Chicago, Illinois, United States. The Operating
Advisor is entitled to an advisory fee, payable quarterly in arrears, at an
annual rate of 1.25% of the average monthly value of invested assets (excluding
investments in Security Capital Group securities and investments of short-term
cash and cash equivalents). SC-U.S. Realty pays its own third party operating
and administrative expenses and transaction costs, although the Operating
Advisor's fee will be reduced to the extent that third party operating and
administrative expenses (but not transaction costs) exceed 0.25% per annum of
average monthly value of invested assets (excluding investments in Security
Capital Group securities and investments of short-term cash and cash
equivalents). Such third party operating and administrative costs as a ratio of
average
-93-
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
monthly value of assets were 0.09%, 0.13% and 0.19% for the years ended
31 December 1998, 1997 and 1996, respectively.
SC-U.S. Realty pays fees to (i) Banque Internationale a Luxembourg as
Administrative Agent, Corporate Agent and Paying Agent, (ii) First European
Transfer Agent S.A. as Registrar and Transfer Agent, and (iii) Security Capital
European Services S.A. as Domiciliary Agent and Service Agent, in accordance
with usual practice in Luxembourg. Such fees are payable quarterly and are based
on SC-U.S. Realty's gross assets.
NOTE 9--TAXATION
The Company, as separate from HOLDINGS, is not liable for any Luxembourg
tax on income. The Company is liable in Luxembourg for a capital tax of 0.06%
per annum of its net asset value. Cash dividends and interest received by the
Company or HOLDINGS on their investments may be subject to non-recoverable
withholding or other taxes in the countries of origin. U.S. withholding tax
rates of 15% were generally in effect for dividends received for all periods
presented.
Under the current United States-Luxembourg tax treaty, the Company believes
that HOLDINGS qualifies for a 15% rate of withholding tax on dividends of
operating income from the REIT investments currently held by HOLDINGS and from
its future REIT investments (if any). The Company also believes that HOLDINGS
will qualify for a 15% rate of withholding tax under the proposed United States-
Luxembourg tax treaty recently ratified by the United States on most, if not
all, of the REIT investments currently held by HOLDINGS and from future REIT
investments (if any). The Company's beliefs are based on the advice of tax
counsel and the manner in which management intends to operate the Company. There
can be no assurance that these favourable rates will be achieved as to all such
investments. These benefits are also dependent on HOLDINGS meeting the
"limitations on benefits" test under Article 24 of the proposed new treaty. The
tests prescribed by Article 24, particularly in terms of stock ownership
requirements, base erosion and publicly traded criteria are inherently factual
in nature. Such tests will only need to be applied to HOLDINGS (or other
subsidiaries of HOLDINGS or of the Company) at a future, and presently
indeterminate, point in time and will be dependent on the particular facts at
such time. However, management intends to use its best efforts to ensure that
HOLDINGS meets the conditions for claiming the reduced treaty withholding tax
rate at the relevant times and the Company currently believes that such
conditions will be met.
HOLDINGS, an ordinary corporate taxpayer under Luxembourg law, owns all of
the consolidated group's interests in REITs and other U.S. real estate
companies. Corporations which are resident Luxembourg taxpayers are taxed on
their worldwide net income, determined on the basis of gross income less costs
incurred. Certain items of income and capital gains are excluded from the
calculation of income received for tax purposes, including income and capital
gains from certain investments which meet certain holding period (generally one
calendar year) and size requirements. HOLDINGS intends to operate so as to have
the highest possible percentage of its investments qualify for the exclusion.
Interest accrued on advances from the Company to HOLDINGS is deducted in
determining HOLDINGS' taxable income.
Income paid from HOLDINGS to the Company is subject to various levels of
tax, including withholding taxes. Gross cash (but not accrued) interest payments
from HOLDINGS to the Company are subject to withholding tax at a rate of 3.75%.
No dividends were paid to the Company during the reporting periods.
-94-
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
For the years ended
31 December
------------------------
1998 1997 1996
------- ------- ------
<S> <C> <C> <C>
(in thousands $)
Gross cash interest payments.. $25,262 $15,264 $5,030
======= ======= ======
Capital tax.................. $ 1,481 $ 1,285 $ 439
Withholding tax.............. 947 572 189
------- ------- ------
$ 2,428 $ 1,857 $ 628
======= ======= ======
</TABLE>
Withholding taxes (net of expected refunds) for each investment are as
follows:
<TABLE>
<CAPTION>
For the years ended
31 December
-------------------------
1998 1997 1996
-------- ------- ------
<S> <C> <C> <C>
(in thousands $)
CarrAmerica................... $ 7,882 $ 6,150 $2,015
CWS Communities............... 190 -- --
Pacific Retail................ (2,834) 3,204 1,359
Regency....................... 2,675 1,699 115
Storage USA................... 4,798 3,638 1,292
Urban Growth Property......... 679 -- --
Special opportunity positions. 2,876 2,613 770
------- ------- ------
$16,266 $17,304 $5,551
======= ======= ======
</TABLE>
NOTE 10--DIRECTORS' SHARE OPTION EQUIVALENTS
Each of the Company's independent directors has received share option
equivalents ("SOE") of 50,000 Shares at strike prices ranging from $8.60 to
$14.44 per Share. All grants of SOEs were for services rendered by the Board of
Directors subsequent to their grant. A SOE granted prior to 30 June 1998 does
not represent a right to purchase Shares from the Company, but a right to
receive a restricted cash payment equal to the excess, if any, of the net asset
value of 50,000 Shares on the day of exercise over the strike price, which was
the net asset value on the date of grant. Such payments must be applied to the
purchase of Shares to be issued at net asset value on the date of exercise. SOEs
granted after 30 June 1998 do not represent a right to purchase Shares from the
Company, but a right to receive a restricted cash payment equal to the excess,
if any, of the closing stock price of 50,000 Shares on the day of exercise over
the strike price, which was the closing stock price on the date of grant. Such
payments must be applied to the purchase of Shares to be issued at the closing
stock price on the date of exercise. Directors were granted a vested right to
exercise one-half of their SOEs immediately, and rights to the balance vest on
the fourth anniversary of their issuance. The right to exercise all SOEs expires
five years from the date of grant.
-95-
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
For the years ended 31 December
--------------------------------------------
1998 1997 1996
-------- -------- --------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Number Price Number Price Number Price
------- -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
SOEs outstanding at beginning of year.. 250,000 $11.27 200,000 $10.48 100,000 $10.00
SOEs issued............................ 100,000 8.60 50,000 14.44 100,000 10.95
SOEs forfeited......................... (25,000) 10.95 -- -- -- --
SOEs exercised......................... (25,000) 10.95 -- -- -- --
------- ------ ------- ------ ------- ------
SOEs outstanding at end of year........ 300,000 $10.47 250,000 $11.27 200,000 $10.48
======= ====== ======= ====== ======= ======
SOEs currently exercisable............. 150,000 $10.47 125,000 $11.27 100,000 $10.48
======= ====== ======= ====== ======= ======
</TABLE>
No SOEs have expired during the years represented above, except for an SOE
in respect of 25,000 Shares granted to a director in October 1998 upon his
retirement. The retiring director exercised the remaining part of such SOE in
respect of 25,000 Shares in December 1998. The Company accrues a liability for
the 50% of the SOEs granted which vest immediately and the remaining 50% ratably
over the four year vesting period. This accrual is adjusted for changes in the
Company's net asset value or closing stock price, as the case may be, at each
balance sheet date with the resultant change representing a charge to
administrative expenses for the period in the consolidated statement of
operations. The charges were $561,000, $526,500 and $636,000 for the years ended
31 December 1998, 1997 and 1996, respectively.
NOTE 11--COMMITMENTS
SC-U.S. Realty's existing and committed fundings at cost as of 31 December
1998 were as follows:
<TABLE>
<CAPTION>
Total Total Cost Amount
Amount (Amount to be
Committed Funded)(1) Funded (1)
---------- -------------- ------------
(in thousands $)
<S> <C> <C> <C>
CarrAmerica (NYSE:CRE)........... $ 699,851 $ 699,851 $ --
City Center Retail (Private)(2).. 350,135 304,035 46,100(3)
CWS Communities (Private)........ 300,329 153,563 146,766(3)
Pacific Retail (Private)(4)...... 524,038 524,038 --
Regency (NYSE:REG)(4)............ 235,750 235,750 --
Storage USA (NYSE:SUS)........... 394,272 394,272 --
Urban Growth Property (Private).. 181,082 181,082 --
Special opportunity positions(5). 479,031 479,031 --
---------- ---------- ---------
Total.......................... $3,164,488 $2,971,622 $ 192,866
========== ========== =========
</TABLE>
- -----------------------------
(1) Included in Total Amount Committed.
(2) In January 1999, the contractual obligation in respect of City Center
Retail was increased by up to $25 million.
(3) Represents a contractual obligation.
(4) On 24 September 1998, it was announced that Regency agreed to merge with
Pacific Retail. The merger occurred on 28 February 1999. See Note 3A and
Note 13 to the Consolidated Financial Statements.
-96-
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(5) Includes an aggregate of $165 million invested in shares of common stock
and convertible subordinated debentures of Security Capital Group.
SC-U.S. Realty's existing and committed fundings at cost as of 31 December
1997 were as follows:
<TABLE>
<CAPTION>
Total Total Cost Amount
Amount (Amount to be
Committed Funded) (1) Funded (1)
---------- ----------- ------------
(in thousands $)
<S> <C> <C> <C>
CarrAmerica (NYSE:CRE)............ $ 636,387 $ 636,387 $ --
City Center Retail (Private)...... 151,865 83,665 68,200(2)
CWS Communities (Private)......... 300,954 92,600 208,354(2)
Pacific Retail (Private).......... 523,459 523,459 --
Regency (NYSE:REG)................ 225,695 225,695 --
Storage USA (NYSE:SUS)............ 348,444 348,444 --
Urban Growth Property (Private)... 150,837 17,703 133,134(2)
Special opportunity positions(3).. 447,708 447,708 --
---------- ---------- --------
Total........................... $2,785,349 $2,375,661 $409,688
========== ========== ========
</TABLE>
- -----------------------------
(1) Included in Total Amount Committed.
(2) Represents a contractual obligation.
(3) Includes an aggregate of $165 million invested in shares of common stock
and convertible subordinated debentures of Security Capital Group.
Capital deployed to additional strategic investment positions, as well as
further funding to existing strategic investees, will generally be initially
funded with borrowings under the Company's line of credit. These borrowings are
expected to be reduced by internally generated free cash flow and the proceeds
of future issuances of debt or equity securities.
-97-
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 12--LEGAL RESERVE
According to Luxembourg law, an annual transfer of 5% of the net profit to
a legal reserve is required until this reserve equals 10% of the value of the
issued Share capital. A transfer of $3.1 million was made in 1998 upon the
shareholders' approval of the 1997 financial statements. No transfer will be
made in 1999 as a result of the decrease in net assets resulting from operations
for the year ended 31 December 1998.
NOTE 13--SUBSEQUENT EVENTS
The merger of Pacific Retail and Regency occurred on 28 February 1999.
Shareholders of Pacific Retail received 0.48 shares of Regency common stock for
each common share of Pacific Retail they owned.
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
See Index to Financial Statements in Item 18 above.
(b) Exhibits:
See Index to Exhibits which is attached hereto.
-98-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorised.
Dated: 19 April 1999 SECURITY CAPITAL U.S. REALTY
By: /s/ JEFFREY A. COZAD
-------------------------------------
Name: Jeffrey A. Cozad
Title: Managing Director
-99-
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Document Description
- ------- --------------------
4.1 Articles of Incorporation of Security Capital U.S. Realty (the
"Company")
4.2 Indenture dated as of 22 May 1998 between the Company and State Street
Bank and Trust Company
4.3 First Supplemental Indenture dated as of 22 May 1998 between the
Company and State Street Bank and Trust Company
4.4 Form of the Convertible Notes due 2003
10.1 Stock Purchase Agreement, dated as of 5 November 1995, by and among
Carr Realty Corporation (currently known as CarrAmerica Realty
Corporation ("CarrAmerica")), the Company and Security Capital Holdings
S.A. ("HOLDINGS") (incorporated by reference to Exhibit 5.1 of Carr
Realty Corporation's Current Report on Form 8-K dated 6 November 1995)
10.2 Amendment No. 1 to Stock Purchase Agreement, dated as of 29 April 1996,
by and among Carr Realty Corporation (currently known as CarrAmerica),
the Company and HOLDINGS (incorporated by reference to Exhibit 2.1 of
Amendment No. 1 to the Company's Schedule 13D reflecting its ownership
in CarrAmerica filed 7 May 1996)
10.3 Stockholders' Agreement, dated as of 30 April 1996, by and among Carr
Realty Corporation (currently known as CarrAmerica), Carr Realty L.P.,
the Company and HOLDINGS (incorporated by reference to Exhibit 2.2 of
Amendment No. 1 to the Company's Schedule 13D reflecting its ownership
in CarrAmerica filed 7 May 1996)
10.4 Registration Rights Agreement, dated as of 30 April 1996, by and among
Carr Realty Corporation (currently known as CarrAmerica), the Company
and HOLDINGS (incorporated by reference to Exhibit 2.3 of Amendment
No.1 to the Company's Schedule 13D reflecting its ownership in
CarrAmerica filed 7 May 1996)
10.5 Strategic Alliance Agreement, dated as of 19 March 1996, by and among
Storage USA, Inc. ("Storage USA"), SUSA Partnership, L.P. ("SUSA"), the
Company and HOLDINGS (incorporated by reference to Exhibit 2.1 of
Amendment No. 1 to the Company's Schedule 13D reflecting its ownership
in Storage USA filed 21 March 1996)
10.6 Registration Rights Agreement, dated as of 19 March 1996, by and among
Storage USA, the Company and HOLDINGS (incorporated by reference to
Exhibit 2.2 of Amendment No. 1 to the Company's Schedule 13D reflecting
its ownership in Storage USA filed 21 March 1996)
10.7 Amendment No. 1 to Strategic Alliance Agreement, dated 14 June 1996,
between Storage USA, SUSA, Storage USA Trust, the Company and HOLDINGS
(incorporated by reference to Exhibit 10.2 of Amendment No. 1 to
Storage USA's Registration Statement on Form S-3 (File No. 333-4556)
filed 27 August 1996)
10.8 Second Amendment to Strategic Alliance Agreement, dated as of 20
November 1997, by and among Storage USA, SUSA, the Company and HOLDINGS
(incorporated by reference to Exhibit 8 of Amendment No. 8 to the
Company's Schedule 13D reflecting its ownership in Storage USA, filed
4 December 1997)
-100-
<PAGE>
10.9 Stock Purchase Agreement, dated 11 June 1996, by and among Regency
Realty Corporation ("Regency"), the Company and HOLDINGS (incorporated
by reference to Appendix A to the definitive proxy statement of Regency
dated 19 September 1996)
10.10 Stockholders' Agreement, dated 10 July 1996, by and among Regency, the
Company and HOLDINGS (incorporated by reference to Appendix B to the
definitive proxy statement of Regency dated 19 September 1996)
10.11 Registration Rights Agreement, dated 10 July 1996 by and among Regency,
the Company and HOLDINGS (incorporated by reference to Appendix C to
the definitive proxy statement of Regency dated 19 September 1996)
10.12 Amendment No. 1 to Stockholders' Agreement, dated 10 February 1997, by
and among Regency, the Company and HOLDINGS (incorporated by reference
to Exhibit 10(f) of Regency's Current Report on Form 8-K filed 14 March
1997)
10.13 Amendment No. 2 to Stockholders' Agreement, dated 4 December 1997, by
and among Regency, the Company and HOLDINGS (incorporated by reference
to Exhibit 6.2 of the Company's Schedule 13D reflecting its ownership
in Regency filed 11 December 1997)
10.14 Amendment No. 3 to Stockholders' Agreement, dated as of 23 September
1998, by and among Regency, the Company and HOLDINGS (incorporated by
reference to Exhibit 8.2 of the Company's Schedule 13D reflecting its
ownership in Regency filed 2 October 1998)
10.15 Advisory Agreement dated 1 July 1997, between the Company, HOLDINGS
and Security Capital U.S. Realty Management S.A.
10.16 Amended and Restated Revolving Credit and Swingline Facility dated as
of 8 December 1998 by and among the Company, Commerzbank
Aktiengesellschaft, as arranger and administrative agent, and
Nationsbank of Texas, N.A., as syndication agent
-101-
<PAGE>
EXHIBIT 4.1
ARTICLES OF INCORPORATION
TITLE I
NAME--REGISTERED OFFICE--DURATION--PURPOSE
ARTICLE 1.--NAME
There exists among the subscribers and all those who may become owners of Shares
hereafter issued, a public limited company (societe anonyme) qualifying as an
investment company with fixed share capital (societe d'investissement a capital
fixe) within the meaning of Article 72-3 of the amended law of August 10, 1915,
under the name of Security Capital U.S. Realty.
ARTICLE 2.--REGISTERED OFFICE
The registered office of the Company is established in Luxembourg, Grand Duchy
of Luxembourg. Branches, subsidiaries or other offices may be established either
in the Grand Duchy of Luxembourg or abroad.
In the event that the board of directors determines that extraordinary political
or military events have occurred or are imminent which would interfere with the
normal activities of the Company at its registered office or with the ease of
communication between such office and persons abroad, the registered office may
be temporarily transferred abroad until the complete cessation of these abnormal
circumstances; such provisional measures shall have no effect on the nationality
of the Company which, notwithstanding such temporary transfer, shall remain a
Luxembourg corporation.
ARTICLE 3.--DURATION
The Company is established for an unlimited period of time.
ARTICLE 4.--PURPOSE
The exclusive purpose of the Company is to invest in real estate (i) directly or
(ii) through one or several subsidiaries or (iii) through direct or indirect
shareholdings in and convertible and other debt of real estate companies with
the purpose of spreading investment risks and affording its shareholders the
results of the management of its assets.
On an ancillary basis or for defensive purposes, the Company may temporarily
invest all or part of its assets in cash, cash equivalents, similar financial
instruments or debt
<PAGE>
2
securities.
The investment objectives and policies shall be determined by the board of
directors pursuant to Article 18 hereof and shall be disclosed in the sales
documents of the Shares to be issued by the board of directors of the Company
from time to time (the "SALES DOCUMENTS").
The Company may take any measures and carry out any transaction which it may
deem useful for the fulfilment and development of its purpose to the largest
extent permitted under the law of 30 March 1988 on Undertakings for Collective
Investment.
TITLE II
SHARE CAPITAL--SHARES--NET ASSET VALUE
ARTICLE 5.--SHARE CAPITAL--SERIES OF SHARES
The Company shall have an authorized capital of One Billion United States
Dollars ($1,000,000,000) consisting of 500,000,000 (five hundred million) Shares
of a par value of Two United States Dollars ($2.00) per Share. The Company has
an issued capital of Three Hundred and Forty-Six Million Two Hundred and Forty
Seven Thousand, Four Hundred and Eighty Six United States Dollars and Seventy-
Three point Two cents ($ 346,247,486.732) consisting of One Hundred and Seventy
Three Million, One Hundred and Twenty Three Thousand, Seven Hundred and Forty
Three point Three Hundred and Sixty-Six (173,123,743.366) Shares of a par value
of Two United States Dollars ($2.00) per Share. All the Shares in issue have
been fully paid up by payment in cash.
The authorized and issued capital of the Company may be increased or reduced by
a resolution of the shareholders adopted in the manner required for amendment of
these Articles of Incorporation, as prescribed in Article 30 hereof. In
addition, the issued capital of the Company may be increased in accordance with
Article 7 by the issuance of new Shares for subscription up to the amount of the
authorized capital. Each time the board of directors shall so act to render
effective, in whole or in part, an increase of the issued capital as authorized
by these Articles of Incorporation, the board of directors shall cause this
Article 5 to be amended so as to reflect such increase of capital and shall take
or authorize the taking of all necessary action for the purpose of effecting
such amendment in accordance with Luxembourg law.
The board of directors may create such capital reserves from time to time as it
may determine is proper (in addition to those which are required by law) and
shall create a paid-in surplus from funds received by the Company as issue
premiums on the issue and sale of its shares, which reserves or paid-in surplus
may be used to provide for the payment for any Shares which the Company may
redeem in accordance with these Articles of Incorporation, for setting off any
realized or unrealized capital losses or for the payment of any dividend or
other distribution (it being understood that the board of directors may decide
to make distributions within the limits set out in Article 72-3
<PAGE>
3
of the law dated 10 August 1915 on commercial companies).
The board of directors is empowered to subdivide all Shares to be issued or sold
pursuant to Article 7 hereof (including Shares already issued and outstanding at
the time of such subdivision) into two Series for the purpose of avoiding
adverse tax consequences for the Company. If subdivided, the Shares of Series A
(the "SERIES A SHARES") may be issued to and held by any investors. The Shares
of Series B (the "SERIES B SHARES", and together with the Series A Shares, the
"SHARES"), will only be issued to, and may only be held by (i) individuals who
are residents or citizens of the United States and who have a substantial
presence, permanent home or habitual abode there or individuals who are citizens
or residents of Luxembourg; (ii) publicly-traded companies of the United States
whose principal class of shares is substantially and regularly traded on (a) an
exchange registered with the U.S. Securities and Exchange Commission as a
national securities exchange for purposes of the U.S. Securities Exchange Act of
1934 or (b) the NASDAQ system or (c) certain foreign exchanges; (iii) United
States pension funds provided more than half the participants in such a fund are
residents or citizens of the U.S.; (iv) private companies of the United States
or specified European countries, all of the owners of which fit within any of
the foregoing categories as determined by the board of directors acting in the
best interests of the Company and (v) other classes of holders but only to the
extent specifically approved by the board of directors acting in the best
interests of the Company. At all times following any subdivision of Shares, the
outstanding Series B Shares must represent at least 60% of all outstanding
Shares. Shares of both Series shall vote as a single class at any general
meeting and shall have equal rights in all respects except as regards their
transferability which is governed by the following provisions:
Series A Shares are freely transferable whereas Series B Shares may only be
transferred to an already existing holder of Series B Shares or to an investor
eligible to become a holder of Series B Shares according to the criteria defined
hereabove and pursuant to the provisions of Article 9 hereof.
ARTICLE 6.--FORM OF SHARES
(1) Shares will only be issued in registered form.
All issued registered Shares of the Company shall be registered in the register
of shareholders which shall be kept by the Company or by one or more persons
designated thereto by the Company, and such register shall contain the name of
each owner of registered Shares, his residence or elected domicile as indicated
to the Company, the number of registered Shares held by him and the amount paid
up on each such Share.
The inscription of the shareholder's name in the register of Shares evidences
his right of ownership of such registered Shares. The Company shall decide
whether a certificate for such inscription shall be delivered to the shareholder
or whether the
<PAGE>
4
shareholder shall receive a written confirmation of his shareholding.
The Share certificates shall be signed by two directors or by any officer of the
Company duly authorised by the board of directors. Such signatures shall be
either manual, or printed, or in facsimile. The Company may issue temporary
Share certificates in such form as the board of directors may determine.
(2) Transfer of registered Shares shall be effected (i) if Share certificates
have been issued, upon delivering the certificate or certificates representing
such Shares to the Company along with other instruments of transfer satisfactory
to the Company, and (ii) if no Share certificates have been issued, by a written
declaration of transfer to be inscribed in the register of shareholders, dated
and signed by the transferor and transferee, or by persons holding suitable
powers of attorney to act therefor. Any transfer of registered Shares shall be
entered into the register of shareholders; such inscription shall be signed by
one or more directors or officers of the Company or by one or more other persons
duly authorized thereto by the board of directors. Shares are freely
transferable, subject to the provisions of Articles 5 and 9 hereof.
(3) Shareholders entitled to receive registered Shares shall provide the Company
with an address to which all notices and announcements may be sent. Such address
will also be entered into the register of shareholders.
In the event that a shareholder does not provide an address, the Company may
permit a notice to this effect to be entered into the register of shareholders
and the shareholder's address will be deemed to be at the registered office of
the Company, or at such other address as may be so entered into by the Company
from time to time, until another address shall be provided to the Company by
such shareholder. A shareholder may, at any time, change his address as entered
into the register of shareholders by means of a written notification to the
Company at its registered office, or at such other address as may be set by the
Company from time to time.
(4) If any shareholder can prove to the satisfaction of the Company that his
Share certificate has been mislaid, mutilated or destroyed, then, at his
request, a duplicate Share certificate may be issued under such conditions and
guarantees, including but not restricted to a bond issued by an insurance
company, as the Company may determine. At the issuance of the new Share
certificate, on which it shall be recorded that it is a duplicate, the original
Share certificate in replacement of which the new one has been issued shall
become void.
Mutilated Share certificates may be cancelled by the Company and replaced by new
certificates.
The Company may, at its election, charge to the shareholder the costs of a
duplicate or of a new Share certificate and all reasonable expenses incurred by
the Company in connection with the issue and registration thereof or in
connection with the annulment of the original Share certificate.
<PAGE>
5
(5) In the event that a Share is registered in the name of more than one person,
the first named holder in the register shall be deemed to be the representative
of all other joint holders and shall alone be entitled to be treated as the
holder of such Share for all purposes, including without limitation entitlement
to receive notices from the Company.
(6) The Company may decide to issue fractional Shares. Such fractional Shares
shall carry no entitlement to vote but shall entitle the holder to participate
in the net assets of the Company on a pro rata basis.
ARTICLE 7.--ISSUE AND SALE OF SHARES
(1) Subject to the provisions of this Article 7, the board of directors of the
Company is authorized (i) to issue additional Shares up to the total authorized
capital by contributions in cash, contributions in kind or by conversion of the
net profits or any other available reserves into share capital, in whole or in
part, from time to time as the board of directors in its discretion may
determine, within a period expiring on July 27, 2003; and (ii) to determine the
conditions of any such increase in capital, including, in relation to
contributions in cash and in kind, the price per Share and payment terms, and
terms of delivery, respectively. Any contributions in kind have to be compatible
with the investment policy of the Company. Furthermore, such contributions have
to be made in accordance with Article 26-1 of the law of the 10 August 1915 on
commercial companies and thus are subject to a valuation report being
established by the auditor of the Company. Such valuation report will be
established at the expense of the Company. In addition, in relation to a
contribution in kind of a real estate property or properties or in relation to a
contribution in kind of more than 50% of the share capital of any company, the
Company shall commission a valuation report by an Independent Appraiser (as
defined in the Sales Documents) as to the value of such contribution in kind.
(2) The board of directors may impose restrictions on the frequency at which
Shares shall be issued; the board of directors may, in particular, decide that
Shares shall only be issued during one or more offering periods or at such other
frequency as provided for in the Sales Documents. No Shares will be issued
during any period when the calculation of the net asset value per Share in the
Company is suspended pursuant to the provisions of Article 11. Any application
for subscription shall be irrevocable except in the event of a suspension of the
calculation of the net asset value. If, during the offering period for any
particular offering, there is a suspension of the calculation of the net asset
value, any application for subscription made prior to such suspension may be
revoked by the subscriber.
(3) The Company may issue its Shares for subscription either: (i) at a price per
Share which is no less than the net asset value per Share as determined in
compliance with Article 10 hereof as of such Valuation Day (as defined in
Article 11 hereof) as is determined in accordance with such policy as the board
of directors may from time to time determine; or (ii) at a price per Share which
is below the net asset value per
<PAGE>
6
Share (as so determined) either (A) by reserving for existing shareholders the
right to subscribe for new shares on a preferential and rateable basis in
compliance with the provisions of this Article 7 ("RIGHTS OFFERING"), provided
however that the Company does not have to reserve such preferential and rateable
right in circumstances where the price per Share at which the Shares are offered
for subscription is no less than the last available sales price (on the stock
exchange having the highest average daily volume in Shares), reported on the
last trading day preceding the time upon which the board of directors approved
the pricing of the Shares or (B) in connection with the conversion of
outstanding debt securities, which are convertible into Shares (whether by way
of conversion, subscription or otherwise) ("convertible debt securities").
(4) The price per Share at which the Company offers Shares for subscription or
sale may be increased by an amount representing a percentage estimate of costs
and expenses to be incurred by the Company when investing the proceeds of the
offering and/or by an amount representing applicable sales commissions, and fees
and expense reimbursement as determined from time to time by the board of
directors, in its discretion, as shall be disclosed in the Sales Documents. The
price so determined shall be payable within a period as determined by the board
of directors. The Company may decide, at the discretion of the board of
directors, to pay such costs and expenses, commissions and fees and expense
reimbursement out of the assets of the Company, provided however, any applicable
sales commissions payable in this manner to the Advisor (as defined in Article
17) or an affiliate of the Advisor shall be approved by a majority of the
independent directors (as defined in Article 13) in accordance with Article 13.
(5) If the Company offers its Shares for subscription within the five-year
period referred to in the first paragraph of this Article 7 at (i) a price per
Share which equals or exceeds the net asset value per Share, or at (ii) a price
per Share which is below the net asset value per Share but no less than the last
available sales price (on the stock exchange having the highest average daily
volume in Shares), reported on the last trading day preceding the time upon
which the board of directors approved the pricing of the Shares, the board of
directors is authorized to issue such Shares without reserving for the existing
shareholders a preferential right to subscribe for the Shares to be issued.
(6) Where the board of directors determines it to be in the best interests of
the shareholders and the Company to issue Shares at a price below the net asset
value per Share by way of Rights Offerings: (i) the rights to subscribe for such
Shares shall be reserved for existing shareholders on a preferential and
rateable basis, (ii) such offering shall be on such terms and conditions as the
board of directors determines are fair and reasonable to the existing
shareholders and customary for such offerings and (iii) the board of directors
of the Company shall use its reasonable efforts to ensure that any existing
shareholders electing not to subscribe for Shares pursuant to the Rights
Offering receive value for such rights, at market prices, by a method which the
board of directors determines to be appropriate in compliance with applicable
law and to be in the best interest of the relevant shareholders.
<PAGE>
7
(7) Within the five-year period referred to in the first paragraph of this
Article 7 and within the limit of the authorized capital, the board of directors
is authorized to issue convertible debt securities to such persons and at such
conversion prices and on such other terms and conditions as the board of
directors shall consider from time to time to be in the best interests of the
Company; provided, however, that the price per Share at which such debt
securities are convertible shall exceed the last reported sales price (on the
stock exchange having the highest average daily volume in Shares), reported on
the last trading day preceding the time upon which the board of directors
approved the pricing of the convertible debt securities and provided further
that the price per Share at which such debt securities are convertible shall be
capable of adjustment as deemed fit by the Board of Directors in order to
prevent the holders of the convertible debt securities from being diluted. In
the event the Company issues convertible debt securities as contemplated hereby
within the five-year period referred to in the first paragraph of this Article
7, the board of directors is authorized to issue such convertible debt
securities without reserving for the existing shareholders a preferential right
to subscribe for such convertible debt securities or the Shares underlying such
convertible debt securities. The aggregate of all borrowings of the Company may
not exceed on average 50% of the aggregate valuation of the Company's (i) debt
and equity interests in its real estate companies and (ii) direct properties and
property rights.
(8) The board of directors may delegate to any director, manager or officer of
the Company the power to accept subscriptions and to receive payment of the
price of the new Shares to be issued and to deliver them.
(9) The board of directors may accept subscriptions to be made on a cash or on a
cash and terms or instalment basis.
(10) The board of directors may not issue Series A Shares if, immediately after
such issuance, the total number of Series B Shares comprise less than 60% of the
total number of issued and outstanding Shares of the Company.
(11) The Company also may offer Shares which have been previously redeemed by it
for sale on the same terms (including pricing terms) and subject to the same
conditions as the Company is entitled to offer Shares for subscription
hereunder.
ARTICLE 8.--REDEMPTION OF SHARES
The Company is a closed-end undertaking for collective investment. Consequently,
Shares in the Company shall not be redeemable at the request of a shareholder.
The Company, however, may redeem its Shares whenever the board of directors
considers this to be in the best interest of the Company, subject to the terms
and conditions it shall determine and within the limitations set forth by law
and these Articles. In particular, at the option of the board of directors,
Shares may be redeemed on a pro rata basis as between existing shareholders of
the Company, in order to
<PAGE>
8
distribute to the shareholders upon the disposal of an investment asset by the
Company the net proceeds of such investment, notwithstanding any other
distribution pursuant to Article 26 hereof. Any such redemption shall be made
only out of the Company's retained profits and non-compulsory reserves
(including any paid-in surplus but excluding any reserve required by Luxembourg
law).
The Company shall seek to qualify as a "VENTURE CAPITAL OPERATING COMPANY" under
United States Employee Retirement Income Security Act ("ERISA") and will
therefore be exempt from the application of ERISA. Should the Company be
subsequently determined to be subject to ERISA, it will redeem Shares held by
pension plans pro rata and other retirement funds to the extent necessary to
cause such investors, as a group, to thereafter own less than 25% of the
outstanding Shares of the Company.
The redemption price shall be the net asset value per Share determined in
accordance with the provisions of Article 10 as at the Valuation Day specified
by the board of directors in their discretion, less an amount, if any, equal to
any duties and charges which will be incurred upon the disposal of the Company's
investments as at the date of redemption in order to fund such a redemption,
provided however that if Shares are redeemed otherwise than on a pro rata basis
between all existing shareholders, the board of directors may elect, if it
considers this to be necessary for the protection of the interests of the
remaining shareholders, to fix a redemption price below the net asset value per
Share, but being no less than the last available sales price (on the stock
exchange having the highest average daily volume in Shares), reported on such
trading day as specified by the board of directors in their discretion.
Notwithstanding the provisions of the preceding paragraph redemptions may take
place at market price if the Company elects to buy back Shares on the stock
exchange, provided however that such market price is not above the net asset
value per Share.
The redemption price per Share shall be paid within a period as determined by
the board of directors which shall not exceed fourteen business days from the
date fixed for redemption, provided that the Share certificates, if any, and the
transfer documents have been received by the Company, subject to the provision
of Article 11 hereof.
The board of directors may not redeem Series B Shares if, immediately after such
redemption, the total number of Series B Shares comprise less than 60% of the
total number of issued and outstanding Shares of the Company.
Shares redeemed by the Company shall remain in existence but shall not have any
voting rights or any right to participate in any dividends declared by the
Company or in any distribution paid upon the liquidation or winding up of the
Company and shall be disregarded for purposes of determining net asset value per
Share, in each case, for so long as such Shares are held by the Company. If such
Shares are reissued by the Company, the consideration received in respect of
such Shares shall be no less than (i) the net asset value per Share as
determined by the board of directors as of the Valuation Day immediately
preceding the date of such reissue, or (ii) the price which is no less than the
last available sales price (on the stock exchange having the highest
<PAGE>
9
average daily volume in Shares), reported on the last trading day preceding the
time upon which the board of directors priced the reissue of Shares unless such
Shares are reissued by way of Rights Offering (as defined in Article 7 hereof).
ARTICLE 9.--RESTRICTIONS ON OWNERSHIP OF SHARES
Section 1. Definitions.
For the purposes of this Article 9, the following terms shall have the following
meanings:
"BENEFICIAL OWNERSHIP" shall mean: (i) a Person's ownership of Shares within the
meaning of Section 544 of the Code (except that no corporate shareholder owning
less than 10% of the stock of an Excluded Holder shall be treated as owning
Shares held by such Excluded Holder if an individual directly or indirectly owns
50% or more in value of the stock of such corporate shareholder; (ii) a Person's
ownership of Shares (whether directly, indirectly or constructively) within the
meaning of Section 958 of the Code; and (iii) a Person's ownership of Shares
(directly, indirectly, or beneficially within the meaning of Section 13(d) of
the Securities Exchange Act of 1934 (including Shares that would otherwise be
excluded by Section 13(d)(6) and Rule 13d-4 thereof and Shares beneficially
owned by any group of persons). The terms "BENEFICIAL OWNER", "BENEFICIALLY
OWNS" and "BENEFICIALLY OWN" shall have the correlative meanings.
"CHARITABLE BENEFICIARY" shall mean an organisation or organisations described
in Sections 170 (b)(l)(A) and 170(c) of the Code and identified by the board of
directors as the beneficiary or beneficiaries of the Shares held in a fiduciary
capacity.
"CODE" shall mean the United States of America Internal Revenue Code of 1986, as
amended from time to time.
"CFC" shall mean a controlled foreign corporation within the meaning of Sections
951 through 958 of the Code.
"EVENT" shall have the meaning given to such term in Section 3(A) of this
Article 9.
"EXCESS SHARES" shall mean Shares resulting from an exchange described in
Section 3 of this Article 9.
"EXCESS SHARES FIDUCIARY" shall mean a Person unaffiliated with the Company, any
Purported Beneficial Transferee or any Purported Record Transferee, identified
by the board of directors as a fiduciary.
"EXCLUDED HOLDER" shall mean Security Capital Group Incorporated, a Maryland
(United States of America) corporation, and its affiliates, successors, or
assigns. However, an affiliate, successor, or assignee will be treated as an
Excluded Holder
<PAGE>
10
only if Security Capital Group Incorporated obtains an opinion of counsel that
any ownership of Shares by such affiliate, successor, or assignee will not cause
the Company to be treated as a PHC, a FPHC, or a CFC.
"FPHC" shall mean a foreign personal holding company within the meaning of
Section 552 of the Code.
"GERMAN OWNERSHIP LIMIT" shall mean 50 % of the share capital or voting rights
in the Company. The overall participation of German Tax Residents in the Company
shall be determined by the board of directors in good faith, which determination
shall be conclusive for all purposes hereof.
"GERMAN TAX RESIDENT" means any individual, corporation or other entity which is
resident in Germany for tax purposes under Section 1 of the German Income Tax
Act or Section 1 of the German Corporate Tax Act.
"INDIVIDUAL" shall mean a natural person or an organisation described in Section
401(a), 501(c)(17), or 509(a) of the Code or a portion of a trust permanently
set aside or to be used exclusively for the purposes described in Section 642(c)
of the Code or a corresponding provision of a prior income tax law.
"MARKET PRICE" as of a relevant date shall be determined from data provided by
the stock exchange having the highest average daily volumes in Shares for the 20
trading days preceding such date. Market Price shall mean the last reported
sales price on such exchange for the trading day immediately preceding the
relevant date. If the Shares are not then traded on an exchange, Market Price
shall mean the last reported sales price for Shares on the trading day
immediately preceding the relevant date as reported on any exchange or quotation
system over or through which such Shares may be traded, or if not then so
traded, the market price of such Shares on the relevant date as determined in
good faith by the board of directors. If Shares are issued in two or more
classes under Article 5 herein, Market Price shall be determined on a class-by-
class basis.
"OWNERSHIP LIMIT" shall mean 9.5% in number, value or vote of (i) the Company's
outstanding Shares or, (ii) if Shares are issued in two or more classes under
Article 5 herein, the outstanding Shares of any class of Shares. The number,
value, and vote of the outstanding Shares of the Company shall be determined by
the board of directors in good faith, which determination shall be conclusive
for all purposes hereof. For purposes of this provision, "vote" shall have the
meaning of Section 957 of the Code.
"PERSON" shall mean an individual, corporation, partnership, estate, trust
(including a trust qualified under Section 401(a) or 501(c)(17) of the Code),
portion of a trust permanently set aside for or to be used exclusively for the
purposes described in Section 642(c) of the Code, association, private
foundation within the meaning of Section 509(a) of the Code, joint stock company
or other entity.
"PHC" shall mean a personal holding company within the meaning of Section 542 of
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11
the Code.
"PURPORTED BENEFICIAL TRANSFEREE" shall mean, with respect to any purported
Transfer which results in Excess Shares, the beneficial holder of the Shares, if
such Transfer had been valid under Section 2 of this Article 9.
"PURPORTED RECORD TRANSFEREE" shall mean, with respect to any purported Transfer
which results in Excess Shares, the record holder of the Shares, if such
Transfer had been valid under Section 2 of this Article 9.
"SETTLEMENT AMOUNT" shall have the meaning given to such term in Section 14 of
this Article 9.
"SHARES" shall mean the Shares of the Company as may be authorised and issued
from time to time pursuant to Article 7.
"TRANSFER" shall mean any sale, transfer, gift, assignment, devise or other
disposition of Shares (including (a) the granting of any option or entering into
any agreement for the sale, transfer or other disposition of Shares, (b) the
sale, transfer, assignment or other disposition of any securities or rights
convertible into or exchangeable for Shares, but excluding the exchange of debt
or any security of the Company for Shares and (c) any transfer or other
disposition of any interest in Shares as a result of a change in the marital
status of the holder thereof), whether voluntary or involuntary, whether of
record, constructively or beneficially and whether by operation of law or
otherwise. The terms "TRANSFERS" and "TRANSFERRED" shall have the correlative
meanings.
Section 2. Ownership Limitation.
(A) No Person (other than an Excluded Holder) shall Beneficially Own Shares in
excess of the Ownership Limit.
(B) Any Transfer that would result in any Person (other than an Excluded Holder)
Beneficially Owning Shares in excess of the Ownership Limit shall be
unenforceable against the Company as to such Shares in excess of the Ownership
Limit.
(C) Any Transfer that would result in five or fewer Individuals Beneficially
Owning more than 50% in value of (i) the Company's outstanding Shares or (ii)
the outstanding Shares of any class of the Company's Shares, shall be
unenforceable against the Company as to the Transfer of those Shares that
result in such excess.
(D) German Tax Residents shall not directly or indirectly (whether through a
subsidiary, trust arrangement or otherwise) collectively own Shares in excess of
the German Ownership Limit. Any Transfer of Shares that would result in German
Tax Residents collectively owning directly or indirectly (whether through a
subsidiary, trust arrangement or otherwise) Shares in excess of the German
Ownership Limit shall be
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12
unenforceable against the Company.
(E) Subject to Section 11 of this Article 9, any Transfer of Series B Shares to
a person that is not an Eligible Series B Holder shall be unenforceable against
the Company as to the Transfer of such Shares; and the intended transferee shall
acquire no rights in such Shares.
(F) Nothing contained in this Article 9 shall preclude the settlement of any
transaction entered into through the facilities of any securities exchange. The
fact that the settlement of any transaction is permitted shall not negate the
effect of any other provision of this Article 9 and any transferee in such a
transaction shall be subject to all of the provisions and limitations set forth
in this Article 9.
Section 3. Excess Shares.
(A) If an event, including a purported Transfer (an "EVENT"), occurs that would
cause any Person (other than an Excluded Holder) to Beneficially Own Shares in
excess of the Ownership Limit, then Shares Beneficially Owned by such Person
shall be exchanged for an equal number of Excess Shares to the extent necessary
to eliminate such excess ownership. Such exchange shall be effective as of the
close of business on the business day prior to the date of the Event. In
determining which Shares are exchanged, Shares Beneficially Owned by any Person
who caused the Event to occur shall be exchanged before any other Person's
Shares. Where several Persons exist, the exchange shall be pro rata. If any
Person is required to exchange Shares pursuant to this clause, such Person shall
first exchange Shares owned directly before exchanging Shares owned
constructively through the application of Section 544 of the Code. Where such
Person owns Shares constructively through one or more Persons and the Shares
held thereby must be exchanged, the exchange of Shares by such other Persons
shall be pro rata.
(B) If an Event occurs that would cause the Company to become a PHC or a FPHC,
Shares Beneficially Owned that would cause the Company to be a PHC or FPHC
(rounded up to the next whole share) shall be exchanged for an equal number of
Excess Shares to the extent necessary to eliminate such status. Such exchange
shall be effective as of the close of business on the business day prior to the
date of the Event. If, after the exchange of any such Shares, the Company is
still a PHC or a FPHC, any Individual or Individuals whose Beneficial Ownership
of Shares in the Company increased as the result of the Event and who is among
the five Individuals who caused the Company to become a PHC or a FPHC, shall
exchange Shares on a pro rata basis for an equal number of Excess Shares until
the Company is not a PHC or FPHC. In determining which Shares are exchanged,
Shares owned directly by such Individual or Individuals shall be exchanged
before Shares owned constructively through the application of Section 544 of the
Code. Where an Individual owns Shares constructively through one or more
Persons, any exchange of such Shares shall be pro rata.
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13
(C) If an Event occurs that would cause German Tax Residents to own Shares in
excess of the German Ownership Limit, such Shares that would cause such excess
shall be exchanged for an equal number of Excess Shares to the extent necessary
to eliminate such excess. The Board of Directors shall determine in good faith
which particular shares are to be exchanged pursuant to the foregoing sentence.
Such exchange shall be effective as of the close of business on the business day
prior to the date of the Event.
Section 4. Prevention of Transfer.
Any Transfers or attempted Transfers in violation of Section 2 herein shall
automatically result in the designation and treatment described in Section 3
herein. If the board of directors shall at any time determine in good faith that
Person intends to acquire or has attempted to acquire Beneficial Ownership that
would result in violation of Section 2 herein the board of directors shall take
such action as it deems advisable to refuse to give effect to or to prevent such
Transfer, including, refusal to effect such Transfer on the books of the Company
or proceedings to enjoin such Transfer.
Section 5. Notice to Company.
Any Person who acquires or attempts to acquire Shares in violation of Section 2
herein, or any Person who is a transferee such that Excess Shares result under
Section 3 herein, shall immediately give written notice to the Company. Persons
required to give notice under this Section 5 shall provide the Company such
other information as the Company may reasonably request in order to allow the
Company to apply the ownership, voting and transfer restriction of this Article
9.
Section 6. Information Reporting.
Every Beneficial Owner of 5% or more of the number or value of outstanding
Shares of the Company shall provide to the Company information as the Company
may reasonably request in order to allow the Company to apply the ownership,
voting and transfer restrictions of this Article 9.
Section 7. Other Action by Board.
In addition to the powers enumerated herein, the board of directors shall be
empowered to take such other action as it deems necessary or advisable to
protect the Company and the interests of its stockholders by preventing the
Company from becoming a PHC, a FPHC, or a CFC or being subject to adverse tax
treatment in Germany. No application of this Section 7 shall preclude the
settlement of any transaction entered into through the facilities of any stock
exchange.
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14
Section 8. Ambiguities.
In the case of an ambiguity in the application of any of the provisions of this
Article 9, including any definition contained in Section l, the board of
directors shall have the power to determine the application of the provisions of
this Article 9 with respect to any situation based on the facts known to it.
Section 9. Increase or Decrease in Ownership Limit.
Subject to the limitations provided in Section 10 of this Article 9, the board
of directors may from time to time increase or decrease the Ownership Limit or
the German Ownership Limit. If any decrease is a result of a retroactive change
in existing law that would require a decrease to prevent either PHC, FPHC, or
CFC status or adverse tax treatment in Germany, such decrease may be retroactive
to the extent necessary to preclude such status or treatment. Any other decrease
may be only made prospectively as to subsequent holders.
Section 10. Ownership Limitations
(A) The Ownership Limit may not be increased if such increase would enable five
Individual Beneficial Owners of Shares to Beneficially Own, in the aggregate,
more than 49.9% in number or value of the Company's outstanding Shares.
(B) Prior to the modification of the Ownership Limit or the German Ownership
Limit pursuant to Section 9 herein, the board of directors may require such
opinions of counsel, affidavits, undertakings or agreements as it may deem
necessary or advisable in order to determine or ensure that the Company does not
become either a PHC, a FPHC, or a CFC or become subject to adverse tax treatment
in Germany.
(C) Subject to Section 11 herein, no Ownership Limit may be increased to a
percentage which is greater than 9.9%.
Section 11. Waivers by the Board.
(A) Notwithstanding Section 2 herein, the board of directors may exempt a Person
from the Ownership Limit or the German Ownership Limit if the board of directors
obtains such representations and undertakings from such Person as the board of
directors may deem appropriate. In addition, the board of directors may waive
the Ownership Limit and allow the Company to become a CFC with the consent of
every Excluded Holder and Person who is a U.S. shareholder of the Company within
the meaning of Section 951 of the Code.
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15
Section 12. Severability.
If any provision of this Article 9 or any application of any such provision is
determined to be void, invalid or unenforceable by any court having jurisdiction
over the issue, the validity and enforceability of the remaining provisions
shall be affected only to the extent necessary to comply with the determination
of such court.
Section 13. Transfer of Excess Shares.
Any Excess Shares shall be deemed as of the date of their exchange for shares to
have been transferred to the Excess Shares Fiduciary, as a fiduciary for the
exclusive benefit of the Charitable Beneficiary or Charitable Beneficiaries
having an interest in such Excess Shares. The Purported Record Transferee or
Purported Record Holder shall have no rights in such Excess Shares except as
provided in Sections 14 and 16 herein.
Section 14. Distributions on Excess Shares.
Any distributions (whether taxable as a dividend, return of capital or
otherwise) on Excess Shares arising on or after the date such Shares may be
classified as Excess Shares shall be payable by the Purported Record Transferee
to the Excess Shares Fiduciary for the benefit of the Charitable Beneficiary.
Upon liquidation, dissolution or winding up, the Purported Record Transferee
shall receive (i) the lesser of (1) the price paid by the Purported Record
Transferee for the Shares, or if the Purported Record Transferee did not give
value for the Shares, the Market Price of the Shares on the day of the event
causing the Shares to become Excess Shares, and (2) the price received by the
Excess Shares Fiduciary from the redemption (under this Section 14) or Transfer
(under Section 16 herein) of the Shares minus (ii) any distribution payable but
not yet paid by the Purported Record Transferee to the Excess Shares Fiduciary
(in the aggregate, the "SETTLEMENT AMOUNT").
Section 15. Voting of Excess Shares.
The Excess Shares Fiduciary shall be entitled to vote the Excess Shares for the
benefit of the Charitable Beneficiary on any matter.
Section 16. Sale and Transferability of Excess Shares.
Excess Shares shall be Transferable only as provided in this Section 16. The
Company shall place a broker's order to sell any Excess Shares for cash. Such
Shares shall be sold to the Person who makes and pays the highest offer for such
Shares and whose Beneficial Ownership of such Shares will not violate Sections 2
or 3 herein. The proceeds of the sale shall be payable to the Excess Shares
Fiduciary, which shall pay the Settlement Amount (as defined in Section 14
herein) to the Purported Record Transferee and the remainder to the Charitable
Beneficiary.
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16
If any of the foregoing restrictions on Transfer of Excess Shares is determined
to be void, invalid or unenforceable by any court of competent jurisdiction,
then the Purported Record Transferee may be deemed, at the option of the
Company, to have acted as an agent of the Company in acquiring such Excess
Shares and to hold such Excess Shares on behalf of the Company.
Section 17. Underwritten Offerings.
The Ownership Limit shall not apply to the acquisition of Shares or rights,
options or warrants for, or securities convertible into, Shares by an
underwriter in a public offering; provided that the underwriter makes a timely
distribution of such Shares or rights, options or warrants for, or securities
convertible into, Shares.
ARTICLE 10.--CALCULATION OF NET ASSET VALUE PER SHARE
The net asset value per Share in the Company shall be expressed in United States
Dollars and shall be determined as of any Valuation Day by dividing the net
assets of the Company, being the value of the assets less the liabilities, on
any such Valuation Day, by the number of Shares then outstanding in the Company,
less the number of any Shares redeemed by the Company and not disposed of by the
Company, in accordance with the rules set forth below. The net asset value per
Share may be rounded up or down to the nearest unit of the relevant currency as
the board of directors shall determine. If since the time of determination of
the net asset value there has been a material change in the quotations in the
markets on which a substantial portion of the investments of the Company are
dealt in or quoted, the Company may, in order to safeguard the interests of the
shareholders and the Company, cancel the first valuation and carry out a second
valuation.
The valuation of the net asset value per Share shall be made in the following
manner:
I. SUBJECT TO PART III OF THIS ARTICLE 10, THE ASSETS OF THE COMPANY SHALL
INCLUDE:
1) properties and property rights registered in the name of the Company;
2) shareholdings in and convertible and other debt of real estate companies;
3) all cash on hand or on deposit, including any interest accrued thereon;
4) all bills and demand notes receivable and accounts receivable (including
proceeds of securities sold but not delivered);
5) all bonds, time notes, shares, stock, debentures, debenture stocks,
subscription rights, warrants, options and other securities, financial
instruments and similar assets owned or contracted for by the Company (provided
that the Company may make adjustments in a manner not inconsistent with
paragraph d) below with regards to
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17
fluctuations in the market value of securities caused by trading ex-dividends,
ex-rights, or by similar practices);
6) all stock, stock dividends, cash dividends and cash distributions receivable
by the Company to the extent information thereon is reasonably available to the
Company;
7) all interest accrued on any interest-bearing assets owned by the Company
except to the extent that the same is included or reflected in the principal
amount of such asset;
8) the preliminary expenses of the Company, including the cost of issuing and
distributing Shares of the Company, insofar as the same have not been written
off;
9) all other assets of any kind and nature including expenses paid in advance.
The value of such assets shall be determined as follows:
a) Real estate will be valued at their estimated investment value (current
appraisal value including all costs of acquisition).
b) The securities of real estate companies which are listed on a stock exchange
or dealt in on another regulated market, operating regularly, recognised and
open to the public (a "REGULATED MARKET"), will be valued on the basis of the
last available publicised stock exchange or market value.
c) The securities of real estate companies which are not listed on a stock
exchange nor dealt in on another Regulated Market will be valued on the basis of
the probable net realization value estimated with prudence and in good faith by
the board of directors (generally using cost, unless events demonstrate that a
lower or higher value is more accurate, as described in greater detail
herebelow).
d) The value of any cash on hand or on deposit, bills and demand notes and
accounts receivable, prepaid expenses, cash dividends and interest declared or
accrued as aforesaid and not yet received shall be deemed to be the full amount
thereof, unless in any case the same is unlikely to be paid or received in full,
in which case the value thereof shall be arrived at after making such discount
as the Company may consider appropriate in such case to reflect the true value
thereof.
e) All other securities and other assets, including debt securities, restricted
securities and securities for which no market quotation is available, are valued
on the basis of dealer--supplied quotations or by a pricing service approved by
the board of directors or, to the extent such prices are not deemed to be
representative of market values, such securities and other assets shall be
valued at fair value as determined in good faith pursuant to procedures
established by the board of directors. Money market instruments held by the
Company with a remaining maturity of ninety days or less will be valued by the
amortized cost method, which approximates market value.
For the appraisal of the value of (i) properties and property rights registered
in the
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18
name of the Company or any of its subsidiaries and (ii) direct or indirect
shareholdings of the Company in real estate companies referred to under c)
hereabove in which the Company shall hold more than 50 percent of the
outstanding voting stock, the Company shall appoint an independent real estate
appraiser provided that the Company may deviate from such evaluation if deemed
in the interest of the Company and its shareholders and provided further that
such valuation may be established at the year end and used throughout the
following year unless there is a change in the general economic situation or in
the condition of the relevant properties or property rights held by the Company
or by any of its subsidiaries or by any controlled real estate companies which
requires new valuations to be carried out under the same conditions as the
annual valuations.
The value of all assets and liabilities not expressed in United States Dollars
will be converted into United States Dollars at the rate of exchange ruling in
Luxembourg on the relevant Valuation Day. If such quotations are not available,
the rate of exchange will be determined in good faith by or under procedures
established by the board of directors.
The board of directors, in its discretion, may permit some other method of
valuation to be used, if it considers that such valuation better reflects the
fair value of any asset of the Company.
Based upon the above described valuation rules, the board of directors has
defined the following additional rule: in regard to the companies for which a
public trading market does not then exist, the valuation of shares of those
companies will occur in one of three ways. If the directors of the Company are
comfortable with the operating progress of each privately held company, the
investment will be valued at the Company's cost. Secondly, if the investment is
not progressing as envisioned, it will be valued at an appropriate lower value.
Finally, if the investee has raised substantial additional capital from
independent third parties since the last valuation, the Company will use the
price at which that capital was raised in the Company's net asset value
calculation. In any case, the value will coincide with the Company's best
estimate of realisable value, estimated with care and in good faith.
II. SUBJECT TO PART III OF THIS ARTICLE 10, THE LIABILITIES OF THE COMPANY
SHALL INCLUDE:
1) all loans and other indebtedness for borrowed money (including convertible
debt), bills and accounts payable;
2) all accrued interest on such loans and other indebtedness for borrowed money
(including accrued fees for commitment for such loans and other indebtedness);
3) all accrued or payable expenses (including administrative expenses, advisory
fees, including incentive fees, if any, custodian fees, and corporate agents'
fees);
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19
4) all known liabilities, present and future, including all matured contractual
obligations for payments of money or property, including the amount of any
unpaid distributions declared by the Company, where the Valuation Day falls on
the record date for determination of the person entitled thereto or is
subsequent thereto;
5) an appropriate provision for future taxes based on capital and income to the
Valuation Day, as determined from time to time by the Company, and other
reserves (if any) authorized and approved by the board of directors, as well as
such amount (if any) as the board of directors may consider to be an appropriate
allowance in respect of any contingent liabilities of the Company;
6) all other liabilities of the Company of whatsoever kind and nature reflected
in accordance with Luxembourg law and U.S. GAAP. In determining the amount of
such liabilities the Company shall take into account all expenses payable by the
Company which may comprise, as more fully described in the Sales Documents,
formation expenses, fees payable to its advisors, including performance related
fees, if any, fees and expenses payable to its accountants, custodian and its
correspondents, domiciliary, administrative, registrar and transfer agents, any
paying agent, any distributors and permanent representatives in places of
registration, as well as any other agent employed by the Company, the
remuneration of the directors and their reasonable out-of-pocket expenses,
insurance coverage and reasonable travelling costs in connection with board
meetings, fees and expenses for legal and auditing services (including due
diligence expenses relating to potential investments), any fees and expenses
involved in registering and maintaining the registration of the Company with any
Governmental agencies or stock exchanges in the Grand Duchy of Luxembourg and in
any other country, reporting and publishing expenses, including the cost of
preparing, printing, advertising and distributing prospectuses, explanatory
memoranda, periodical reports or registration statements, the cost of printing
certificates, and the costs of any reports to shareholders, expenses incurred in
determining the Company's net asset value, the cost of convening and holding
shareholders' and board of directors' meetings, all taxes, duties, governmental
and similar charges, and all other operating expenses, including the cost of
buying and selling assets, the cost of publishing the issue and redemption
prices, if any, interest, bank charges, currency conversion costs, and
brokerage, postage, telephone and telex. The Company may accrue administrative
and other expenses of a regular or recurring nature based on an estimated amount
rateably for yearly or other periods.
III. FOR THE PURPOSE OF THIS ARTICLE 10:
1) Shares of the Company to be redeemed (if any) under Article 8 hereof shall be
treated as existing and taken into account until the date fixed for redemption
and from such time and until paid by the Company the price therefor shall be
deemed to be a liability of the Company;
2) Shares to be issued by the Company shall be treated as being in issue as from
the date of issue;
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20
3) if the Market Price (as defined in Article 9) for the Shares on the Valuation
Day on which such valuation is made exceeds the stated conversion price for any
outstanding convertible debt securities of the Company, the indebtedness
evidenced by such convertible debt securities (and any accrued and unpaid
interest thereon which is not payable upon conversion of such debt securities
pursuant to the terms thereof) shall not be treated as a liability of the
Company and the Shares issuable pursuant to such convertible debt securities
shall be treated as being in issue;
4) if the Market Price (as defined in Article 9) for the Shares on the Valuation
Day on which such valuation is made is less than or equal to the stated
conversion price for any outstanding convertible debt securities of the Company,
the indebtedness evidenced by such convertible debt securities of the Company
shall be treated as a liability of the Company in an amount equal to the
principal amount of the indebtedness outstanding plus all accrued and unpaid
interest thereon;
5) all investments, cash balances and other assets expressed in currencies other
than the currency in which the net asset value for the Company is calculated
shall be valued after taking into account the market rate or rates of exchange
in force at the date and time for determination of the net asset value of
Shares; and
6) where on any Valuation Day the Company has contracted to:
- --purchase any asset, the value of the consideration to be paid for such asset
shall be shown as a liability of the Company and the value of the asset to be
acquired shall be shown as an asset of the Company;
- --sell any asset, the value of the consideration to be received for such asset
shall be shown as an asset of the Company and the asset to be delivered shall
not be included in the assets of the Company;
provided, however, that if the exact value or nature of such consideration or
such asset is not known on such Valuation Day, then its value shall be estimated
by the Company, provided, further, that in the case of purchases and sales of
assets on a Regulated Market, the principles set forth in this paragraph 6)
shall be given effect from the day which is one business day after the trade
date of the relevant purchase or sale (being the date that the relevant broker
executes the order for such purchase or sale).
For the avoidance of doubt, the provisions of this Article 10 (including, in
particular, Part III hereof) are rules for determining net asset value per Share
and are not intended to affect the treatment for accounting or legal purposes of
the assets and liabilities of the Company or any securities issued by the
Company.
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21
ARTICLE 11.--FREQUENCY AND TEMPORARY SUSPENSION OF CALCULATION OF NET ASSET
VALUE PER SHARE AND OF ISSUE OF SHARES
The net asset value per Share shall be calculated from time to time by the
Company (or any agent appointed by the Company) under the responsibility of the
board of directors provided the calculation is made at least once a year (at the
end of the financial year of the Company) as well as on each day by reference to
which the board of directors approves the pricing of an issue of Shares provided
that this is in compliance with applicable laws and regulations, such date or
time of calculation being referred to herein as the "VALUATION DAY."
The Company may suspend the determination of the net asset value per Share and
the issue of its Shares during:
a) any period when any one of the principal markets or other stock exchanges on
which a substantial portion of the assets attributable to such Shares, from time
to time, are quoted is closed (otherwise than for ordinary holidays) or during
which dealings therein are restricted or suspended; or
b) any period when, as a result of political, economic, military or monetary
events or any circumstances outside the control, responsibility and power of the
board of directors, or the existence of any state of affairs in the property
market, disposal of the assets owned by the Company attributable to such Shares
is not reasonably practicable without this being seriously detrimental to the
interests of shareholders or if in the opinion of the board of directors issue,
sale and/or redemption prices cannot fairly be calculated; or
c) any breakdown in the means of communication normally employed in determining
the price of any of the investments or the current prices on any market or other
stock exchanges; or
d) any period when the board of directors is unable to repatriate funds for the
purpose of making payments on the redemption of Shares to the holders thereof or
during which time any transfer of funds involved in the realisation or
acquisition of investments or payments due on redemption of such Shares, if any,
cannot in the opinion of the board of directors be effected at normal rates of
exchange; or
e) any period when the net asset value of any subsidiary of the Company may not
be determined accurately; or
f) upon the publication of a notice convening a general meeting of shareholders
for the purpose of resolving to wind up the Company; or
g) when for any other reason, the prices of any investments cannot be promptly
or accurately ascertained.
Any such suspension shall be publicized, if appropriate, by the Company and may
be notified to shareholders having made an application for subscription of
Shares for which the calculation of the net asset value has been suspended.
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TITLE III
ADMINISTRATION AND SUPERVISION
ARTICLE 12.--DIRECTORS
The Company shall be managed by a board of directors composed of not less than
three members, who need not be shareholders of the Company. They shall be
elected for a term of one year. The directors shall be elected by the
shareholders at a general meeting of shareholders; the latter shall further
determine the number of directors and their remuneration.
Directors shall be elected by the majority of the votes of the Shares present or
represented at a general meeting.
Any director may be removed with or without cause or be replaced at any time by
a resolution passed by a majority of the votes of the Shares present or
represented at a general meeting.
In the event of a vacancy in the office of director, the remaining directors may
temporarily fill such vacancy; the shareholders shall take a final decision
regarding such nomination at their next general meeting.
At all times the majority of the directors shall be residents in Europe. All
meetings of the board of directors, other than occasional telephonic meetings,
shall take place in Europe.
ARTICLE 13.--BOARD MEETINGS
The board of directors shall choose from among its members a chairman, and may
choose from among its members one or more vice-chairmen. It may also choose a
secretary, who need not be a director, who shall write and keep the minutes of
the meetings of the board of directors and of the shareholders. The board of
directors shall meet upon call by the chairman or any two directors, at the
place indicated in the notice of meeting (but in no event in the United States
of America, its territories or possessions, or in the United Kingdom).
The chairman shall preside at the meetings of the directors and of the
shareholders. In his absence, the shareholders or the board members shall decide
by a majority vote that another director, or in case of a shareholders' meeting,
that any other person shall be in the chair of such meetings.
Resolutions of the board of directors shall be taken by a majority vote of the
directors present or represented; provided, however, that all transactions
between the Company and the Advisor or Security Capital Group Incorporated
("SECURITY CAPITAL GROUP") or any other subsidiary of Security Capital Group,
including purchases of securities of Security Capital Group (within a limit of
10% of the Company's assets) and any renewal of the Company's advisory agreement
with the Advisor shall also be approved
<PAGE>
22
by a majority of the independent directors of the Company. For purposes of this
Article 13, "INDEPENDENT DIRECTOR" shall mean a person other than an officer or
employee of the Company or Security Capital Group or its subsidiaries (including
the Advisor) or any other individual having a relationship which, in the opinion
of the board of directors, would interfere with the exercise of independent
judgement in carrying out the responsibilities of a director.
The board of directors may appoint any officers, including a general manager and
any assistant general managers as well as any other officers that the Company
deems necessary for the operation and management of the Company. Such
appointments may be cancelled at any time by the board of directors. The
officers need not be directors or shareholders of the Company. The officers
shall have the rights and duties conferred upon them by the board of directors.
Written notice of any meeting of the board of directors shall be given to all
directors at least twenty-four hours prior to the date set for such meeting,
except in circumstances of emergency, in which case the nature of such
circumstances shall be set forth in the notice of meeting. This notice may be
waived by consent in writing, by telegram, telex, telefax or any other similar
means of communication. Separate notice shall not be required for meetings held
at times and places fixed in a resolution adopted by the board of directors.
Any director may act at any meeting by appointing in writing, by telegram, telex
or telefax or any other similar means of communication another director as his
proxy. A director may represent several of his colleagues.
Any director may participate in a meeting of the board of directors by
conference call or similar means of communications equipment whereby all persons
participating in the meeting can hear each other and participating in a meeting
by such means shall constitute presence in person at such meeting.
The directors may only act at duly convened meetings of the board of directors.
The directors may not bind the Company by their individual signatures, except if
specifically authorized thereto by resolution of the board of directors.
The board of directors can deliberate or act validly only if at least the
majority of the directors, or any other number of directors that the board may
determine, are present or represented.
Resolutions of the board of directors will be recorded in minutes signed by the
chairman of the meeting. Copies of extracts of such minutes to be produced in
judicial proceedings or elsewhere will be validly signed by the chairman of the
meeting or any two directors.
Resolutions in writing approved and signed by all directors shall have the same
effect as resolutions voted at the directors' meetings; each director shall
approve such resolution in writing, by telegram, telex, telefax or any other
similar means of
<PAGE>
24
communication. All such resolutions shall form the record that proves that such
decision has been taken.
ARTICLE 14.--POWERS OF THE BOARD OF DIRECTORS
The board of directors is vested with the broadest powers to perform all acts of
disposition and administration within the Company's purpose, in compliance with
the investment policy as set out in the Sales Documents (as defined in Article
4) and as determined in Article 18 hereof.
All powers not expressly reserved by law or by the present Articles of
Incorporation to the general meeting of shareholders are in the competence of
the board.
ARTICLE 15.--CORPORATE SIGNATURE
Vis-a-vis third parties, the Company is validly bound by the joint signatures of
any two directors or by the single or joint signature(s) of any person(s) to
whom authority has been delegated by the board of directors.
ARTICLE 16.--DELEGATION OF POWER
The board of directors of the Company may delegate its powers to conduct the
daily management and affairs of the Company (including the right to act as
authorized signatory for the Company) and its powers to carry out acts in
furtherance of the corporate policy and purpose to one or several physical
persons or corporate entities (provided such persons or entities are not
residents of the United States of America or physically present there), which
need not be members of the board, who shall have the powers determined by the
board of directors and who may, if the board of directors so authorizes, sub-
delegate their powers (but not to residents of the United States of America or
persons physically present there).
The board may also confer other special powers of attorney by notarial or
private proxy.
ARTICLE 17.--INVESTMENT ADVISOR
The board of directors of the Company shall initially appoint as advisor
Security Capital (EU) Management S.A. (the "ADVISOR"), a company organized and
existing under the laws of the Grand Duchy of Luxembourg, who shall supply the
Company with recommendation and advice with respect to the Company's investment
policy pursuant to Article 18 hereof, in particular for identifying and
selecting investment opportunities, advising on their purchase and sale and
actively monitoring the progress of the Company's portfolio. The board of
directors shall have the right to replace the
<PAGE>
25
Advisor or appoint additional advisors.
ARTICLE 18.--INVESTMENT POLICIES AND RESTRICTIONS
The board of directors, based upon the principle of risk spreading, has the
power to determine the investment policies and strategies of the Company and the
course of conduct of the management and business affairs of the Company, within
the restrictions as set forth in the Sales Documents issued by the board of
directors and in compliance with applicable laws and regulations.
Investments in real estate may be made by the Company either directly or
indirectly through subsidiaries or real estate companies as the board of
directors may from time to time decide. References in these Articles to
"INVESTMENTS" and "ASSETS" shall mean, as appropriate, either investments made
and assets beneficially held directly or investments made and assets
beneficially held indirectly through the aforesaid subsidiaries and real estate
companies.
ARTICLE 19.--CONFLICT OF INTEREST
No contract or other transaction between the Company and any other company or
firm shall be affected or invalidated by the fact that any one or more of the
directors or officers of the Company is interested in, or is a director,
associate, officer or employee of, such other company or firm. Any director or
officer of the Company who serves as a director, officer or employee of any
company or firm with which the Company shall contract or otherwise engage in
business shall not, by reason of such affiliation with such other company or
firm, be prevented from considering and voting or acting upon any matters with
respect to such contract or other business.
In the event that any director or officer of the Company may have in any
transaction of the Company an interest opposite to the interests of the Company,
such director or officer shall make known to the board of directors such
opposite interest and shall not consider or vote on any such transaction, and
such transaction and such director's or officer's interest therein shall be
reported to the next succeeding general meeting of shareholders.
The term "OPPOSITE INTEREST", as used in the preceding sentence, shall not
include any relationship with or without interest in any matter, position or
transaction involving the Advisor or its affiliates, the Custodian, as well as
any other person, company or entity as may from time to time be determined by
the board of directors on its discretion.
ARTICLE 20.--INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company shall indemnify any director or officer, and his heirs, executors
and
<PAGE>
26
administrators, against expenses reasonably incurred by him in connection with
any action, suit or proceeding to which he may be made a party by reason of his
being or having been a director or officer of the Company or, at its request, of
any other company of which the Company is a shareholder or a creditor and from
which he is not entitled to be indemnified, except in relation to matters as to
which he shall be finally adjudged in such action, suit or proceeding to be
liable for gross negligence or misconduct; in the event of settlement,
indemnification shall be provided only in connection with such matters covered
by the settlement as to which the Company is advised by counsel that the person
to be indemnified did not commit such a breach of duty. The foregoing right of
indemnification shall not exclude other rights to which he may be entitled. The
Company shall advance litigation-related expenses to a director or officer if
the Company's legal counsel determines that indemnification by the Company is
likely and if the director or officer agrees to repay any advance if he is
determined not to be entitled to indemnification.
ARTICLE 21.--AUDITORS
The accounting data related in the annual report of the Company shall be
examined by the Auditors (reviseurs d'entreprises agrees) appointed by the
general meeting of shareholders and remunerated by the Company.
The Auditors shall fulfil all duties prescribed by the law of 30 March 1988 on
undertakings for collective investment.
The financial statements of the Company shall be expressed in United States
Dollars.
TITLE IV
GENERAL MEETINGS--ACCOUNTING YEAR--DISTRIBUTIONS
ARTICLE 22.--REPRESENTATION
The general meeting of shareholders shall represent the entire body of
shareholders of the Company. Its resolutions shall be binding upon all the
shareholders of the Company. It shall have the broadest powers to order, carry
out or ratify acts relating to the operations of the Company.
ARTICLE 23.--GENERAL MEETINGS
The general meeting of shareholders shall meet upon call by the board of
directors.
It may also be called upon the request of shareholders representing at least one
fifth of the share capital.
<PAGE>
27
The annual general meeting shall be held in accordance with Luxembourg law at
Luxembourg-City at a place specified in the notice of meeting, on the last
Wednesday of June at 11.00 a.m.
If such day is a legal or a bank holiday in Luxembourg, the annual general
meeting shall be held on the next following business day at the same time.
Other meetings of shareholders may be held at such places and times as may be
specified in the respective notices of meeting.
Shareholders shall meet upon call by the board of directors pursuant to a notice
setting forth the agenda sent at least eight days prior to the meeting to each
registered shareholder at the shareholder's address in the register of
shareholders. The giving of such notice to registered shareholders need not be
justified to the meeting. The agenda shall be prepared by the board of directors
except in the instance where the meeting is called on the written demand of the
shareholders in which instance the board of directors may prepare a
supplementary agenda.
The notice of meeting shall, in addition, be published as provided for by law in
the Memorial, Recueil Special des Societes et Associations, in one or more
Luxembourg newspapers, and in such other newspapers as the board of directors
may decide.
As all Shares are in registered form, notices to shareholders may be mailed by
registered mail only.
If all shareholders are present or represented and consider themselves as being
duly convened and informed of the agenda, the general meeting may take place
without notice of meeting.
The board of directors may determine all other conditions that must be fulfilled
by shareholders in order to attend any meeting of shareholders.
The business transacted at any meeting of the shareholders shall be limited to
the matters contained in the agenda (which shall include all matters required by
law) and business incidental to such matters.
The board of directors may fix in advance a date, not exceeding fifty days,
preceding the date of any meeting of shareholders as a record date for the
determination of the shareholders entitled to notice of, and to vote at, any
such meeting and in such case such shareholders and only such shareholders as
shall be shareholders of record on the date so fixed shall be entitled to such
notice of, and to vote at, such meeting, notwithstanding any transfer of any
Shares on the register of shareholders after any such record date fixed as
aforesaid.
<PAGE>
28
ARTICLE 24.--QUORUM AND MAJORITY CONDITIONS
Each Share is entitled to one vote, in compliance with Luxembourg law and these
Articles of Incorporation. A shareholder may act at any meeting of shareholders
by giving a written proxy to another person, who need not be a shareholder and
who may be a director of the Company.
Unless otherwise provided by law or herein, resolutions of the general meeting
are passed by a simple majority vote of the shareholders present or represented.
ARTICLE 25.--ACCOUNTING YEAR
The accounting year of the Company shall commence on the first day of January of
each year and shall terminate on the thirty-first day of December of the same
year.
ARTICLE 26.-- MANDATORY CAPITAL RESERVE-DIVIDENDS AND DISTRIBUTIONS
Five per cent of the annual net profits of the Company shall be allocated to
the reserve required by Luxembourg law. This allocation shall cease to be
required as soon and so long as such surplus reserve equals or exceeds ten per
cent of the issued capital of the Company as stated in Article 5 hereof, as such
capital is increased or reduced from time to time as provided in Article 5
hereof.
The general meeting of shareholders shall determine how the balance of net
profits shall be disposed of and from time to time may declare, or authorize the
board of directors to declare, dividends and distributions in respect of such
amounts. Subject to the provisions of Luxembourg law, the board of directors
may decide from time to time to pay interim dividends. The general meeting of
shareholders, by conversion of net profits into capital and paid-in surplus, may
distribute stock dividends out of the authorized share capital in lieu of cash
dividends.
For the purpose of determining the net profits available for dividends and
distributions, the shareholders at the annual or any extraordinary general
meeting may require that realized and/or unrealized capital losses are set off
against the paid-in surplus of the Company. Dividends and other distributions
may also be paid out of unappropriated net profit brought forward from prior
years.
Dividends and distributions declared may be paid in United States dollars or any
other currency selected by the board of directors, and may be paid at such times
as the board of directors may determine. The board of directors may make a
final determination of the rate of exchange applicable to translate funds
available for such dividends or distributions into the currency of payment.
The payment of any dividends or distributions shall be made to shareholders at
the address indicated on the register of shareholders. Any dividends or
distributions declared but not claimed by a shareholder within a period of five
years from the declaration thereof, shall be forfeited by the shareholder and
shall revert to the
<PAGE>
29
Company. The board of directors shall have the power from time to time to take
all necessary action to perfect such reversion and to authorize such action on
behalf of the Company. No interest will be paid on dividends declared or
distributions made by the Company but held by it for the account of
shareholders.
TITLE V
FINAL PROVISIONS
ARTICLE 27.--CUSTODIAN
To the extent required by law, the Company shall enter into a custody agreement
with a banking or saving institution as defined by the law of April 5, 1993 on
the financial sector (herein referred to as the "CUSTODIAN").
The Custodian shall fulfil the duties and responsibilities as provided for by
the law of 30 March 1988 on undertakings for collective investment.
If the Custodian desires to retire, the board of directors shall use its best
endeavours to find a successor custodian within two months of the effectiveness
of such retirement. The directors may terminate the appointment of the Custodian
but shall not remove the Custodian unless and until a successor custodian shall
have been appointed to act in the place thereof.
ARTICLE 28.--DISSOLUTION
The Company may at any time be dissolved by a resolution of the general meeting
subject to the quorum and majority requirements referred to in Article 30
hereof.
Whenever the net assets fall below two thirds of the minimum net assets as
prescribed by law, the equivalent in U.S. Dollars of LUF 50,000,000, the
question of the dissolution of the Company shall be referred to the general
meeting by the board of directors. The general meeting, for which no quorum
shall be required, shall decide by the simple majority of the votes of the
Shares represented at the meeting.
The question of the dissolution of the Company shall further be referred to the
general meeting whenever the net assets fall below one fourth of the minimum net
assets as prescribed by law, the equivalent in U.S. Dollars of LUF50,000,000; in
such an event, the general meeting shall be held without any quorum requirements
and the dissolution may be decided by shareholders holding one fourth of the
votes of the Shares represented at the meeting.
The meeting must be convened so that it is held within a period of forty days
from ascertainment that the net assets of the Company have fallen below two
thirds or one fourth of the legal minimum, as the case may be.
<PAGE>
30
ARTICLE 29.--LIQUIDATION
Liquidation shall be carried out by one or several liquidators, who may be
physical persons or legal entities, appointed by the general meeting of
shareholders which shall determine their powers and their compensation.
ARTICLE 30.--AMENDMENTS TO THE ARTICLES OF INCORPORATION
These Articles of Incorporation may be amended by a general meeting of
shareholders subject to the quorum and majority requirements provided by the law
of 10 August 1915 on commercial companies, as amended.
ARTICLE 31.--STATEMENT
Words importing a masculine gender also include the feminine gender and words
importing persons or shareholders also include corporations, partnerships,
associations and any other organized group of persons whether incorporated or
not.
ARTICLE 32.--APPLICABLE LAW
All matters not governed by these Articles of Incorporation shall be determined
in accordance with the law of 10 August 1915 on commercial companies and the law
of 30 March 1988 on undertakings for collective investment as such laws have
been or may be amended from time to time.
<PAGE>
EXHIBIT 4.2
================================================================================
SECURITY CAPITAL U.S. REALTY
Issuer
TO
STATE STREET BANK AND TRUST COMPANY
Trustee
_______________
Indenture
Dated as of May 22, 1998
_______________
Subordinated Debt Securities
================================================================================
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ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. Definitions........................................................................ 1
Act......................................................................................... 2
Additional Amounts.......................................................................... 2
Affiliate................................................................................... 2
Annual Service Charge....................................................................... 2
Authenticating Agent........................................................................ 2
Authorized Agent............................................................................ 2
Authorized Newspaper........................................................................ 2
Authorized Officer.......................................................................... 2
Bearer Security............................................................................. 3
Board of Directors.......................................................................... 3
Board Resolution............................................................................ 3
Business Day................................................................................ 3
Capital Stock............................................................................... 3
CEDEL....................................................................................... 3
Commission.................................................................................. 3
Common Depositary........................................................................... 3
Company..................................................................................... 3
Company Certificate......................................................................... 3
Company Request" and "Company Order......................................................... 3
Conversion Event............................................................................ 3
Corporate Trust Office...................................................................... 4
corporation................................................................................. 4
coupon...................................................................................... 4
covenant defeasance......................................................................... 4
Defaulted Interest.......................................................................... 4
defeasance.................................................................................. 4
Disqualified Stock.......................................................................... 4
Dollar or $................................................................................. 4
DTC......................................................................................... 4
Earnings from Operations.................................................................... 4
ECU......................................................................................... 4
Encumbrance................................................................................. 5
euro........................................................................................ 5
Euroclear................................................................................... 5
European Communities........................................................................ 5
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European Monetary System................................................................... 5
Event of Default........................................................................... 5
Exchange Act............................................................................... 5
Exchange Date.............................................................................. 5
Foreign Currency........................................................................... 5
GAAP....................................................................................... 5
Government Obligations..................................................................... 5
Holder..................................................................................... 6
Indebtedness............................................................................... 6
Indenture.................................................................................. 6
Indexed Security........................................................................... 7
interest................................................................................... 7
Interest Payment Date...................................................................... 7
Make-Whole Amount.......................................................................... 7
mandatory sinking fund payment............................................................. 7
Maturity................................................................................... 7
Notice of Default.......................................................................... 7
Opinion of Counsel......................................................................... 7
optional sinking fund payment.............................................................. 7
Original Issue Discount Security........................................................... 7
Outstanding................................................................................ 7
Paying Agent............................................................................... 9
Permitted Encumbrances..................................................................... 9
Permitted Investments...................................................................... 9
Person..................................................................................... 10
Place of Payment........................................................................... 10
Predecessor Security....................................................................... 10
Qualified GIC.............................................................................. 11
Redemption Date............................................................................ 11
Redemption Price........................................................................... 11
Registered Security........................................................................ 11
Regular Record Date........................................................................ 12
Repayment Date............................................................................. 12
Repayment Price............................................................................ 12
Responsible Officer........................................................................ 12
Securities Act............................................................................. 12
Security................................................................................... 12
Security Register" and "Security Registrar................................................. 12
Shares..................................................................................... 12
Significant Subsidiary..................................................................... 12
Special Record Date........................................................................ 12
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Stated Maturity............................................................................ 12
Strategic Investee......................................................................... 13
Subsidiary................................................................................. 13
Supplemental Indenture..................................................................... 13
Trust Indenture Act........................................................................ 13
Trustee.................................................................................... 13
United States.............................................................................. 13
United States person....................................................................... 13
Unsecured Indebtedness..................................................................... 13
Yield to Maturity.......................................................................... 13
SECTION 102. Compliance Certificates and Opinions.............................................. 14
SECTION 103. Form of Documents Delivered to Trustee............................................ 14
SECTION 104. Acts of Holders................................................................... 15
SECTION 105. Notices to Trustee and Company.................................................... 17
SECTION 106. Notice to Holders; Waiver......................................................... 17
SECTION 107. Applicability of Trust Indenture Act.............................................. 18
SECTION 108. Effect of Headings and Table of Contents.......................................... 18
SECTION 109. Successors and Assigns............................................................ 18
SECTION 110. Separability Clause............................................................... 19
SECTION 111. Benefits of Indenture............................................................. 19
SECTION 112. No Personal Liability............................................................. 19
SECTION 113. Governing Law..................................................................... 19
SECTION 114. Legal Holidays.................................................................... 19
SECTION 115. Counterparts...................................................................... 19
ARTICLE TWO
SECURITIES FORMS
SECTION 201. Forms of Securities............................................................... 20
SECTION 202. Form of Trustee's Certificate of Authentication................................... 20
SECTION 203. Securities Issuable in Global Form................................................ 20
ARTICLE THREE
THE SECURITIES
SECTION 301. Amount Unlimited; Issuable in Series.............................................. 21
SECTION 302. Denominations..................................................................... 25
SECTION 303. Execution, Authentication, Delivery and Dating.................................... 26
SECTION 304. Temporary Securities.............................................................. 28
SECTION 305. Registration, Registration of Transfer and Exchange............................... 30
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.................................. 33
SECTION 307. Payment of Interest; Interest Rights Preserved.................................... 35
SECTION 308. Persons Deemed Owners............................................................. 37
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SECTION 309. Cancellation...................................................................... 37
SECTION 310. Computation of Interest........................................................... 38
SECTION 311. Subordination..................................................................... 38
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture........................................... 38
SECTION 402. Application of Trust Funds........................................................ 40
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default................................................................. 40
SECTION 502. Acceleration of Maturity; Rescission and Annulment................................ 42
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee................... 43
SECTION 504. Trustee May File Proofs of Claim.................................................. 44
SECTION 505. Trustee May Enforce Claims Without Possession of Securities
or Coupons........................................................................ 45
SECTION 506. Application of Money Collected.................................................... 45
SECTION 507. Limitation on Suits............................................................... 45
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium
or Make-Whole Amount, Interest and Additional Amounts............................. 46
SECTION 509. Restoration of Rights and Remedies................................................ 46
SECTION 510. Rights and Remedies Cumulative.................................................... 46
SECTION 511. Delay or Omission Not Waiver...................................................... 47
SECTION 512. Control by Holders of Securities.................................................. 47
SECTION 513. Waiver of Past Defaults........................................................... 47
SECTION 514. Waiver of Usury, Stay or Extension Laws........................................... 48
SECTION 515. Undertaking for Costs............................................................. 48
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults................................................................ 48
SECTION 602. Certain Rights of Trustee......................................................... 49
SECTION 603. Not Responsible for Recitals or Issuance of Securities............................ 50
SECTION 604. May Hold Securities............................................................... 50
SECTION 605. Money Held in Trust; Permitted Investments........................................ 51
SECTION 606. Compensation and Reimbursement.................................................... 51
SECTION 607. Trustee Eligibility............................................................... 52
SECTION 608. Disqualification; Conflicting Interest............................................ 52
SECTION 609. Resignation and Removal; Appointment of Successor................................. 57
SECTION 610. Acceptance of Appointment by Successor............................................ 58
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SECTION 611. Merger, Conversion, Consolidation or Succession to Business...................... 60
SECTION 612. Appointment of Authenticating Agent.............................................. 60
SECTION 613. More Than One Trustee............................................................ 62
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Disclosure of Names and Addresses of Holders..................................... 62
SECTION 702. Preservation of Information; Communications to Holders........................... 62
SECTION 703. Reports by Trustee............................................................... 64
SECTION 704. Reports by Company............................................................... 64
SECTION 705. Company to Furnish Trustee Names and Addresses of Holders........................ 65
ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE, LEASE OR CONVEYANCE
SECTION 801. Consolidations and Mergers of Company and Sales,
Leases and Conveyances........................................................... 65
SECTION 802. Rights and Duties of Successor Entity............................................ 66
SECTION 803. Company Certificate and Opinion of Counsel....................................... 66
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders............................... 66
SECTION 902. Supplemental Indentures with Consent of Holders.................................. 68
SECTION 903. Execution of Supplemental Indentures............................................. 69
SECTION 904. Effect of Supplemental Indentures................................................ 69
SECTION 905. Conformity with Trust Indenture Act.............................................. 69
SECTION 906. Reference in Securities to Supplemental Indentures............................... 69
SECTION 907. Notice of Supplemental Indentures................................................ 70
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium or Make-Whole Amount,
Interest and Additional Amounts.................................................. 70
SECTION 1002. Maintenance of Office or Agency.................................................. 70
SECTION 1003. Money for Securities Payments to Be Held in Trust................................ 72
SECTION 1004. Existence........................................................................ 73
SECTION 1005. Maintenance of Properties........................................................ 73
SECTION 1006. Insurance........................................................................ 74
SECTION 1007. Payment of Taxes and Other Claims................................................ 74
SECTION 1008. Provision of Financial Information............................................... 74
SECTION 1009. Statement as to Compliance....................................................... 74
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SECTION 1010. Additional Amounts............................................................... 75
SECTION 1011. Waiver of Certain Covenants...................................................... 75
SECTION 1012. Venue............................................................................ 76
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Applicability of Article......................................................... 76
SECTION 1102. Election to Redeem; Notice to Trustee............................................ 76
SECTION 1103. Selection by Trustee of Securities to Be Redeemed................................ 77
SECTION 1104. Notice of Redemption............................................................. 77
SECTION 1105. Deposit of Redemption Price...................................................... 78
SECTION 1106. Securities Payable on Redemption Date............................................ 79
SECTION 1107. Securities Redeemed in Part...................................................... 80
ARTICLE TWELVE
SINKING FUNDS
SECTION 1201. Applicability of Article......................................................... 80
SECTION 1202. Satisfaction of Sinking Fund Payments with Securities............................ 80
SECTION 1203. Redemption of Securities for Sinking Fund........................................ 80
ARTICLE THIRTEEN
REPAYMENT AT THE OPTION OF HOLDERS
SECTION 1301. Applicability of Article......................................................... 81
SECTION 1302. Repayment of Securities.......................................................... 81
SECTION 1303. Exercise of Option............................................................... 81
SECTION 1304. When Securities Presented for Repayment Become Due
and Payable...................................................................... 82
SECTION 1305. Securities Repaid in Part........................................................ 83
ARTICLE FOURTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1401. Applicability of Article; Company's Option to Effect
Defeasance or Covenant Defeasance................................................ 83
SECTION 1402. Defeasance and Discharge......................................................... 83
SECTION 1403. Covenant Defeasance.............................................................. 84
SECTION 1404. Conditions to Defeasance or Covenant Defeasance.................................. 84
SECTION 1405. Deposited Money and Government Obligations to Be Held in
Trust; Other Miscellaneous Provisions............................................ 86
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ARTICLE FIFTEEN
MEETINGS OF HOLDERS OF SECURITIES
SECTION 1501. Purposes for Which Meetings May Be Called........................................ 88
SECTION 1502. Call, Notice and Place of Meetings............................................... 88
SECTION 1503. Persons Entitled to Vote at Meetings............................................. 88
SECTION 1504. Quorum; Action................................................................... 88
SECTION 1505. Determination of Voting Rights; Conduct and Adjournment
of Meetings...................................................................... 90
SECTION 1506. Counting Votes and Recording Action of Meetings.................................. 90
SECTION 1507. Evidence of Action Taken by Holders.............................................. 91
SECTION 1508. Proof of Execution of Instruments................................................ 91
SECTION 1509. Inapplicability of Luxembourg Law................................................ 91
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TESTIMONIUM
SIGNATURES AND SEAL
EXHIBIT A - FORMS OF CERTIFICATION
EXHIBIT B - FORM OF SUBORDINATION AGREEMENT
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Reconciliation and tie between
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"),
and Indenture
Trust Indenture Act Section Indenture Section
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310(a)(1), (2) and (5) 607(a)
310(a)(3) and (4) Not applicable
310(b) 609(d)
310(c) Not applicable
311 Not applicable
312(a) 704
312(b) Not applicable
312(c) 701
313(a) and (c) 702
313(b) Not applicable
314(a)(1), (2) and (3) 703
314(a)(4) 1009
314(b) Not applicable
314(c) and (e) 102
314(d) Not applicable
315(a), (c), (d) and (e) Not applicable
315(b) 601
316(a) (last sentence) 101 ("Outstanding")
316(a)(1)(A) 512
316(a)(1)(B) 513
316(a)(2) and (c) Not applicable
316(b) 508
317(a)(1) 503
317(a)(2) 504
317(b) Not applicable
318(a) 112
NOTE: This reconciliation and tie shall not, for any purpose, be deemed to
be a part of the Indenture.
Attention should also be directed to Section 318(c) of the Trust
Indenture Act to the extent the indenture is qualified, which provides
that the provisions of Sections 310 to and including 317 of the Trust
Indenture Act are a part of and govern every qualified indenture,
whether or not physically contained therein.
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INDENTURE, dated as of May 22, 1998, from SECURITY CAPITAL U.S. REALTY, a
Luxembourg corporation (hereinafter called the "Company"), having its principal
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office at 69, route d'Esch, L-1470 Luxembourg, to STATE STREET BANK AND TRUST
COMPANY, a Massachusetts banking corporation, as Trustee hereunder (hereinafter
called the "Trustee"), having its Corporate Trust Office at Two International
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Place, Corporate Trust Department, Boston, Massachusetts 02110.
RECITALS
The Company deems it necessary to issue from time to time for its lawful
purposes debentures, notes, bonds or other evidences of indebtedness
(hereinafter called the "Securities") and has duly authorized the execution and
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delivery of this Indenture to provide for the issuance in one or more series
from time to time of the Securities, unlimited as to aggregate principal amount,
to bear interest at the rates or formulas, to mature at such times and to have
such other provisions as shall be fixed therefor as hereinafter provided and
shall be set forth in such supplemental indentures (each a "Supplemental
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Indenture"), Board Resolutions (as hereinafter defined) or Company Certificates
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(as hereinafter defined) as may be adopted and delivered by the Company from
time to time.
All things necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, have been done.
To the extent this Indenture is qualified under the Trust Indenture Act (as
herein defined), this Indenture will be subject to the provisions of the Trust
Indenture Act and the rules and regulations of the Commission (as herein
defined) promulgated thereunder which are, when qualified, required to be part
of this Indenture and, to the extent, applicable, shall be governed by such
provisions.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
by the Holders (as herein defined) thereof, it is mutually covenanted and
agreed, for the equal and proportionate benefit of all Holders of the
Securities, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101 Definitions. For all purposes of this Indenture, except as
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otherwise expressly provided or the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
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(2) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP (as herein defined);
(3) the words "herein," "hereof" and "hereunder" and other words of
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similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision; and
(4) to the extent this Indenture is qualified under the Trust
Indenture Act, all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein or in the rules and regulations of the Commission
promulgated thereunder.
"Act" has the meaning specified in Section 104(a).
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"Additional Amounts" means any additional amounts which are required by a
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Security, under circumstances specified therein, to be paid by the Company in
respect of certain taxes imposed on certain Holders and which are owing to such
Holders.
"Affiliate" when used with respect to any Person, means any other Person
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directly or indirectly controlling or controlled by or under direct or indirect
common control with such Person. For the purposes of this definition, "control"
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when used with respect to any specified 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
"controlling" and "controlled" have meanings correlative to the foregoing.
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"Annual Service Charge" as of any date means the maximum amount which is
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payable in any period for interest on, and original issue discount of,
Indebtedness of the Company and its Subsidiaries and the amount of dividends
which are payable in respect of any Disqualified Stock.
"Authenticating Agent" means any authenticating agent appointed by the
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Trustee pursuant to Section 612.
"Authorized Agent" has the meaning specified in Section 1012.
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"Authorized Newspaper" means a newspaper, printed in the English language
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or in an official language of the country of publication, customarily published
on each Business Day, whether or not published on Saturdays, Sundays or
holidays, and of general circulation in each place in connection with which the
term is used or in the financial community of each such place. Whenever
successive publications are required to be made in Authorized Newspapers, the
successive publications may be made in the same or in different Authorized
Newspapers in the same city meeting the foregoing requirements and in each case
on any Business Day.
"Authorized Officer" means any Chairman, Co-Chairman, Managing Director,
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Senior Vice President or Vice President of the Company.
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"Bearer Security" means a Security which is payable to bearer.
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"Board of Directors" means the board of directors of the Company, the
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executive committee or any other committee of such board or any one or more
directors and/or officers of the Company duly authorized to act for it in
respect hereof.
"Board Resolution" means a copy of a resolution certified by an
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appropriate officer of the Company to have been duly adopted by the Board of
Directors and to be in full force and effect on the date of such certification,
and delivered to the Trustee.
"Business Day" when used with respect to any Place of Payment or any other
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particular location referred to in this Indenture or in the Securities, means,
unless otherwise specified with respect to any Securities pursuant to Section
301, any day, other than a Saturday or Sunday, which is neither a legal holiday
nor a day on which banking institutions in such Place of Payment or particular
location are authorized or required by law, regulation or executive order to
close.
"Capital Stock" when used with respect to any Person, means any capital
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stock (including preferred stock), shares, interests, participations or other
ownership interests (however designated) of such Person and any rights (other
than debt securities convertible into or exchangeable for capital stock),
warrants or options to purchase any thereof.
"CEDEL" means Centrale de Livraison de Valeurs Mobilieres, S.A., or its
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successor.
"Commission" means the United States Securities and Exchange Commission,
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as from time to time constituted, created under the Exchange Act, or, if at any
time after execution of this instrument such Commission is not existing and
performing the duties now assigned to it, then the body performing such duties
on such date.
"Common Depositary" has the meaning specified in Section 304(b).
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"Company" means the Person named as the "Company" in the first paragraph
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of this Indenture until a successor corporation has become such pursuant to the
applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor corporation, and any other obligor on the Securities.
"Company Certificate" means a certificate signed by two Authorized
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Officers and delivered to the Trustee.
"Company Request" and "Company Order" mean, respectively, a written
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request or order signed in the name of the Company by two Authorized Officers,
and delivered to the Trustee.
"Conversion Event" means the cessation of use of (i) a Foreign Currency
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(other than the ECU or other currency unit) both by the government of the
country which issued such currency and for the settlement of transactions by a
central bank or other public institutions of or within the
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international banking community, (ii) the ECU both within the European Monetary
System and for the settlement of transactions by public institutions of or
within the European Communities or (iii) any currency unit (or composite
currency) other than the ECU for the purposes for which it was established.
"Corporate Trust Office" means the office of the Trustee at which, at any
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particular time, its corporate trust business is principally administered, which
office at the date hereof is located at Two International Place, Corporate Trust
Department, Boston, Massachusetts 02110.
"corporation" includes corporations, associations, companies, limited
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liability companies, real estate investment trusts and business trusts.
"coupon" means any interest coupon appertaining to a Bearer Security.
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"covenant defeasance" has the meaning specified in Section 1403.
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"Defaulted Interest" has the meaning specified in Section 307.
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"defeasance" has the meaning specified in Section 1402.
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"Disqualified Stock" when used with respect to any Person, means any
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Capital Stock of such Person which by the terms of such Capital Stock (or by the
terms of any security into which it is convertible or for which it is
exchangeable or exercisable), upon the happening of any event or otherwise, (i)
matures or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, (ii) is convertible into or exchangeable or exercisable for
Indebtedness or Disqualified Stock or (iii) is redeemable at the option of the
holder thereof, in whole or in part, in each case on or prior to the Stated
Maturity of the series of Securities.
"Dollar" or "$" means a dollar or other equivalent unit in such coin or
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currency of the United States of America as at the time is legal tender for the
payment of public and private debts.
"DTC" means The Depository Trust Company.
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"Earnings from Operations" when used with respect to any period means net
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earnings excluding gains and losses on sales of investments as reflected in the
financial statements of the Company and its Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP.
"ECU" means the European Currency Unit as defined and revised from time to
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time by the Council of the European Communities. When the euro first becomes
the monetary unit of participating member states of the European Communities,
references to the ECU in this Indenture shall be replaced by references to the
euro at a rate of one euro to one ECU.
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"Encumbrance" means any mortgage, pledge, lien, charge, encumbrance or any
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security interest existing on property owned by the Company or any Subsidiary
securing indebtedness for borrowed money, other than a Permitted Encumbrance.
"euro" means the currency to be introduced at the third stage of economic
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and monetary union pursuant to the Treaty establishing the European Communities.
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
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Office, or its successor as operator of the Euroclear System.
"European Communities" means the European Economic Community, the European
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Coal and Steel Community and the European Atomic Energy Community.
"European Monetary System" means the European Monetary System established
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by the Resolution of December 5, 1978 of the Council of the European
Communities.
"Event of Default" has the meaning specified in Section 501.
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"Exchange Act" means the United States Securities Exchange Act of 1934, as
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amended, and the rules and regulations promulgated thereunder by the Commission.
"Exchange Date" has the meaning specified in Section 304(b).
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"Foreign Currency" means any currency, currency unit or composite
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currency, including, without limitation, the ECU issued by the government of one
or more countries other than the United States of America or by any recognized
confederation or association of such governments.
"GAAP" means generally accepted accounting principles as used in the Grand
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Duchy of Luxembourg applied on a consistent basis as in effect from time to
time; provided that, solely for purposes of calculating the financial covenants
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contained herein, "GAAP" shall mean generally accepted accounting principles as
used in the Grand Duchy of Luxembourg on the date hereof, applied on a
consistent basis.
"Government Obligations" means securities which are (i) direct obligations
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of the United States of America or the government which issued the Foreign
Currency in which the Securities of a particular series are payable, for the
payment of which its full faith and credit is pledged or (ii) obligations of a
Person controlled or supervised by and acting as an agency or instrumentality of
the United States of America or such government which issued the Foreign
Currency in which the Securities of such series are payable, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America or such other government, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and also
includes a depository receipt issued by a bank or trust company as custodian
with respect to any such Government Obligation or a specific payment of interest
on or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt; provided that
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(except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt from
any amount received by the custodian in respect of the Government Obligation or
the specific payment of interest on or principal of the Government Obligation
evidenced by such depository receipt.
"Holder" when used with respect to a Registered Security, means the Person
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in whose name such Registered Security is registered in the Security Register
and, when used with respect to a Bearer Security or any coupon, means the bearer
thereof.
"Indebtedness" of the Company or any Subsidiary means any indebtedness of
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the Company or any Subsidiary, whether or not contingent, in respect of (i)
borrowed money or evidenced by bonds, notes, debentures or similar instruments,
(ii) indebtedness secured by any mortgage, pledge, lien, charge, Encumbrance or
any security interest existing on property owned by the Company or any
Subsidiary, (iii) the reimbursement obligations, contingent or otherwise, in
connection with any letters of credit actually issued or amounts representing
the balance deferred and unpaid of the purchase price of any property or
services, except any such balance which constitutes an accrued expense or trade
payable, or all conditional sale obligations or obligations under any title
retention agreement, (iv) the principal amount of all obligations of the Company
or any Subsidiary with respect to redemption, repayment or other repurchase of
any Disqualified Stock or (v) any lease of property by the Company or any
Subsidiary as lessee which is reflected on the Company's consolidated balance
sheet as a capitalized lease in accordance with GAAP to the extent, in the case
of items of indebtedness under clauses (i) through (iii) above, that any such
items (other than letters of credit) would appear as a liability on the
Company's consolidated balance sheet in accordance with GAAP, and also includes,
to the extent not otherwise included, any obligation by the Company or any
Subsidiary to be liable for, or to pay, as obligor, guarantor or otherwise
(other than for purposes of collection in the ordinary course of business),
Indebtedness of another Person (other than the Company or any Subsidiary) (it
being understood that Indebtedness shall be deemed to be incurred by the Company
or any Subsidiary whenever the Company or such Subsidiary shall create, assume,
guarantee or otherwise become liable in respect thereof).
"Indenture" means this instrument as originally executed or as it may from
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time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof, and includes
the terms of particular series of Securities established as contemplated by
Section 301; provided, however, that, if at any time more than one Person is
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acting as Trustee under this instrument, "Indenture" when used with respect to
any one or more series of Securities with respect to which such Person is acting
as Trustee, shall mean this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more Supplemental Indentures
entered into pursuant to the applicable provisions hereof and shall include the
terms of the, or those, particular series of Securities with respect to which
such Person is acting as Trustee established as contemplated by Section 301,
exclusive, however, of any provisions or terms which relate solely to other
series of Securities with respect to which such Person is not acting as Trustee,
regardless of when such terms or provisions were adopted, and exclusive of any
provisions or terms adopted by means of one or more indentures supplemental
hereto executed and
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delivered after such Person had become such Trustee but to which such Person, as
such Trustee, was not a party.
"Indexed Security" means a Security the terms of which provide that the
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principal amount thereof payable at Stated Maturity may be more or less than the
principal face amount thereof at original issuance.
"interest" when used with respect to an Original Issue Discount Security
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which by its terms bears interest only after Maturity means interest payable
after Maturity, and when used with respect to a Security which provides for the
payment of Additional Amounts pursuant to Section 1010, includes such Additional
Amounts.
"Interest Payment Date" when used with respect to any Security means the
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Stated Maturity of an installment of interest on such Security.
"Make-Whole Amount" means the amount, if any, in addition to principal
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which is required by a Security, under the terms and conditions specified
therein or as otherwise specified as contemplated by Section 301, to be paid by
the Company to the Holder thereof in connection with any optional redemption or
accelerated payment of such Security.
"mandatory sinking fund payment" has the meaning specified in Section
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1201.
"Maturity" when used with respect to any Security means the date on which
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the principal of such Security or an installment of principal become due and
payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, notice of redemption, notice of option to elect
repayment, repurchase or otherwise.
"Notice of Default" has the meaning specified in Section 501.
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"Opinion of Counsel" means a written opinion of counsel, who may be an
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employee of or counsel for the Company, satisfactory to the Trustee.
"optional sinking fund payment" has the meaning specified in Section 1201.
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"Original Issue Discount Security" means any Security which provides for
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an amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the Maturity thereof pursuant to Section 502.
"Outstanding" when used with respect to Securities means, as of the date
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of determination, all Securities theretofore authenticated and delivered under
this Indenture, exclusive of:
(1) Securities theretofore canceled by the Trustee or delivered to
the Trustee for cancellation;
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(2) Securities, or portions thereof, for whose payment or redemption
or repayment at the option of the Holder money in the necessary amount has
been theretofore deposited with the Trustee or any Paying Agent (other than
the Company) in trust or set aside and segregated in trust by the Company
(if the Company is acting as its own Paying Agent) for the holders of such
Securities and any coupons appertaining thereto; provided that, if such
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Securities are to be redeemed, notice of such redemption has been duly
given pursuant to this Indenture or other provision therefor satisfactory
to the Trustee has been made;
(3) Securities, except solely to the extent provided in Section 401,
1402 or 1403, as applicable, with respect to which the Company has effected
defeasance and/or covenant defeasance as provided in Article Four or
Fourteen; and
(4) Securities which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant to this Indenture, other than any such Securities in
respect of which there has been presented to the Trustee proof satisfactory
to it that such Securities are held by a bona fide purchaser in whose hands
such Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the required
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principal amount of the Outstanding Securities have concurred in any request,
demand, authorization, direction, notice, consent or waiver hereunder or are
present at a meeting of Holders for quorum purposes, and, if the Indenture is
qualified, for the purpose of making the calculations required by Section 313 of
the Trust Indenture Act (i) the principal amount of an Original Issue Discount
Security which may be counted in making such determination or calculation and
which shall be deemed Outstanding for such purpose shall be equal to the amount
of principal thereof which would be (or has been declared to be) due and
payable, at the time of such determination, upon a declaration of acceleration
of the maturity thereof pursuant to Section 502, (ii) the principal amount of
any Security denominated in a Foreign Currency which may be counted in making
such determination or calculation and which shall be deemed Outstanding for such
purpose shall be equal to the Dollar equivalent, determined pursuant to Section
301 as of the date such Security is originally issued by the Company, of the
principal amount (or, in the case of an Original Issue Discount Security, the
Dollar equivalent as of such date of original issuance of the amount determined
as provided in clause (i) above) of such Security, (iii) the principal amount of
any Indexed Security which may be counted in making such determination or
calculation and which shall be deemed Outstanding for such purpose shall be
equal to the principal face amount of such Indexed Security at original
issuance, unless otherwise provided with respect to such Indexed Security
pursuant to Section 301, and (iv) Securities owned by the Company or any other
obligor on the Securities or any Affiliate of the Company or of such other
obligor shall be disregarded and deemed not Outstanding, except that, for the
purposes of determining whether the Trustee is protected in making such
calculation or in relying on any such request, demand, authorization, direction,
notice, consent or waiver, only Securities which the Trustee knows are so owned
shall be so disregarded. Securities so owned which have been pledged in good
faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to such
Securities and that the pledgee is not the
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Company or any other obligor on the Securities or any Affiliate of the Company
or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
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principal of (and premium or Make-Whole Amount, if any, on) and interest and
Additional Amounts, if any, on any Securities or coupons on behalf of the
Company, or if no such Person is authorized, the Company.
"Permitted Encumbrances" means leases, Encumbrances securing taxes,
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assessments and similar charges, mechanics' liens and other similar
Encumbrances.
"Permitted Investments" means:
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(1) Government Obligations;
(2) Direct obligations and fully guaranteed certificates of
beneficial interest of the Export-Import Bank of the United States;
consolidated debt obligations and letter of credit-backed issues of the
Federal Home Loan Banks; participation certificates and senior debt
obligations of the Federal Home Loan Mortgage Corporation; debentures of
the Federal Housing Administration; mortgage-backed securities (except
stripped mortgage securities which are valued greater than par on the
portion of unpaid principal) and senior debt obligations of the Federal
National Mortgage Association; participation certificates of the General
Services Administration; guaranteed mortgage-backed securities and
guaranteed participation certificates and guaranteed pool certificates of
the Small Business Administration; debt obligations and letter of credit-
backed issues of the Student Loan Marketing Association; local authority
bonds of the U.S. Department of Housing and Urban Development; guaranteed
Title XI financing of the U.S. Maritime Administration; guaranteed transit
bonds of the Washington Metropolitan Area Transit Authority; or Resolution
Funding Corporation securities;
(3) Direct obligations of any state of the United States of America
or any subdivision or agency thereof whose unsecured, uninsured and
unguaranteed general obligation debt is rated, at the time of purchase, at
least as high as the rating then in effect on the Securities by Standard &
Poor's Rating Services, or any obligation fully and unconditionally
guaranteed by any state, subdivision or agency whose unsecured, uninsured
and unguaranteed general obligation debt is rated, at the time of purchase,
at least as high as the rating then in effect on the Securities by Standard
& Poor's Rating Services;
(4) Commercial paper (having original maturities of not more than 270
days) rated, at the time of purchase, "A-1+" by Standard & Poor's Rating
Services or "P-1" by Moody's Investors Services, Inc.;
(5) Federal funds, unsecured certificates of deposit, time deposits
or bankers acceptances (in each case having maturities of not more than 365
days) of any domestic bank (including the Trustee in its commercial
capacity), including a branch office of a foreign
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bank which branch office is located in the United States, provided that
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written legal opinions in form acceptable to the Trustee are received to
the effect that full and timely payment of such deposit or similar
obligation is enforceable against the principal office or any branch of
such bank, which, at the time of purchase, has a rating of "A-1+" by
Standard & Poor's Rating Services or "P-1" by Moody's Investors Services,
Inc.;
(6) Deposits of any bank or savings and loan association which has
combined capital, surplus and undivided profits of not less than
$3,000,000, provided that such deposits are continuously and fully insured
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by the Federal Deposit Insurance Corporation, including, without
limitation, an insured money market account of the Trustee;
(7) Investments in money-market funds rated in the highest rating
category by Standard & Poor's Rating Services or Moody's Investors
Services, Inc.; such funds may include those for which the Trustee or an
affiliate of the Trustee provides services for a fee, whether as investment
advisor, custodian, transfer agent, sponsor, distributor or otherwise;
(8) Shares of an open-end, diversified investment company which is
registered under the Investment Company Act of 1940, as amended, and which
(i) invests exclusively in permitted investments of the type set forth in
clauses (1) through (7) above; (ii) seeks to maintain a constant net asset
value per share in accordance with regulations of the Commission; and (iii)
has aggregate net assets of at least $50,000,000 on the date of purchase;
and
(9) Qualified GICs.
Any investment made in accordance with this Indenture may (i) be executed by the
Trustee or the Company with or through the Trustee or its affiliates and (ii) be
made in securities of any entity for which the Trustee or any of its affiliates
serves as offeror, distributor, advisor or other service provider.
"Person" means any individual, corporation, partnership, limited liability
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company, joint venture, association, joint-stock company, real estate investment
trust, business trust, unincorporated organization or government or any agency
or political subdivision thereof.
"Place of Payment" when used with respect to the Securities of or within
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any series means the Corporate Trust Office of the Trustee, the office of an
affiliate of the Trustee in the Grand Duchy of Luxembourg and any other place or
places which the Company may from time to time designate as the place or places
where the principal of (and premium or Make-Whole Amount, if any, on) and
interest and Additional Amounts, if any, on such Securities are payable as
specified as contemplated by Sections 301 and 1002 and presentations,
surrenders, notices and demands with respect to such Securities and this
Indenture may be made.
"Predecessor Security" when used with respect to any particular Security
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means every previous Security evidencing all or a portion of the same debt as
evidenced by such Security; and,
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for the purposes of this definition, any Security authenticated and delivered
under Section 306 in exchange for or in lieu of a mutilated, destroyed, lost or
stolen Security or a Security to which a mutilated, destroyed, lost or stolen
coupon appertains shall be deemed to evidence the same debt as the mutilated,
destroyed, lost or stolen Security or the Security to which the mutilated,
destroyed, lost or stolen coupon appertains.
"Qualified GIC" means an investment contract providing for the investment
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of funds held by the Trustee and insuring a minimum or fixed rate of return on
investments of such funds, which contract shall:
(1) be an obligation of an insurance company or bank whose senior
long-term debt obligations are rated in one of the two highest rating
categories by both Moody's Investors Services, Inc. and Standard & Poor's
Rating Services;
(2) provide that the Trustee may exercise all of the rights under
such contract without the necessity of the taking of action by any other
person;
(3) provide that, if at any time the then current credit standing of
the obligor under such guaranteed investment contract has been lowered or
withdrawn by Moody's Investors Services, Inc. or Standard & Poor's Rating
Services, the Trustee may terminate such contract without penalty and be
entitled to the return of all funds previously invested thereunder,
together with accrued interest thereon at the interest rate provided under
such contract through the date of delivery of such funds to the Trustee;
(4) provide that interest shall be payable not less than annually;
(5) provide that the Trustee may withdraw funds invested without
penalty at any time and from time to time to be applied for the purposes
described therein;
(6) be accompanied by an enforceability opinion from counsel to the
obligor under such guaranteed investment contract in form and substance
satisfactory to the Trustee; and
(7) provide that the Trustee's interest thereunder shall be
transferable to any successor Trustee hereunder.
"Redemption Date" when used with respect to any Security to be redeemed
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means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price" when used with respect to any Security to be redeemed
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means the price at which it is to be redeemed pursuant to this Indenture.
"Registered Security" means any Security which is registered in the
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Security Register.
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"Regular Record Date" when used with respect to an installment of interest
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payable on any Interest Payment Date on the Registered Securities of or within
any series means the date specified for that purpose as contemplated by Section
301, whether or not a Business Day.
"Repayment Date" when used with respect to any Security to be repaid or
--------------
repurchased at the option of the Holder means the date fixed for such repayment
or repurchase by or pursuant to this Indenture.
"Repayment Price" when used with respect to any Security to be repaid or
---------------
repurchased at the option of the Holder means the price at which it is to be
repaid or repurchased by or pursuant to this Indenture.
"Responsible Officer" when used with respect to the Trustee means any
-------------------
officer of the Trustee in the corporate trust department or similar group of the
Trustee or, with respect to any particular matter arising hereunder, any officer
of the Trustee to whom such matter has been assigned.
"Securities Act" means the United States Securities Act of 1933, as
--------------
amended, and the rules and regulations promulgated thereunder by the Commission.
"Security" has the meaning specified in the first recital of this
--------
Indenture and, more particularly, means any Security or Securities authenticated
and delivered under this Indenture; provided, however, that, if at any time
-------- -------
there is more than one Person acting as Trustee under this Indenture,
"Securities" when used with respect to the Indenture with respect to which such
Person is acting as Trustee, shall have the meaning stated in the first recital
of this Indenture and shall more particularly mean Securities authenticated and
delivered under this Indenture, exclusive, however, of Securities of or within
any series with respect to which such Person is not acting as Trustee.
"Security Register" and "Security Registrar" have the respective meanings
----------------- ------------------
specified in Section 305.
"Shares" means the shares of common stock, par value $2.00 per share, of
------
the Company.
"Significant Subsidiary" means any Subsidiary which is a "significant
----------------------
subsidiary" within the meaning of Regulation S-X promulgated under the
Securities Act.
"Special Record Date" when used with respect to the payment of any
-------------------
Defaulted Interest on the Registered Securities of or within any series means a
date fixed by the Trustee pursuant to Section 307.
"Stated Maturity" when used with respect to any Security or any
---------------
installment of principal thereof or interest thereon or any Additional Amounts
with respect thereto means the date specified in such Security or a coupon
representing such installment of interest as the fixed date on which the
principal of such Security or such installment of principal or interest is, or
such Additional Amounts are, due and payable.
12
<PAGE>
"Strategic Investee" means the entities in which the Company has taken a
------------------
significant strategic investment or ownership position in accordance with its
operating strategy. As of the date of this Indenture, the Strategic Investees
are CarrAmerica Realty Corporation, City Center Retail Trust, CWS Communities
Trust, Pacific Retail Trust, Regency Realty Corporation, Storage USA, Inc. and
Urban Growth Property Trust.
"Subsidiary" when used with respect to any Person means any corporation or
----------
other entity (other than a Strategic Investee) of which a majority of (a) the
voting power of the voting equity securities or (b) in the case of a partnership
or any other entity other than a corporation, the outstanding equity interests
of which are owned, directly or indirectly, by such Person. For the purposes of
this definition, "voting equity securities" means equity securities having
voting power for the election of directors, whether at all times or only so long
as no senior class of securities has such voting power by reason of any
contingency.
"Supplemental Indenture" has the meaning specified in the first recital of
----------------------
this Indenture.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
-------------------
"Trustee" means the Person named as the "Trustee" in the first paragraph
-------
of this Indenture until a successor Trustee has become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean or
include each Person who is then acting as a Trustee hereunder; provided,
--------
however, that, if at any time there is more than one such Person, "Trustee",
- -------
when used with respect to the Securities of or within any series, shall mean
only the Trustee with respect to the Securities of such series.
"United States" means, unless otherwise specified with respect to any
-------------
Securities pursuant to Section 301, the United States of America (including the
states and the District of Columbia), its territories, its possessions and other
areas subject to its jurisdiction.
"United States person" means, unless otherwise specified with respect to
--------------------
any Securities pursuant to Section 301, an individual who is a citizen or
resident of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States or an estate or
trust the income of which is subject to United States federal income taxation
regardless of its source.
"Unsecured Indebtedness" means Indebtedness of the types described in
----------------------
clauses (i), (iii) and (iv) of the definition thereof which is not secured by
any mortgage, lien, charge, pledge or security interest of any kind on any of
the properties of the Company or any Subsidiary.
"Yield to Maturity" means the yield to maturity, computed at the time of
-----------------
issuance of a Security (or, if applicable, at the most recent redetermination of
interest on such Security) and as set forth in such Security in accordance with
generally accepted United States bond yield computation principles.
13
<PAGE>
SECTION 102. Compliance Certificates and Opinions. Upon any application or
------------------------------------
request by the Company to the Trustee to take any action under any provision of
this Indenture, the Company shall furnish to the Trustee a Company Certificate
stating that all conditions precedent, if any, provided for in this Indenture
(including any covenants, compliance with which constitute conditions precedent)
relating to the proposed action have been complied with and, if requested by the
Trustee, an Opinion of Counsel stating that, in the opinion of such counsel, all
such conditions precedent, if any, have been complied with, except that, in the
case of any such application or request as to which the furnishing of such
documents is specifically required by any provision of this Indenture relating
to such particular application or request, no additional certificate or opinion
need be furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than certificates provided
pursuant to Section 1009) shall include:
(1) a statement that each individual signing such certificate or
opinion has read such condition or covenant and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation on which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he or
she has made such examination or investigation as is necessary to enable
him or her to express an informed opinion as to whether or not such
condition or covenant has been complied with; and
(4) a statement as to whether or not, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee. In any case in which
--------------------------------------
several matters are required to be certified by, or covered by an opinion of,
any specified Person, it is not necessary that all such matters be certified by,
or covered by the opinion of, only one such Person, or that they be so certified
or covered by only one document, but one such Person may certify or give an
opinion as to some matters and one or more other such Persons as to other
matters, and any such Person may certify or give an opinion as to such matters
in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, on an Opinion of Counsel, or a
certificate or representations by counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the opinion, certificate or
representations with respect to the matters on which his or her certificate or
opinion is based are erroneous. Any such Opinion of Counsel or certificate or
representations may be based, insofar as it relates to factual matters, on a
certificate or opinion of, or representations by, an officer or officers of the
Company stating that the information as to such factual matters is in the
possession of the
14
<PAGE>
Company, unless such counsel knows that the certificate or opinion or
representations as to such matters are erroneous.
If any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders.
---------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders of the Outstanding Securities of all series or one or more series,
as the case may be, may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Holders in person
or by agents duly appointed in writing. If Securities of a series are
issuable as Bearer Securities, any request, demand, authorization,
direction, notice, consent, waiver or other action provided by this
Indenture to be given or taken by Holders of the Outstanding Securities of
such series may, alternatively, be embodied in and evidenced by the record
of such Holders voting in favor thereof, either in person or by proxies
duly appointed in writing, at any meeting of such Holders duly called and
held in accordance with the provisions of Article Fifteen, or a combination
of such instruments and any such record. Except as herein otherwise
expressly provided, such action shall become effective when such instrument
or instruments or record or both are delivered to the Trustee and, if
expressly required herein, to the Company. Such instrument or instrument
and any such record (and the action embodied therein and evidenced thereby)
are herein sometimes referred to as the "Act" of the Holders signing such
---
instrument or instruments or so voting at any such meeting. Proof of
execution of any such instrument or of a writing appointing any such agent,
or of the holding by any Person of a Security, shall be sufficient for any
purpose of this Indenture and conclusive in favor of the Trustee and the
Company and any agent of the Trustee or the Company, if made in the manner
provided in this Section. The record of any meeting of Holders of
Securities shall be proved in the manner provided in Section 1506.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by (i) a certificate of a notary public
or other officer authorized by law to take acknowledgments of deeds,
certifying that the individual signing such instrument or writing
acknowledged to him or her the execution thereof or (ii) by any other means
acceptable to the Trustee. If such execution is by a signer acting in a
capacity other than his individual capacity, such certificate or affidavit
shall also constitute sufficient proof of his authority. The fact and date
of the execution of any such instrument or writing, or the authority of the
Person executing the same, may also be proved in any other reasonable
manner which the Trustee deems sufficient.
(c) The ownership of Registered Securities shall be proved by the
Security Register.
15
<PAGE>
(d) The ownership of Bearer Securities may be proved by the production
of such Bearer Securities or by a certificate executed, as depositary, by
any trust company, bank, banker or other depositary, wherever situated, if
such certificate is deemed by the Trustee to be satisfactory, showing that
at the date therein mentioned such Person had on deposit with such
depositary, or exhibited to it, the Bearer Securities therein described; or
such facts may be proved by the certificate or affidavit of the Person
holding such Bearer Securities, if such certificate or affidavit is deemed
by the Trustee to be satisfactory. The Trustee and the Company may assume
that such ownership of any Bearer Security continues until (i) another
certificate or affidavit bearing a later date issued in respect of the same
Bearer Security is produced, (ii) such Bearer Security is produced to the
Trustee by some other Person, (iii) such Bearer Security is surrendered in
exchange for a Registered Security or (iv) such Bearer Security is no
longer Outstanding. The ownership of Bearer Securities may also be proved
in any other manner which the Trustee deems sufficient.
(e) If the Company shall solicit from the Holders of Registered
Securities any request, demand, authorization, direction, notice, consent,
waiver or other Act, the Company may, at its option, in or pursuant to a
Board Resolution or a Company Certificate, fix in advance a record date for
the determination of Holders entitled to give such request, demand,
authorization, direction, notice, consent, waiver or other Act, but the
Company shall not be obligated to do so. Notwithstanding Section 316(c) of
the Trust Indenture Act, to the extent applicable, such record date shall
be the record date specified in or pursuant to such Board Resolution or
Company Certificate, which shall be a date not earlier than the date 30
days prior to the first solicitation of Holders generally in connection
therewith and not later than the date such solicitation is completed. If
such a record date is fixed, such request, demand, authorization,
direction, notice, consent, waiver or other Act may be given before or
after such record date, but only the Holders of record at the close of
business on such record date shall be deemed to be Holders for the purpose
of determining whether Holders of the requisite proportion of Outstanding
Securities have authorized or agreed or consented to such request, demand,
authorization, direction, notice, consent, waiver or other Act, and for
that purpose the Outstanding Securities shall be computed as of such record
date; provided that no such authorization, agreement or consent by the
--------
Holders on such record date shall be deemed effective unless it shall
become effective pursuant to the provisions of this Indenture not later
than eleven months after the record date.
(f) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future
Holder of the same Security and the Holder of every Security issued upon
the registration of transfer thereof or in exchange therefor or in lieu
thereof in respect of anything done, omitted or suffered to be done by the
Trustee, any Security Registrar, any Paying Agent, any Authenticating Agent
or the Company in reliance thereon, whether or not notation of such action
is made on such Security.
(g) For purposes of determining the principal amount of Outstanding
Securities of any series, the Holders of which are required, requested or
permitted to give any request,
16
<PAGE>
demand, authorization, direction, notice, consent or waiver or take any
other Act under this Indenture, (i) each Original Issue Discount Security
shall be deemed to have the principal amount determined by the Trustee that
could be declared to be due and payable pursuant to the terms of such
Original Issue Discount Security as of the date such Act is delivered to
the Trustee and, where it is hereby expressly required, to the Company and
(ii) each Security denominated in a Foreign Currency or composite currency
shall be deemed to have the principal amount determined by the Trustee,
based on the noon Dollar buying rate in The City of New York for cable
transfers payable in such Foreign Currency on the initial date of issuance
of such Security as certified for customs purposes by the Federal Reserve
Bank of New York.
SECTION 105. Notices to Trustee and Company. Any request, demand,
------------------------------
authorization, direction, notice, consent, waiver or Act of Holders or other
document provided or permitted by this Indenture to be made on, given or
furnished to, or filed with:
(1) the Trustee by any Holder or the Company shall be sufficient for
every purpose hereunder if in writing and mailed, highest class postage
prepaid, to the Trustee addressed to it at the address of its Corporate
Trust Office specified in the first paragraph of this Indenture, Attention:
Corporate Trust Administration; or
(2) the Company by the Trustee or any Holder shall be sufficient for
every purpose hereunder (unless otherwise herein expressly provided) if in
writing and mailed, highest class postage prepaid, to the Company addressed
to it at the address of its principal office specified in the first
paragraph of this Indenture or at any other address previously furnished in
writing to the Trustee by the Company.
SECTION 106. Notice to Holders; Waiver. When this Indenture provides for
-------------------------
notice of any event to Holders of Registered Securities by the Company or the
Trustee, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed, highest class postage prepaid, to
each such Holder affected by such event, at such Holder's address as it appears
in the Security Register, not later than the latest date, and not earlier than
the earliest date, prescribed for the giving of such notice. In any case in
which notice to Holders of Registered Securities is given by mail, neither the
failure to mail such notice nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders of Registered Securities or the sufficiency of any notice to
Holders of Bearer Securities given as provided herein. Any notice mailed to a
Holder in the manner herein prescribed shall be conclusively deemed to have been
received by such Holder, whether or not such Holder actually receives such
notice.
If, by reason of the suspension of or irregularities in regular mail
service or by reason of any other cause, it is impracticable to give such notice
by mail, then such notification to Holders of Registered Securities as is made
with the approval of the Trustee shall constitute a sufficient notification to
such Holders for every purpose hereunder.
17
<PAGE>
Except as otherwise expressly provided herein or otherwise specified with
respect to any Securities pursuant to Section 301, when this Indenture provides
for notice to Holders of Bearer Securities of any event, such notices shall be
sufficiently given if published in an Authorized Newspaper in The City of New
York and in the Grand Duchy of Luxembourg and in such other city or cities as
may be specified in such Securities and, if the Securities of such series are
listed on any securities exchange outside the United States, in any place at
which such Securities are listed on a securities exchange to the extent that
such securities exchange so requires, on a Business Day, such publication to be
not later than the latest date and not earlier than the earliest date,
prescribed for the giving of such notice. Any such notice shall be deemed to
have been given on the date of such publication or, if published more than once,
on the date of the first such publication.
If, by reason of the suspension of publication of any Authorized Newspaper
or Authorized Newspapers or by reason of any other cause, it is impracticable to
publish any notice to Holders of Bearer Securities as provided above, then such
notification to Holders of Bearer Securities as is given with the approval of
the Trustee shall constitute sufficient notice to such Holders for every purpose
hereunder. Neither the failure to give notice by publication to any particular
Holder of Bearer Securities as provided above nor any defect in any notice so
published shall affect the sufficiency of such notice with respect to other
Holders of Bearer Securities or the sufficiency of any notice to Holders of
Registered Securities given as provided herein.
Any request, demand, authorization, direction, notice, consent or waiver
required or permitted under this Indenture shall be in the English language,
except that any published notice may be in an official language of the country
of publication.
When this Indenture 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 Trustee, but such filing
shall not be a condition precedent to the validity of any action taken in
reliance on such waiver.
SECTION 107. Applicability of Trust Indenture Act. This Indenture shall not
------------------------------------
be qualified under the Trust Indenture Act until such time as the Company, in
its sole discretion, shall elect to so qualify this Indenture upon 30 days'
prior written notice to the Trustee. When and if the Company qualifies this
Indenture with the Commission under the Trust Indenture Act, the provisions of
the Trust Indenture Act shall govern this Indenture and a Supplemental Indenture
to this Indenture shall be executed which shall amend or replace all provisions
herein, if any, that are not permitted under that act.
SECTION 108. Effect of Headings and Table of Contents. The Article and
----------------------------------------
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
SECTION 109. Successors and Assigns. All covenants and agreements in this
----------------------
Indenture by the Company shall bind its successors and assigns, whether so
expressed or not.
18
<PAGE>
SECTION 110. Separability Clause. In case any provision in this Indenture
-------------------
or in any Security or any coupon 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.
SECTION 111. Benefits of Indenture. Nothing in this Indenture or in any
---------------------
Security or any coupon, express or implied, shall give to any Person, other than
the parties hereto, any Security Registrar, any Paying Agent, any Authenticating
Agent and their successors hereunder and the Holders any benefit or any legal or
equitable right, remedy or claim under this Indenture.
SECTION 112. No Personal Liability. No recourse under or on any obligation,
---------------------
covenant or agreement contained in this Indenture or in any Security or any
coupon, or because of any indebtedness evidenced thereby, shall be had against
any promoter, as such, or against any past, present or future director, officer,
employee or shareholder, as such, of the Company or of any successor, either
directly or through the Company or any successor, under any rule of law, statute
or constitutional provision or by the enforcement of any assessment or by any
legal or equitable proceeding or otherwise, all such liability being expressly
waived and released by the acceptance of the Securities by the Holders thereof
and as part of the consideration for the issue of the Securities.
SECTION 113. Governing Law. THIS INDENTURE AND THE SECURITIES AND ANY
-------------
COUPONS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE
STATE OF NEW YORK, EXCEPT THAT MATTERS RELATING TO THE AUTHORIZATION AND
EXECUTION BY THE COMPANY OF THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED
BY LUXEMBOURG LAW BUT WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS
THEREOF. TO THE EXTENT QUALIFIED, THIS INDENTURE WILL ALSO BE GOVERNED BY THE
TERMS OF THE TRUST INDENTURE ACT WHICH BY THE TERMS THEREOF WILL BE REQUIRED TO
BE PART OF THIS INDENTURE AND WHEN QUALIFIED, IF ANY PROVISION OF THIS INDENTURE
LIMITS, QUALIFIES, OR CONFLICTS WITH THE DUTIES IMPOSED BY OPERATION OF SECTION
318(C) OF THE TRUST INDENTURE ACT, THE IMPOSED DUTIES SHALL CONTROL.
SECTION 114. Legal Holidays. In any case in which any Interest Payment
--------------
Date, Redemption Date, Repayment Date, sinking fund payment date, Stated
Maturity or Maturity of any Security is not a Business Day at any Place of
Payment, then (notwithstanding any other provision of this Indenture or any
Security or any coupon other than a provision in the Securities of any series
which specifically states that such provision shall apply in lieu hereof)
payment of the principal of (and premium or Make-Whole Amount, if any, on) or
interest or Additional Amounts, if any, on such Security need not be made at
such Place of Payment on such date, but may be made on the next succeeding
Business Day at such Place of Payment with the same force and effect as if made
on the Interest Payment Date, Redemption Date, Repayment Date or sinking fund
payment date, or at the Stated Maturity or Maturity; provided, however, that no
-------- -------
interest shall accrue on the amount so payable for the period from and after
such Interest Payment Date, Redemption Date, Repayment Date, sinking fund
payment date, Stated Maturity or Maturity, as the case may be.
SECTION 115. Counterparts. This Indenture may be executed in several
------------
counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
19
<PAGE>
ARTICLE TWO
SECURITIES FORMS
SECTION 201. Forms of Securities. The Registered Securities, if any, of
-------------------
each series and the Bearer Securities, if any, and any coupons of each series,
shall be in substantially the forms as are established in or pursuant to one or
more Supplemental Indentures, Board Resolutions or Company Certificates, shall
have such appropriate insertions, omissions, substitutions and other variations
as are required or permitted by this Indenture or any Supplemental Indenture,
and may have such letters, numbers or other marks of identification or
designation and such legends or endorsements placed thereon as the Company may
deem appropriate and as are not inconsistent with the provisions of this
Indenture, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Securities may be listed, or to conform to usage.
Unless otherwise specified as contemplated by Section 301, Bearer
Securities shall have interest coupons attached.
The definitive Securities and coupons shall be printed, lithographed or
engraved or produced by any combination of these methods on a steel engraved
border or steel engraved borders or may be produced in any other manner, all as
determined by the officers executing such Securities or coupons, as evidenced by
their execution of such Securities or coupons.
SECTION 202. Form of Trustee's Certificate of Authentication. Subject to
-----------------------------------------------
Section 612, the Trustee's certificate of authentication shall be in
substantially the following form:
This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
[name of Trustee],
as Trustee
By:__________________________________________
Authorized Officer
SECTION 203. Securities Issuable in Global Form. If Securities of or
----------------------------------
within a series are issuable in global form, as specified as contemplated by
Section 301, then, notwithstanding clause (8) of Section 301 and the provisions
of Section 302, any such Security shall represent such of the Outstanding
Securities of such series as are specified therein and may provide that it shall
represent the aggregate amount of Outstanding Securities of such series from
time to time endorsed thereon and that the aggregate amount of Outstanding
Securities of such series represented thereby may from time to time be increased
or decreased to reflect exchanges. Any endorsement of a
20
<PAGE>
Security in global form to reflect the amount, or any increase or decrease in
the amount, of Outstanding Securities represented thereby shall be made by the
Trustee in the manner and in accordance with instructions given by such Person
or Persons specified therein or in the Company Order to be delivered to the
Trustee pursuant to Section 303 or 304. Subject to the provisions of Section 303
and, if applicable, Section 304, the Trustee shall deliver and redeliver any
Security in permanent global form in the manner and in accordance with
instructions given by the Person or Persons specified therein or in the
applicable Company Order. If a Company Order pursuant to Section 303 or 304 has
been, or simultaneously is, delivered, any instructions by the Company with
respect to endorsement or delivery or redelivery of a Security in global form
shall be in writing but need not comply with Section 102 and need not be
accompanied by an Opinion of Counsel.
The provisions of the last sentence of Section 303 shall apply to any
Security represented by a Security in global form if such Security was never
issued and sold by the Company and the Company delivers to the Trustee the
Security in global form together with written instructions (which need not
comply with Section 102 and need not be accompanied by an Opinion of Counsel)
with regard to the reduction in the principal amount of Securities represented
thereby, together with the written statement contemplated by the last sentence
of Section 303.
Notwithstanding the provisions of Section 307, unless otherwise specified
as contemplated by Section 301, payment of principal of (and premium or Make-
Whole Amount, if any, on) and interest and Additional Amounts, if any, on any
Security in permanent global form shall be made to the Person or Persons
specified therein.
Notwithstanding the provisions of Section 308 and except as provided in the
preceding paragraph, the Company, the Trustee and any agent of the Company or
the Trustee shall treat as the Holder of such principal amount of Outstanding
Securities represented by a permanent global Security (i) in the case of a
permanent global Security in registered form, the Holder of such permanent
global Security in registered form, or (ii) in the case of a permanent global
Security in bearer form, Euroclear or CEDEL.
ARTICLE THREE
THE SECURITIES
SECTION 301. Amount Unlimited; Issuable in Series. The aggregate principal
------------------------------------
amount of Securities which may be authenticated and delivered under this
Indenture is unlimited.
The Securities may be issued in one or more series. Each series of
Securities issued hereunder shall be established in or pursuant to one or more
Board Resolutions, Company Certificates, or Supplemental Indentures, adopted
and/or delivered prior to the issuance of Securities of such series. Such Board
Resolutions, Company Certificates, or Supplemental Indentures may provide any or
all of the following with respect to such Securities (each of which (except for
the matters set forth in clauses (1), (2) and (15) below), if so provided, may
be determined from time
21
<PAGE>
to time by the Company with respect to unissued Securities of or within the
series when issued from time to time):
(1) the title of the Securities of or within the series (which shall
distinguish the Securities of such series from all other series of
Securities);
(2) any limit on the aggregate principal amount of the Securities of
or within the series which may be authenticated and delivered under this
Indenture (except for Securities authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other
Securities of or within the series pursuant to Section 304, 305, 306, 906,
1107 or 1305);
(3) the date or dates, or the method by which such date or dates will
be determined, on which the principal of the Securities of or within the
series shall be payable and the amount of principal payable thereon;
(4) the rate or rates at which the Securities of or within the series
shall bear interest, if any, or the method by which such rate or rates
shall be determined, the date or dates from which such interest shall
accrue or the method by which such date or dates shall be determined, the
Interest Payment Dates on which such interest will be payable and the
Regular Record Date, if any, for the interest payable on any Registered
Security on any Interest Payment Date, or the method by which such date
shall be determined, and the basis on which interest shall be calculated if
other than a 360-day year comprised of twelve 30-day months;
(5) the place or places, if any, other than or in addition to the
Corporate Trust Office where the principal of (and premium or Make-Whole
Amount, if any, on) and interest and Additional Amounts, if any, on
Securities of or within the series shall be payable, any Registered
Securities of or within the series may be surrendered for registration of
transfer, exchange or conversion and notices or demands to or on the
Company in respect of the Securities of or within the series and this
Indenture may be served;
(6) the period or periods within which, the price or prices (including
the premium or Make-Whole Amount, if any) at which, the currency or
currencies, currency unit or units or composite currency or currencies in
which, and other terms and conditions upon which Securities of or within
the series may be redeemed, in whole or in part, at the option of the
Company, if the Company is to have the option;
(7) the obligation, if any, of the Company to redeem, repay or
purchase Securities of or within the series pursuant to any sinking fund or
analogous provision or at the option of a Holder thereof, and the period or
periods within which or the date or dates on which, the price or prices at
which, the currency or currencies, currency unit or units or composite
currency or currencies in which, and other terms and conditions upon which
Securities of
22
<PAGE>
or within the series shall be redeemed, repaid or purchased, in whole or in
part, pursuant to such obligation;
(8) if other than denominations of $1,000 and any integral multiple
thereof, the denominations in which any Registered Securities of or within
the series shall be issuable and, if other than the denomination of $5,000,
the denomination or denominations in which any Bearer Securities of or
within the series shall be issuable;
(9) if other than the Trustee, the identity of each other Trustee,
Security Registrar and/or Paying Agent and the manner of acceptance of such
other Trustee, Security Registrar or Paying Agent of its obligations
hereunder;
(10) the percentage of the principal amount at which Securities will
be issued and, if other than the principal amount thereof, the portion of
the principal amount of Securities of or within the series which shall be
payable upon declaration of acceleration of the Maturity thereof pursuant
to Section 502, or, if applicable, the portion of the principal amount of
Securities which is convertible in accordance with the provisions of this
Indenture, or the method by which such portion shall be determined;
(11) if other than Dollars, the Foreign Currency or Currencies in
which payment of the principal of (and premium or Make-Whole Amount, if
any, on) or interest or Additional Amounts, if any, on the Securities of or
within the series shall be payable or in which the Securities of or within
the series shall be denominated;
(12) whether the amount of payments of the principal of (and premium
or Make-Whole Amount, if any, on) or interest or Additional Amounts, if
any, on the Securities of or within the series may be determined with
reference to an index, formula or other method (which index, formula or
method may be based, without limitation, on one or more currencies,
currency units, composite currencies, commodities, equity indices or other
indices), and the manner in which such amounts shall be determined;
(13) whether the principal of (and premium or Make-Whole Amount, if
any, on) or interest or Additional Amounts, if any, on the Securities of or
within the series are to be payable, at the election of the Company or a
Holder thereof, in a currency or currencies, currency unit or units or
composite currency or currencies other than that in which such Securities
are denominated or stated to be payable, the period or periods within which
(including the Election Date), and the terms and conditions upon which,
such election may be made, and the time and manner of, and identity of the
exchange rate agent with responsibility for, determining the exchange rate
between the currency or currencies, currency unit or units or composite
currency or currencies in which such Securities are denominated or stated
to be payable and the currency or currencies, currency unit or units or
composite currency or currencies in which such Securities are to be so
payable;
23
<PAGE>
(14) provisions, if any, granting special rights to the Holders of
Securities of or within the series on the occurrence of such events as may
be specified;
(15) any deletions from, modifications of or additions to the Events
of Default or covenants of the Company with respect to Securities of or
within the series, whether or not such Events of Default or covenants are
consistent with the Events of Default or covenants set forth herein;
(16) whether Securities of or within the series are to be issuable as
Registered Securities, Bearer Securities (with or without coupons) or both,
any restrictions applicable to the offer, sale or delivery of Bearer
Securities and the terms upon which Bearer Securities of or within the
series may be exchanged for Registered Securities of or within the series
and vice versa (if permitted by applicable laws and regulations), whether
any Securities of or within the series are to be issuable initially in
temporary global form and whether any Securities of or within the series
are to be issuable in permanent global form (with or without coupons) and,
if so, whether beneficial owners of interests in any such permanent global
Security may exchange such interests for Securities of such series and of
like tenor of any authorized form and denomination and the circumstances
under which any such exchanges may occur, if other than in the manner
provided in Section 305, and, if Registered Securities of or within the
series are to be issuable as a global Security, the identity of the
depositary for such series, and the date as of which any Bearer Securities
of or within the series and any temporary global Security representing
Outstanding Securities of or within the series shall be dated if other than
the date of original issuance of the first Security of the series to be
issued;
(17) the Person to whom any interest on any Registered Security of the
series shall be payable, if other than the Person in whose name such
Security (or one or more Predecessor Securities) is registered at the close
of business on the Regular Record Date for such interest, the manner in
which, or the Person to whom, any interest on any Bearer Security of the
series shall be payable, if otherwise than upon presentation and surrender
of the coupons appertaining thereto as they severally mature, and the
extent to which, or the manner in which, any interest payable on a
temporary global Security on an Interest Payment Date will be paid if other
than in the manner provided in Section 304;
(18) the applicability, if any, of Sections 1402 and/or 1403 to the
Securities of or within the series and any provisions in modification of,
in addition to or in lieu of any of the provisions of Article Fourteen;
(19) if the Securities of such series are to be issuable in definitive
form (whether upon original issue or upon exchange of a temporary Security
of such series) only upon receipt of certain certificates or other
documents or satisfaction of other conditions, then the form and/or terms
of such certificates, documents or conditions;
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<PAGE>
(20) if the Securities of or within the series are to be issued upon
the exercise of debt warrants, the time, manner and place for such
Securities to be authenticated and delivered;
(21) whether and under what circumstances the Company will pay
Additional Amounts as contemplated by Section 1010 on the Securities of or
within the series to any Holder who is not a United States person
(including any modification to the definition of such term) in respect of
any tax, assessment or governmental charge and, if so, whether the Company
will have the option to redeem such Securities rather than pay such
Additional Amounts (and the terms of any such option);
(22) the obligation, if any, of the Company to permit the conversion
of the Securities of such series into Shares or other securities of the
Company, and the terms and conditions on which such conversion shall be
effected (including, without limitation, the initial conversion price or
rate, the conversion period, any adjustment of the applicable conversion
price and any requirements relative to the reservation of such shares for
purposes of conversion); and
(23) any other terms of the series, including ranking of the
Securities of any series, subordination provisions and registration rights
associated with the Securities of any series (which terms shall not be
inconsistent with the provisions of this Indenture).
All Securities of any one series and the coupons appertaining to any Bearer
Securities of such series, if any, shall be substantially identical except, in
the case of Registered or Bearer Securities issued in global form, as to
denomination and except as may otherwise be provided in or pursuant to such
Board Resolution, Company Certificate or in any such Supplemental Indenture.
All Securities of any one series need not be issued at the same time and, unless
otherwise provided, a series may be reopened, without the consent of the
Holders, for issuances of additional Securities of such series.
If any of the terms of the Securities of any series are established by
action taken pursuant to one or more Board Resolutions or Company Certificates,
a copy of an appropriate record of such action(s) shall be certified by the
appropriate officer of the Company and delivered to the Trustee at or prior to
the delivery of the Company Order for authentication and delivery of such
Securities.
SECTION 302. Denominations. The Securities of each series shall be issuable
-------------
as Bearer Securities, as Registered Securities or in any combination thereof,
and in such denominations and amounts as are specified as contemplated by
Section 301. With respect to any series denominated in Dollars, in the absence
of any such provisions with respect to the Securities of any series, the
Registered Securities of such series, other than Registered Securities issued in
global form (which may be of any denomination), shall be issuable in
denominations of $1,000 and any integral multiple thereof and the Bearer
Securities of such series, other than Bearer Securities issued in global form
(which may be of any denomination), shall be issuable in denominations of $5,000
and any integral multiple thereof.
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SECTION 303. Execution, Authentication, Delivery and Dating. The Securities
----------------------------------------------
and any coupons shall be executed on behalf of the Company by an Authorized
Officer, and attested by an Authorized Officer of the Company. The signature of
any of these officers on the Securities and any coupons may be manual or
facsimile signatures of the present or any future such Authorized Officer and
may be imprinted or otherwise reproduced on the Securities and such coupons.
Any Securities or any coupons bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices at the date of such Securities or any coupons.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities of any series, together with any
coupons, executed by the Company, to the Trustee for authentication, together
with a Company Order for the authentication and delivery of such Securities, and
the Trustee shall authenticate and deliver such Securities in accordance with
the Company Order; provided, however, that, in connection with its original
-------- -------
issuance, no Bearer Security shall be mailed or otherwise delivered to any
location in the United States; and provided, further, that, unless otherwise
-------- -------
specified with respect to any series of Securities pursuant to Section 301, a
Bearer Security may be delivered in connection with its original issuance only
if the Person entitled to receive such Bearer Security has furnished a
certificate to Euroclear or CEDEL, as the case may be, in the form set forth in
Exhibit A-1 to this Indenture or such other certificate as may be specified with
respect to any series of Securities pursuant to Section 301, dated no earlier
than 15 days prior to the earlier of the date on which such Bearer Security is
delivered and the date on which any temporary Security first becomes
exchangeable for such Bearer Security in accordance with the terms of such
temporary Security and this Indenture.
Except as permitted by Section 306, the Trustee shall not authenticate and
deliver any Bearer Security unless all appurtenant coupons for interest then
matured have been detached and canceled. If all of the Securities of any series
are not to be issued at one time and if the Board Resolution, Company
Certificate or Supplemental Indenture establishing such series so permits, such
Company Order may set forth procedures acceptable to the Trustee for the
issuance of such Securities and determining the terms of particular Securities
of such series, such as the interest rate or formula, maturity date, date of
issuance and date from which interest shall accrue.
In authenticating such Securities, and accepting the additional
responsibilities under this Indenture in relation to such Securities and any
coupons appertaining thereto, the Trustee shall be entitled to receive, and (to
the extent this Indenture is qualified, subject to Section 315(a) through 315(d)
of the Trust Indenture Act) shall be fully protected in relying on:
(1) an Opinion of Counsel complying with Section 102 and stating
that:
(A) the form or forms of such Securities and any coupons
appertaining thereto have been, or will have been upon compliance with
such procedures as may be specified therein, established in conformity
with the provisions of this Indenture;
26
<PAGE>
(B) the terms of such Securities and any coupons appertaining
thereto have been, or will have been upon compliance with such
procedures as may be specified therein, established in conformity with
the provisions of this Indenture; and
(C) such Securities, together with any coupons appertaining
thereto, when executed by the Company, completed pursuant to such
procedures as may be specified therein and delivered by the Company to
the Trustee for authentication in accordance with this Indenture,
authenticated and delivered by the Trustee in accordance with this
Indenture and issued by the Company in the manner and subject to any
conditions specified in such Opinion of Counsel, will constitute
legal, valid and binding obligations of the Company, enforceable in
accordance with their terms, subject to applicable bankruptcy,
insolvency, reorganization and other similar laws of general
applicability relating to or affecting the enforcement of creditors'
rights generally and to general equitable principles and to such other
matters as may be specified therein; and
(2) a Company Certificate complying with Section 102 and stating that
all conditions precedent provided for in this Indenture relating to the
issuance of such Securities have been, or will have been upon compliance
with such procedures as may be specified therein, complied with and that,
to the best of the knowledge of the signers of such certificate, no Event
of Default with respect to such Securities has occurred and is continuing.
The Trustee shall not be required to authenticate such Securities if the issue
of such Securities pursuant to this Indenture will affect the Trustee's own
rights, duties, obligations or immunities under the Securities and this
Indenture or otherwise in a manner which is not reasonably acceptable to the
Trustee.
Notwithstanding the provisions of Section 301 and of the preceding
paragraph, if all the Securities of any series are not to be issued at one time,
it shall not be necessary to deliver a Company Order, an Opinion of Counsel or a
Company Certificate otherwise required pursuant to the preceding paragraph at
the time of issuance of each Security of such series, but such order, opinion
and certificate with appropriate modifications to cover such future issuances,
shall be delivered at or before the time of issuance of the first Security of
such series.
Each Registered Security shall be dated the date of its authentication and
each Bearer Security shall be dated as of the date specified as contemplated by
Section 301.
No Security or coupon shall be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose unless there appears on such Security
or the Security to which such coupon appertains a certificate of authentication
substantially in the form provided for herein duly executed by the Trustee by
manual signature of an authorized officer, and such certificate on any Security
shall be conclusive evidence, and the only evidence, that such Security has been
duly authenticated and delivered hereunder and is entitled to the benefits of
this Indenture.
27
<PAGE>
Notwithstanding the foregoing, if any Security has been authenticated and
delivered hereunder but never issued and sold by the Company, and the Company
delivers such Security to the Trustee for cancellation as provided in Section
309 together with a written statement (which need not comply with Section 102
and need not be accompanied by an Opinion of Counsel) stating that such Security
has never been issued or sold by the Company, for all purposes of this Indenture
such Security shall be deemed never to have been authenticated and delivered
hereunder and shall never be entitled to the benefits of this Indenture.
SECTION 304. Temporary Securities.
--------------------
(a) Pending the preparation of definitive Securities of any series,
the Company may execute, and upon a Company Order the Trustee shall
authenticate and deliver, temporary Securities which are printed,
lithographed, typewritten, mimeographed or otherwise produced, in any
authorized denomination, substantially of the tenor of the definitive
Securities in lieu of which they are issued, in registered form, or, if
authorized, in bearer form (with or without coupons), and with such
appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as conclusively
evidenced by their execution of such Securities. In the case of Securities
of any series, such temporary Securities may be in global form.
Except in the case of temporary Securities in global form (which shall
be exchanged in accordance with Section 304(b) or as otherwise provided in
or pursuant to a Board Resolution or Company Certificate), if temporary
Securities of any series are issued, the Company shall cause definitive
Securities of such series to be prepared without unreasonable delay. After
the preparation of definitive Securities of such series, the temporary
Securities of such series shall be exchangeable for definitive Securities
of such series upon surrender of the temporary Securities of such series at
the office or agency of the Company in a Place of Payment for such series,
without charge to the Holder. Upon surrender for cancellation of any one
or more temporary Securities of any series, together with any nonmatured
coupons appertaining thereto, the Company shall execute and the Trustee
shall authenticate and deliver in exchange therefor a like principal amount
of definitive Securities of the same series of authorized denominations;
provided, however, that no definitive Bearer Security shall be delivered in
-------- -------
exchange for a temporary Registered Security; and provided, further, that a
-------- -------
definitive Bearer Security shall be delivered in exchange for a temporary
Bearer Security only in compliance with the conditions set forth in Section
303. Until so exchanged, the temporary Securities or coupons appertaining
thereto of any series shall in all respects be entitled to the same
benefits under this Indenture as definitive Securities or coupons
appertaining thereto of such series.
(b) Unless otherwise provided as contemplated in Section 301, this
Section 304(b) shall govern the exchange of temporary Securities issued in
global form, if any, other than through the facilities of DTC. If any such
temporary Security is issued in global form, then such temporary global
Security shall, unless otherwise provided therein, be delivered
28
<PAGE>
to the London office of a depositary or common depositary (the "Common
------
Depositary"), for the benefit of Euroclear and CEDEL.
----------
Without unnecessary delay but in any event not later than the date
specified in, or determined pursuant to the terms of, any such temporary
global Security (the "Exchange Date"), the Company shall deliver to the
-------------
Trustee definitive Securities, in an aggregate principal amount equal to
the principal amount of such temporary global Security, executed by the
Company. On or after the Exchange Date, such temporary global Security
shall be surrendered by the Common Depositary to the Trustee, as the
Company's agent for such purpose, to be exchanged, in whole or from time to
time in part, for definitive Securities without charge, and the Trustee
shall authenticate and deliver, in the name of Euroclear or CEDEL, as the
case may be, in exchange for each portion of such temporary global
Security, an equal aggregate principal amount of definitive Securities of
or within the same series of authorized denominations and of like tenor as
the portion of such temporary global Security to be exchanged. The
definitive Securities to be delivered in exchange for any such temporary
global Security shall be in bearer form, registered form, permanent global
bearer form or permanent global registered form, or any combination
thereof, as specified as contemplated by Section 301, and, if any
combination thereof is so specified, as requested by the Common Depositary;
provided, however, that, unless otherwise specified in such temporary
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global Security, upon such presentation by the Common Depositary, such
temporary global Security shall be accompanied by a certificate dated the
Exchange Date or a subsequent date and signed by Euroclear as to the
portion of such temporary global Security held for its account then to be
exchanged and a certificate dated the Exchange Date or a subsequent date
and signed by CEDEL as to the portion of such temporary global Security
held for its account then to be exchanged, each in the form set forth in
Exhibit A-2 to this Indenture or in such other form as may be established
pursuant to Section 301; and provided, further, that definitive Bearer
-------- -------
Securities shall be delivered in exchange for a portion of a temporary
global Security only in compliance with the requirements of Section 303.
Unless otherwise specified in such temporary global Security, the
interest of a beneficial owner of Securities of a series in a temporary
global Security shall be exchanged for definitive Securities of the same
series and of like tenor following the Exchange Date when the account
holder instructs Euroclear or CEDEL, as the case may be, to request such
exchange on his behalf and delivers to Euroclear or CEDEL, as the case may
be, a certificate in the form set forth in Exhibit A-1 to this Indenture
(or in such other form as may be established pursuant to Section 301),
dated no earlier than 15 days prior to the Exchange Date, copies of which
certificate shall be available from the offices of Euroclear and CEDEL, the
Trustee, any Authenticating Agent appointed for such series of Securities
and each Paying Agent. Unless otherwise specified in such temporary global
Security, any such exchange shall be made free of charge to the beneficial
owners of such temporary global Security, except that a Person receiving
definitive Securities must bear the cost of insurance, postage,
transportation and the like unless such Person takes delivery of such
definitive Securities in person at the offices of Euroclear or CEDEL.
Definitive Securities in bearer
29
<PAGE>
form to be delivered in exchange for any portion of a temporary global
Security shall be delivered only outside the United States.
Until exchanged in full as hereinabove provided, the temporary
Securities of any series shall in all respects be entitled to the same
benefits under this Indenture as definitive Securities of the same series
and of like tenor authenticated and delivered hereunder, except that,
unless otherwise specified as contemplated by Section 301, interest payable
on a temporary global Security on an Interest Payment Date for Securities
of such series occurring prior to the applicable Exchange Date shall be
payable to Euroclear and CEDEL on such Interest Payment Date upon delivery
by Euroclear and CEDEL to the Trustee of a certificate or certificates in
the form set forth in Exhibit A-2 to this Indenture (or in such other forms
as may be established pursuant to Section 301), for credit without further
interest on or after such Interest Payment Date to the respective accounts
of Persons who are the beneficial owners of such temporary global Security
on such Interest Payment Date and who have each delivered to Euroclear or
CEDEL, as the case may be, a certificate dated no earlier than 15 days
prior to the Interest Payment Date occurring prior to such Exchange Date in
the form set forth in Exhibit A-1 to this Indenture (or in such other forms
as may be established pursuant to Section 301). Notwithstanding anything to
the contrary herein contained, the certifications made pursuant to this
paragraph shall satisfy the certification requirements of the preceding two
paragraphs of this Section 304(b) and of the third paragraph of Section 303
of this Indenture and the interests of the Persons who are the beneficial
owners of the temporary global Security with respect to which such
certification was made will be exchanged for definitive Securities of the
same series and of like tenor on the Exchange Date or the date of
certification if such date occurs after the Exchange Date, without further
act or deed by such beneficial owners. Except as otherwise provided in
this paragraph, no payments of principal or interest owing with respect to
a beneficial interest in a temporary global Security will be made unless
and until such interest in such temporary global Security has been
exchanged for an interest in a definitive Security. Any interest so
received by Euroclear and CEDEL and not paid as herein provided shall be
repaid to the Company.
SECTION 305. Registration, Registration of Transfer and Exchange. The
---------------------------------------------------
Company shall cause to be kept at the Corporate Trust Office of the Trustee, the
office of an affiliate of the Trustee in the Grand Duchy of Luxembourg or in any
office or agency of the Company in a Place of Payment a register for each series
of Securities (the registers maintained in such office or in any such office or
agency of the Company in a Place of Payment being herein sometimes referred to
collectively as the "Security Register") in which, subject to such reasonable
-----------------
regulations as it may prescribe, the Company shall provide for the registration
of Registered Securities and of transfers of Registered Securities. The
Security Register shall be in written form or any other form capable of being
converted into written form within a reasonable time. The Trustee, at its
Corporate Trust Office and at the office of an affiliate of the Trustee in
Luxembourg, is hereby initially appointed "Security Registrar" for the purpose
------------------
of registering Registered Securities and transfers of Registered Securities on
such Security Register as herein provided. In the event that the Trustee ceases
to be Security Registrar, it shall have the right to examine the Security
Register at all reasonable times.
30
<PAGE>
Subject to the provisions of this Section 305, upon surrender for
registration of transfer of any Registered Security of any series at any office
or agency of the Company in a Place of Payment for such series, the Company
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Registered Securities
of the same series, of any authorized denominations and of a like aggregate
principal amount, being a number not contemporaneously outstanding, and
containing identical terms and provisions.
Subject to the provisions of this Section 305, at the option of the Holder,
Registered Securities of any series may be exchanged for other Registered
Securities of the same series, of any authorized denomination or denominations
and of a like aggregate principal amount, containing identical terms and
provisions, upon surrender of the Registered Securities to be exchanged at any
such office or agency. Whenever any such Registered Securities are so
surrendered for exchange, the Company shall execute, and the Trustee shall
authenticate and deliver, the Registered Securities which the Holder making the
exchange is entitled to receive. Unless otherwise specified with respect to any
series of Securities as contemplated by Section 301, Bearer Securities may not
be issued in exchange for Registered Securities.
If (but only if) permitted as contemplated by Section 301, at the option of
the Holder, Bearer Securities of any series may be exchanged for Registered
Securities of the same series of any authorized denominations and of a like
aggregate principal amount and tenor, upon surrender of the Bearer Securities to
be exchanged at any such office or agency, with all unmatured coupons and all
matured coupons in default appertaining thereto. If the Holder of a Bearer
Security is unable to produce any such unmatured coupon or coupons or matured
coupon or coupons in default, any such permitted exchange may be effected if the
Bearer Securities are accompanied by payment in funds acceptable to the Company
in an amount equal to the face amount of such missing coupon or coupons, or the
surrender of such missing coupon or coupons may be waived by the Company and the
Trustee if there is furnished to them such security or indemnity as they may
require to save each of them and any Paying Agent harmless. If thereafter the
Holder of such Bearer Security surrenders to any Paying Agent any such missing
coupon in respect of which such a payment has been made, such Holder shall be
entitled to receive the amount of payment; provided, however, that, except as
-------- -------
otherwise provided in Section 1002, interest represented by a coupon shall be
payable only upon presentation and surrender of such coupons at an office or
agency located outside the United States. Notwithstanding the foregoing, in case
a Bearer Security of any series is surrendered at any such office or agency in a
permitted exchange for a Registered Security of the same series and like tenor
after the close of business at such office or agency on (i) any Regular Record
Date and before the opening of business at such office or agency on the relevant
Interest Payment Date or (ii) any Special Record Date and before the opening of
business at such office or agency on the related proposed date for payment of
Defaulted Interest, such Bearer Security shall be surrendered without the coupon
relating to such Interest Payment Date or proposed date for payment, as the case
may be, and interest or Defaulted Interest, as the case may be, will not be
payable on such Interest Payment Date or proposed date for payment, as the case
may be, in respect of the Registered Security issued in exchange for such Bearer
Security, but will be payable only to the Holder of such coupon when due in
accordance with the provisions of this Indenture. Whenever any Securities are
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<PAGE>
so surrendered for exchange, the Company shall execute, and the Trustee shall
authenticate and deliver, the Securities which the Holder making the exchange is
entitled to receive.
Notwithstanding the foregoing, except as otherwise specified as
contemplated by Section 301, any permanent global Security shall be exchangeable
only as provided in this paragraph. If the depositary for any permanent global
Security is DTC, then, unless the terms of such global Security expressly permit
such global Security to be exchanged in whole or in part for definitive
Securities, a global Security may be transferred, in whole but not in part, only
to a nominee of DTC, or by a nominee of DTC to DTC, or to a successor to DTC for
such global Security selected and approved by the Company or to a nominee of
such successor to DTC. If at any time DTC notifies the Company that it is
unwilling or unable to continue as depositary for the applicable global Security
or Securities or if at any time DTC ceases to be a clearing agency registered
under the Exchange Act if so required by applicable law or regulation, the
Company shall appoint a successor depositary with respect to such global
Security or Securities. If (i) a successor depositary for such global Security
or Securities is not appointed by the Company within 90 days after the Company
receives such notice or becomes aware of such unwillingness, inability or
ineligibility, (ii) an Event of Default has occurred and is continuing and the
beneficial owners representing a majority in principal amount of the applicable
series of Securities represented by such global Security or Securities advise
DTC to cease acting as depositary for such global Security or Securities or
(iii) the Company, in its sole discretion, determines at any time that all
Outstanding Securities (but not less than all) of any series issued or issuable
in the form of one or more global Securities shall no longer be represented by
such global Security or Securities (provided, however, that the Company may not
-------- -------
make such determination during the one year restricted period provided by
Regulation S under the Securities Act, if any, or during any other similar
period during which the Securities must be held in global form as may be
required by the Securities Act), then, upon surrender of the global Security or
Securities appropriately endorsed, the Company shall execute, and the Trustee
shall authenticate and deliver, definitive Securities of like series, rank,
tenor and terms in definitive form in an aggregate principal amount equal to the
principal amount of such global Security or Securities. If any beneficial owner
of an interest in a permanent global Security is otherwise entitled to exchange
such interest for Securities of such series and of like tenor and principal
amount of another authorized form and denomination, as specified as contemplated
by Section 301 and provided that any applicable notice provided in the permanent
global Security has been given, then without unnecessary delay but in any event
not earlier than the earliest date on which such interest may be so exchanged,
upon surrender of the global Security or Securities appropriately endorsed, the
Company shall execute, and the Trustee shall authenticate and deliver definitive
Securities in aggregate principal amount equal to the principal amount of such
beneficial owner's interest in such permanent global Security. On or after the
earliest date on which such interests may be so exchanged, such permanent global
Security shall be surrendered for exchange by DTC or such other depositary as is
specified in the Company Order with respect thereto to the Trustee, as the
Company's agent for such purpose; provided, however, that no such exchanges may
-------- -------
occur during a period beginning at the opening of business 15 days before any
selection of Securities to be redeemed and ending on the relevant Redemption
Date if the Security for which exchange is requested may be among those selected
for redemption; and provided, further, that no Bearer Security delivered in
-------- -------
exchange for a portion of a permanent global Security shall be mailed or
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<PAGE>
otherwise delivered to any location in the United States. If a Registered
Security is issued in exchange for any portion of a permanent global Security
after the close of business at the office or agency where such exchange occurs
on (i) any Regular Record Date and before the opening of business at such office
or agency on the relevant Interest Payment Date or (ii) any Special Record Date
and before the opening of business at such office or agency on the related
proposed date for payment of Defaulted Interest, interest or Defaulted Interest,
as the case may be, will not be payable on such Interest Payment Date or
proposed date for payment, as the case may be, in respect of such Registered
Security, but will be payable on such Interest Payment Date or proposed date for
payment, as the case may be, only to the Person to whom interest in respect of
such portion of such permanent global Security is payable in accordance with the
provisions of this Indenture.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Registered Security presented or surrendered for registration of
transfer or for exchange or redemption shall be duly endorsed, or be accompanied
by a written instrument of transfer in form satisfactory to the Company and the
Security Registrar, duly executed by the Holder thereof or his attorney duly
authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge which may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 304, 906, 1107 or 1305 not involving any transfer.
The Company or the Trustee, as applicable, shall not be required (i) to
issue, register the transfer of or exchange any Security if such Security may be
among those selected for redemption during a period beginning at the opening of
business 15 days before selection of the Securities to be redeemed under Section
1103 and ending at the close of business on (A) if such Securities are issuable
only as Registered Securities, the day of the mailing of the relevant notice of
redemption and (B) if such Securities are issuable as Bearer Securities, the day
of the first publication of the relevant notice of redemption or, if such
Securities are also issuable as Registered Securities and there is no
publication, the day of the mailing of the relevant notice of redemption, (ii)
to register the transfer of or exchange any Registered Security so selected for
redemption in whole or in part, except, in the case of any Registered Security
to be redeemed in part, the portion thereof not to be redeemed, (iii) to
exchange any Bearer Security so selected for redemption except that such a
Bearer Security may be exchanged for a Registered Security of such series and
like tenor, provided that such Registered Security is simultaneously surrendered
--------
for redemption, or (iv) to issue, register the transfer of or exchange any
Security which has been surrendered for repayment at the option of the Holder,
except the portion, if any, of such Security not to be so repaid.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities. If any
------------------------------------------------
mutilated Security or a Security with a mutilated coupon appertaining thereto is
surrendered to the Trustee or the
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Company, together with, in proper cases, such security or indemnity as may be
required by the Company or the Trustee to save each of them or any of their
agents harmless, the Company shall execute and the Trustee shall authenticate
and deliver in exchange therefor a new Security of the same series and principal
amount, containing identical terms and provisions and bearing a number not
contemporaneously outstanding, with coupons corresponding to the coupons, if
any, appertaining to the surrendered Security.
If there is delivered to the Company and the Trustee (i) evidence to their
satisfaction of the destruction, loss or theft of any Security or coupon and
(ii) such security or indemnity as may be required by them to save each of them
and any of their agents harmless, then, in the absence of notice to the Company
or the Trustee that such Security or coupon has been acquired by a bona fide
purchaser, the Company shall execute, and upon Company Request the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen Security
or in exchange for the Security to which a destroyed, lost or stolen coupon
appertains (with all appurtenant coupons not destroyed, lost or stolen), a new
Security of the same series and principal amount, containing identical terms and
provisions and bearing a number not contemporaneously outstanding, with coupons
corresponding to the coupons, if any, appertaining to such destroyed, lost or
stolen Security or to the Security to which such destroyed, lost or stolen
coupon appertains.
Notwithstanding the provisions of the previous two paragraphs, in case any
such mutilated, destroyed, lost or stolen Security or coupon has become or is
about to become due and payable, the Company in its discretion may, instead of
issuing a new Security, with coupons corresponding to the coupons, if any,
appertaining to such destroyed, lost or stolen Security or to the Security to
which such destroyed, lost or stolen coupon appertains, pay such Security or
coupon; provided, however, that payment of principal of (and premium or Make-
-------- -------
Whole Amount, if any, on) and interest and Additional Amounts, if any, on any
Bearer Securities shall, except as otherwise provided in Section 1002, be
payable only at an office or agency located outside the United States and,
unless otherwise specified as contemplated by Section 301, any interest on
Bearer Securities shall be payable only upon presentation and surrender of the
coupons appertaining thereto.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge which may be imposed in relation thereto and any other expenses
(including the fees and expenses of the Trustee) connected therewith.
Every new Security of any series and any coupons appertaining thereto
issued pursuant to this Section in lieu of any destroyed, lost or stolen
Security, or in exchange for a Security to which a destroyed, lost or stolen
coupon appertains, shall constitute an original additional contractual
obligation of the Company, whether or not the destroyed, lost or stolen Security
and any coupons appertaining thereto or the destroyed, lost or stolen coupon are
at any time enforceable by anyone, and shall be entitled to all the benefits of
this Indenture equally and proportionately with any and all other Securities of
such series and any coupons appertaining thereto duly issued hereunder.
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The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities or coupons.
SECTION 307. Payment of Interest; Interest Rights Preserved. Except as
----------------------------------------------
otherwise specified with respect to a series of Securities in accordance with
the provisions of Section 301, interest on any Registered Security which is
payable, and is punctually paid or duly provided for, on any Interest Payment
Date shall be paid to the Person in whose name such Security (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest at the office or agency of the Company maintained
for such purpose pursuant to Section 1002; provided, however, that each
-------- -------
installment of interest on any Registered Security may at the Company's option
be paid by (i) mailing a check for such interest, payable to or upon the written
order of the Person entitled thereto pursuant to Section 308, to the address of
such Person as it appears on the Security Register or (ii) transfer to an
account maintained by the payee located inside the United States.
Unless otherwise provided as contemplated by Section 301 with respect to
the Securities of any series, payment of interest may be made, in the case of a
Bearer Security, by transfer to an account maintained by the payee with a bank
located outside the United States.
Unless otherwise provided as contemplated by Section 301, every permanent
global Security will provide that interest, if any, payable on any Interest
Payment Date will be paid to DTC, Euroclear and/or CEDEL, as the case may be,
with respect to that portion of such permanent global Security held for its
account by Cede & Co. or the Common Depositary, as the case may be, for the
purpose of permitting such party to credit the interest received by it in
respect of such permanent global Security to the accounts of the beneficial
owners thereof.
In case a Bearer Security of any series is surrendered in exchange for a
Registered Security of such series after the close of business (at an office or
agency in a Place of Payment for such series) on any Regular Record Date and
before the opening of business (at such office or agency) on the next succeeding
Interest Payment Date, such Bearer Security shall be surrendered without the
coupon relating to such Interest Payment Date and interest will not be payable
on such Interest Payment Date in respect of the Registered Security issued in
exchange for such Bearer Security, but will be payable only to the Holder of
such coupon when due in accordance with the provisions of this Indenture.
Except as otherwise specified with respect to a series of Securities in
accordance with the provisions of Section 301, any interest on any Registered
Security of any series which is payable, but is not punctually paid or duly
provided for, on any Interest Payment Date ("Defaulted Interest") shall
------------------
forthwith cease to be payable to the registered Holder thereof upon the relevant
Regular Record Date by virtue of having been such Holder, and such Defaulted
Interest may be paid by the Company, at its election, as provided in paragraph
(1) or (2) below:
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(1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Registered Securities of such series (or
their respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company shall
notify the Trustee in writing of the amount of Defaulted Interest proposed
to be paid on each Registered Security of such series and the date of the
proposed payment (which shall not be less than 20 days after such notice is
received by the Trustee), and at the same time the Company shall deposit
with the Trustee an amount of money in the currency or currencies, currency
unit or units or composite currency or currencies in which the Securities
of such series are payable (except as otherwise specified pursuant to
Section 301 for the Securities of such series) equal to the aggregate
amount proposed to be paid in respect of such Defaulted Interest or shall
make arrangements satisfactory to the Trustee for such deposit on or prior
to the date of the proposed payment, such money when deposited to be held
in trust for the benefit of the Persons entitled to such Defaulted Interest
as provided in this paragraph. Thereupon, the Trustee shall fix a Special
Record Date for the payment of such Defaulted Interest which shall be not
more than 15 days and not less than 10 days prior to the date of the
proposed payment and not less than 10 days after the receipt by the Trustee
of the notice of the proposed payment. The Trustee shall promptly notify
the Company of such Special Record Date and, in the name and at the expense
of the Company shall cause notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor to be mailed, highest class
postage prepaid, to each Holder of Registered Securities of such series at
such Holder's address as it appears in the Security Register not less than
10 days prior to such Special Record Date. The Trustee may, in its
discretion, in the name and at the expense of the Company cause a similar
notice to be published at least once in an Authorized Newspaper in each
Place of Payment, but such publications shall not be a condition precedent
to the establishment of such Special Record Date. Notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor
having been mailed as aforesaid, such Defaulted Interest shall be paid to
the Persons in whose names the Registered Securities of such series (or
their respective Predecessor Securities) are registered at the close of
business on such Special Record Date and shall no longer be payable
pursuant to paragraph (2) below. In case a Bearer Security of any series is
surrendered at the office or agency in a Place of Payment for such series
in exchange for a Registered Security of such series after the close of
business at such office or agency on any Special Record Date and before the
opening of business at such office or agency on the related proposed date
for payment of Defaulted Interest, such Bearer Security shall be
surrendered without the coupon relating to such proposed date of payment
and Defaulted Interest will not be payable on such proposed date of payment
in respect of the Registered Security issued in exchange for such Bearer
Security, but will be payable only to the Holder of such coupon when due in
accordance with the provisions of this Indenture.
(2) The Company may make payment of any Defaulted Interest on the
Registered Securities of any series in any other lawful manner not
inconsistent with the requirements of any securities exchange on which such
Securities may be listed, and on such notice as may be required by such
exchange, if, after notice given by the Company to the Trustee of
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the proposed payment pursuant to this paragraph, such manner of payment is
deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section and Section 305, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.
SECTION 308. Persons Deemed Owners. Prior to due presentment of a
---------------------
Registered Security for registration of transfer, the Company, the Trustee and
any agent of the Company or the Trustee may treat the Person in whose name such
Registered Security is registered as the owner of such Security for the purpose
of receiving payment of principal of (and premium or Make-Whole Amount, if any,
on) and (subject to Sections 305 and 307) interest and Additional Amounts, if
any, on such Registered Security and for all other purposes whatsoever, whether
or not such Registered Security be overdue, and neither the Company, the Trustee
nor any agent of the Company or the Trustee shall be affected by notice to the
contrary.
Title to any Bearer Security and any coupons shall pass by delivery. The
Company, the Trustee and any agent of the Company or the Trustee may treat the
Holder of any Bearer Security and the Holder of any coupon as the absolute owner
of such Security or coupon for the purpose of receiving payment thereof or on
account thereof and for all other purposes whatsoever, whether or not such
Security or coupon be overdue, and neither the Company, the Trustee nor any
agent of the Company or the Trustee shall be affected by notice to the contrary.
None of the Company, the Trustee, any Paying Agent or the Security
Registrar shall have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of a Security in global form or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
Notwithstanding the foregoing, with respect to any global Security, nothing
herein shall prevent the Company, the Trustee, or any agent of the Company or
the Trustee, from giving effect to any written certification, proxy or other
authorization furnished by any depositary, as a Holder, with respect to such
global Security or impair, as between such depositary and owners of beneficial
interests in such global Security, the operation of customary practices
governing the exercise of the rights of such depositary (or its nominee) as
Holder of such global Security.
SECTION 309. Cancellation. All Securities and coupons surrendered for
------------
payment, redemption, repayment at the option of the Holder, registration of
transfer or exchange or for credit against any sinking fund payment shall, if
surrendered to any Person other than the Trustee, be delivered to the Trustee,
and any such Securities and coupons and any Securities and coupons surrendered
directly to the Trustee for any such purpose shall be promptly canceled by it.
The Company may at any time deliver to the Trustee for cancellation any
Securities previously authenticated and delivered hereunder which the Company
may have acquired in any manner whatsoever, and may deliver to the Trustee (or
to any other Person for delivery to the Trustee) for
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cancellation any Securities previously authenticated hereunder which the Company
has not issued and sold, and all Securities so delivered shall be promptly
canceled by the Trustee. If the Company so acquires any of the Securities,
however, such acquisition shall not operate as a redemption or satisfaction of
the indebtedness represented by such Securities unless and until the same are
surrendered to the Trustee for cancellation. No Securities shall be
authenticated in lieu of or in exchange for any Securities canceled as provided
in this Section, except as expressly permitted by this Indenture. Canceled
Securities and coupons held by the Trustee shall be destroyed by the Trustee in
accordance with its standard practices and procedures and the Trustee shall
deliver a certificate of such destruction to the Company unless the Company
delivers a Company Order which directs their return to it.
SECTION 310. Computation of Interest. Except as otherwise specified as
-----------------------
contemplated by Section 301 with respect to Securities of any series, interest
on the Securities of each series shall be computed on the basis of a 360-day
year consisting of twelve 30-day months.
SECTION 311. Subordination. The Securities are subordinate to the
-------------
guarantee by the Company of the borrowings of Security Capital Holdings S.A.
("HOLDINGS") under the provisions of a secured revolving credit facility (the
"Credit Facility") dated June 12, 1996, as supplemented, amended, renewed or
modified from time to time entered into between HOLDINGS and Commerzbank AG, New
York Branch, as administrative agent (the "Administrative Agent"). Pursuant to
the terms of the Credit Facility, the Company and the Trustee, solely in its
capacity as trustee are required to enter into a subordination agreement (a
"Subordination Agreement") perfecting the interest of the lenders under the
Credit Facility. Pursuant to the terms of the Subordination Agreement, the
Trustee may not permit the terms of any of the Securities to be changed in such
a manner as to have an adverse effect upon the rights of the Administrative
Agent or of the lenders under the Credit Facility. In addition, in specified
circumstances, the terms of the Subordination Agreement require that certain
payments be made to the lenders under the Credit Facility before any payments
may be made to Holders and that the Trustee take certain actions in those
circumstances in furtherance of assuring that such payments be made to the
lenders under the Credit Facility before any payments are made to Holders. The
Company hereby authorizes the Trustee to execute and deliver, and the Trustee
shall, on the date hereof, execute and deliver, the form of Subordination
Agreement attached hereto as Exhibit B, the terms of which are incorporated
herein as if stated herein in full.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture. This Indenture shall
---------------------------------------
upon Company Request cease to be of further effect with respect to any series of
Securities specified in such Company Request (except as to any surviving rights
of registration of transfer or exchange of Securities of such series herein
expressly provided for and any right to receive Additional Amounts, as provided
in Section 1010), and the Trustee, upon receipt of a Company Order and at the
expense
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of the Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture as to such series when:
(1) either:
(A) all Securities of such series theretofore authenticated and
delivered and any coupons appertaining thereto (other than (i) coupons
appertaining to Bearer Securities surrendered for exchange for
Registered Securities and maturing after such exchange, whose
surrender is not required or has been waived as provided in Section
305, (ii) Securities of such series and coupons appertaining thereto
which have been destroyed, lost or stolen and which have been replaced
or paid as provided in Section 306, (iii) coupons appertaining to
Securities called for redemption and maturing after the relevant
Redemption Date, whose surrender has been waived as provided in
Section 1106, and (iv) Securities of such series and coupons
appertaining thereto for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such trust, as
provided in Section 1003) have been delivered to the Trustee for
cancellation; or
(B) all Securities of such series and, in the case of clauses
(i) and (ii) below, any coupons appertaining thereto not theretofore
delivered to the Trustee for cancellation which:
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity
within one year, or
(iii) if redeemable at the option of the Company, are to be
called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Company,
and the Company, in the case of clause (i), (ii) or (iii) above, has
irrevocably deposited or caused to be deposited with the Trustee funds
in trust for the purpose, in the currency or currencies, currency unit
or units or composite currency or currencies in which the Securities
of such series are payable, and in an amount sufficient to pay and
discharge the entire indebtedness on such Securities and such coupons
not theretofore delivered to the Trustee for cancellation, for the
principal (and premium or Make-Whole Amount, if any) and interest and
Additional Amounts, if any, to the date of such deposit (in the case
of Securities which have become due and payable) or the Stated
Maturity or Redemption Date, as the case may be;
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(2) The Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) The Company has delivered to the Trustee a Company Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture as to such series have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee and any predecessor Trustee under
Section 606, the obligations of the Company to any Authenticating Agent under
Section 612 and, if money has been deposited with and held by the Trustee
pursuant to subparagraph (B) of paragraph (1) of this Section, the obligations
of the Trustee under Section 402 and the last paragraph of Section 1003, shall
survive.
SECTION 402. Application of Trust Funds. Subject to the provisions of the
--------------------------
last paragraph of Section 1003, all money deposited with the Trustee pursuant to
Section 401 shall be held in trust and applied by it, in accordance with the
provisions of the Securities, the coupons and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as its
own Paying Agent) as the Trustee may determine, to the Persons entitled thereto,
of the principal (and premium or Make-Whole Amount, if any) and interest and
Additional Amounts, if any, for the payment of which such money has been
deposited with or received by the Trustee, but such money need not be segregated
from other funds except to the extent required by law.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default. Subject to any modifications, additions or
-----------------
deletions relating to any series of Securities as contemplated pursuant to
Section 301, "Event of Default," whenever used herein with respect to any
----------------
particular series of Securities, means any one of the following events (whatever
the reason for such Event of Default and whether or not it is voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court or any order, rule or regulation of any administrative or
governmental body):
(1) default in the payment of any interest on or any Additional
Amounts payable in respect of any Security of or within such series or of
any coupon appertaining thereto, when such interest, Additional Amounts or
coupon becomes due and payable, and continuance of such default for a
period of 30 days; or
(2) default in the payment of the principal of (or premium or Make-
Whole Amount, if any, on) any Security of such series when due and payable
at its Maturity; or
(3) default in the deposit of any sinking fund payment, when and as
due by the terms of any Security of such series; or
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(4) default in the conversion of any Securities, if any, when and as
required by the terms of any Securities of such series, and continuance of
such default for a period of 30 days; or
(5) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture with respect to any Security of
such series (other than a covenant or warranty a default in the performance
of which or the breach of which is elsewhere specifically provided for in
this Section), and continuance of such default or breach for a period of 60
days after there has been given, by registered or certified mail, to the
Company by the Trustee or to the Company and the Trustee by the Holders of
at least 25% in principal amount of the Outstanding Securities of such
series, a written notice specifying such default or breach and requiring it
to be remedied and stating that such notice is a "Notice of Default"
hereunder; or
(6) default, under any Indebtedness or under any mortgage, indenture
or other instrument of the Company (including a default with respect to
Securities of any series other than such series) under which there may be
issued or by which there may be secured any Indebtedness (or by any
Subsidiary, the repayment of which the Company has guaranteed or for which
the Company is directly responsible or liable as obligor or guarantor),
whether such Indebtedness exists or is hereafter created, which default
constitutes a failure to pay an aggregate principal amount of $10,000,000
of such Indebtedness when due and payable after the expiration of any
applicable grace period with respect thereto and has resulted in such
Indebtedness in an aggregate principal amount exceeding $10,0000,000
becoming or being declared due and payable prior to the date on which it
would otherwise have become due and payable, without such Indebtedness
having been discharged, or such acceleration having been rescinded or
annulled, within a period of ten days after there has been given, by
registered or certified mail, to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 10% in principal amount
at maturity of the Outstanding Securities of such series a written notice
specifying such default and requiring the Company to cause such
Indebtedness to be discharged or cause such acceleration to be rescinded or
annulled and stating that such notice is a "Notice of Default" hereunder;
or
(7) any nonappealable order shall be made by any competent court or
an effective resolution shall be passed for the winding up or dissolution
of the Company; or:
(8) any nonappealable order shall be made by any competent court or
an effective resolution shall be passed for the winding up or dissolution
of a Significant Subsidiary, other than for purposes of amalgamation,
merger, consolidation, reorganization, reconstruction or other similar
arrangement not involving or arising out of the insolvency of such
Significant Subsidiary; or
(9) the Company or any Significant Subsidiary shall suspend or
announce its intention to suspend payment of its debts generally or shall
be declared or adjudicated by a competent court to be unable, or shall
admit in writing its inability, to pay its debts generally
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as they fall due, or shall be adjudicated or found insolvent by a competent
court or shall enter into any composition or other similar arrangement with
its creditors generally; or
(10) a receiver, administrative receiver, administrator or other
similar official shall be appointed in relation to the Company or any
Significant Subsidiary or in relation to the whole or a substantial part of
the undertaking of assets of the Company or any Significant Subsidiary or a
distress, execution or other process shall be levied or enforced upon or
sued out against, or any encumbrancer shall take possession of, the whole
or a substantial part of the assets of the Company or any Significant
Subsidiary and in any of the foregoing cases it or he shall not be paid out
or discharged within 90 days;
(11) any other Event of Default provided with respect to Securities of
such series.
Neither the Company nor any Significant Subsidiary of the Company shall be
deemed to be unable to pay its debts for purposes of sub-paragraph (8) above if
any such demand is being contested in good faith by the Company or the relevant
Significant Subsidiary with recourse to all appropriate measures and procedures.
SECTION 502. Acceleration of Maturity; Rescission and Annulment. If an
--------------------------------------------------
Event of Default (other than an Event of Default set forth in Section 501(7),
(8), (9) or (10)) with respect to Securities of any series at the time
Outstanding occurs and is continuing, then and in every such case, unless the
principal of all of the Outstanding Securities of such series already has become
due and payable, the Trustee or the Holders of not less than 25% in principal
amount of the Outstanding Securities of such series may declare the principal
(or, if any Securities are Original Issue Discount Securities or Indexed
Securities, such portion of the principal as may be specified in the terms
thereof) of, and the Make-Whole Amount, if any, on, all the Securities of such
series to be due and payable immediately, by a notice in writing to the Company
(and to the Trustee if given by the Holders), and upon any such declaration such
principal or specified portion thereof shall become immediately due and payable.
If an Event of Default set forth in Section 501(7), (8), (9) or (10) occurs and
is continuing with respect to the Securities of any series, then in each such
case, the principal of or, if any Securities are Original Issue Discount
Securities or Indexed Securities, such portion of the principal as may be
specified in the terms thereof, and the Make-Whole Amount, if any, on, all the
Securities of such series shall be due and payable immediately, without notice
to the Company.
At any time after such a declaration of acceleration with respect to
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter
provided in this Article, the Holders of a majority in principal amount of the
Outstanding Securities of such series, by written notice to the Company and the
Trustee, may rescind and annul such declaration and its consequences if:
(1) The Company has paid or deposited with the Trustee a sum
sufficient to pay, in the currency, currency unit or composite currency in
which the Securities of such series are payable (except as otherwise
specified pursuant to Section 301 for the Securities of such series):
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(A) all overdue installments of interest on and any Additional
Amounts payable in respect of all Outstanding Securities of such
series and any coupons appertaining thereto;
(B) the principal of (and premium or Make-Whole Amount, if any,
on) any Outstanding Securities of such series which have become due
otherwise than by such declaration of acceleration and interest
thereon at the rate or rates borne by or provided for in such
Securities;
(C) to the extent that payment of such interest is lawful,
interest on overdue installments of interest and any Additional
Amounts at the rate or rates borne by or provided for in such
Securities; and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
(2) all Events of Default with respect to Securities of such series,
other than the nonpayment of the principal of (or premium or Make-Whole
Amount, if any, on) or interest or Additional Amounts, if any, on
Securities of such series which have become due solely by such declaration
of acceleration, have been cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
resulting therefrom.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Trustee. The Company covenants that if:
- -------
(1) default is made in the payment of any installment of interest or
Additional Amounts, if any, on any Security of any series or any coupon
appertaining thereto when such interest or Additional Amount becomes due
and payable and such default continues for a period of 30 days, or
(2) default is made in the payment of the principal of (or premium or
Make-Whole Amount, if any, on) any Security of any series at its Maturity,
then the Company shall, upon demand of the Trustee, pay to the Trustee, for the
benefit of the Holders of the Securities of such series and any such coupons,
the whole amount then due and payable on such Securities and any such coupons
for principal (and premium or Make-Whole Amount, if any) and interest and
Additional Amounts, if any, with interest on any overdue principal (and premium
or Make-Whole Amount, if any) and, to the extent that payment of such interest
is legally enforceable, on any overdue installments of interest or Additional
Amounts, if any, at the rate or rates borne by or provided for in such
Securities, and, in addition thereto, such further amount as is sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
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If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust for the benefit of
the Holders of the Securities of such series and any such coupons, may institute
a judicial proceeding for the collection of the sums so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor on the Securities of such series and
collect the moneys adjudged or decreed to be payable in the manner provided by
law out of the property of the Company or any other obligor on the Securities of
such series, wherever situated.
If an Event of Default with respect to Securities of any series occurs and
is continuing, the Trustee may in its discretion proceed to protect and enforce
its rights and the rights of the Holders of Securities of such series and any
coupons appertaining thereto by such appropriate judicial proceedings as the
Trustee deems most effectual to protect and enforce any such rights, whether for
the specific enforcement of any covenant or agreement in this Indenture or in
aid of the exercise of any power granted herein, or to enforce any other proper
remedy.
SECTION 504. Trustee May File Proofs of Claim. In case of the pendency of
--------------------------------
any receivership, insolvency, liquidation, bankruptcy, reorganization,
arrangement, adjustment, composition or other judicial proceeding relative to
the Company or any other obligor on the Securities of such series or the
property of the Company or of such other obligor or their creditors, the Trustee
(irrespective of whether the principal of the Securities of any series is then
due and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Trustee has made any demand on the Company for the
payment of overdue principal, premium or Make-Whole Amount, if any, or interest
or Additional Amounts, if any) shall be entitled and empowered, by intervention
in such proceeding or otherwise:
(1) to file and prove a claim for the whole amount, or such lesser
amount as may be provided for in the Securities of such series, of
principal (and premium or Make-Whole Amount, if any) and interest and
Additional Amounts, if any, owing and unpaid in respect of the Securities
of such series and to file such other papers or documents and take such
other action, including participating as a member of any official creditors
committee appointed in the matter, as it may deem necessary or advisable in
order to have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and of the Holders allowed in such
judicial proceeding; and
(2) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator (or
other similar official) in any such judicial proceeding is hereby authorized by
each Holder of Securities of such series and any coupons appertaining thereto to
make such payments to the Trustee, and in the event that the Trustee consents to
the making of such payments directly to the Holders, to pay to the Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the
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Trustee and any predecessor Trustee, their agents and counsel, and any other
amounts due the Trustee or any predecessor Trustee under Section 606.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder of a Security
or coupon any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or coupons or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder of a
Security or coupon in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of Securities or
--------------------------------------------------------------
Coupons. All rights of action and claims under this Indenture or any of the
- -------
Securities or any coupons may be prosecuted and enforced by the Trustee without
the possession of any of the Securities or coupons or the production thereof in
any proceeding relating thereto, and any such proceeding instituted by the
Trustee shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the Holders of the Securities and
coupons in respect of which such judgment has been recovered.
SECTION 506. Application of Money Collected. Any money collected by the
------------------------------
Trustee pursuant to this Article shall be applied in the following order, at the
date or dates fixed by the Trustee and, in case of the distribution of such
money on account of principal (or premium or Make-Whole Amount, if any) or
interest or Additional Amounts, if any, on presentation of the Securities or
coupons, or both, as the case may be, and the notation thereon of the payment if
only partially paid and upon surrender thereof if fully paid:
(1) to the payment of all amounts due the Trustee and any predecessor
Trustee under Section 606;
(2) to the payment of the amounts then due and unpaid on the
Securities and coupons for principal (and premium or Make-Whole Amount, if
any) and interest and Additional Amounts, if any, payable, in respect of
which or for the benefit of which such money has been collected, ratably,
without preference or priority of any kind, according to the aggregate
amounts due and payable on such Securities and coupons for principal (and
premium or Make-Whole Amount, if any) and interest and Additional Amounts,
if any, respectively; and
(3) to the payment of the remainder, if any, to the Company.
SECTION 507. Limitation on Suits. No Holder of any Security of any series
-------------------
or any coupon appertaining thereto shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless:
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(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default with respect to the Securities of such
series;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities of such series have made written request to the
Trustee to institute proceedings in respect of such Event of Default in its
own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a majority
in principal amount of the Outstanding Securities of such series;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other of
such Holders, or to obtain or to seek to obtain priority or preference over any
other of such Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all such
Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium
------------------------------------------------------------
or Make-Whole Amount, Interest and Additional Amounts. Notwithstanding any other
- -----------------------------------------------------
provision in this Indenture, the Holder of any Security or coupon shall have the
right which is absolute and unconditional to receive payment of the principal of
(and premium or Make-Whole Amount, if any, on ) and (subject to Sections 305 and
307) interest and Additional Amounts, if any, on such Security or payment of
such coupon on or after the respective due dates expressed in such Security or
coupon (or, in the case of redemption, on the Redemption Date) and to institute
suit for the enforcement of any such payment, and such rights shall not be
impaired or affected without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies. If the Trustee or any
----------------------------------
Holder of a Security or coupon has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case the Company, the Trustee and the
Holders of Securities and coupons shall, subject to any determination in such
proceeding, be restored severally and respectively to their former positions
hereunder and thereafter all rights and remedies of the Trustee and the Holders
shall continue as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative. Except as otherwise provided
------------------------------
with respect to the replacement or payment of mutilated, destroyed, lost or
stolen Securities or coupons in the last
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paragraph of Section 306, no right or remedy herein conferred on or reserved to
the Trustee or to the Holders of Securities or coupons is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver. No delay or omission of the
----------------------------
Trustee or of any Holder of any Security or coupon to exercise any right or
remedy accruing upon any Event of Default shall impair any such right or remedy
or constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article or by law to the Trustee or to the
Holders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Holders of Securities or coupons, as the
case may be.
SECTION 512. Control by Holders of Securities. The Holders of not less than
--------------------------------
a majority in principal amount of the Outstanding Securities of any series shall
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred on the Trustee with respect to the Securities of such series, provided
--------
that:
(1) such direction is not in conflict with any rule of law or with
this Indenture,
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
(3) the Trustee need not take any action which might involve it in
personal liability or be unduly prejudicial to the Holders of Securities of
such series not joining therein (but the Trustee shall have no obligation
as to the determination of such undue prejudice).
SECTION 513. Waiver of Past Defaults. The Holders of at least a majority in
-----------------------
principal amount of the Outstanding Securities of any series may on behalf of
the Holders of all the Securities of such series and any coupons appertaining
thereto waive any past default hereunder with respect to such series and its
consequences, except a default:
(1) in the payment of the principal of (or premium or Make-Whole
Amount, if any, on) or interest or Additional Amounts, if any, on any
Security of such series or any coupons appertaining thereto; or
(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Security of such series affected thereby.
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Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or Event of Default or impair any right resulting therefrom.
SECTION 514. Waiver of Usury, Stay or Extension Laws. The Company covenants
---------------------------------------
(to the extent which it may lawfully do so) that it shall not at any time insist
on, or plead, or in any manner whatsoever claim or take the benefit or advantage
of, any usury, stay or extension law wherever enacted, now or at any time
hereafter in force, which may affect the covenants or the performance of this
Indenture; and the Company (to the extent which it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
shall not hinder, delay or impede the execution of any power herein granted to
the Trustee, but shall suffer and permit the execution of every such power as
though no such law had been enacted.
SECTION 515. Undertaking for Costs. All parties to this Indenture agree,
---------------------
and each Holder of any Security by such Holder's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Trustee for any action taken or omitted by it as Trustee, the filing
by any party litigant in such suit of any undertaking to pay the costs of such
suit, and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such suit
having due regard to the merits and good faith of the claims or defenses made by
such party litigant; but the provisions of this Section shall not apply to any
suit instituted by the Trustee, to any suit instituted by any Holder, or group
of Holders, holding in the aggregate more than 10% in principal amount of the
Outstanding Securities, or to any suit instituted by any Holder for the
enforcement of the payment of the principal of (or premium or Make-Whole Amount,
if any, on) or interest or Additional Amounts, if any, on any Security on or
after the respective Stated Maturities expressed in such Security (or, in the
case of redemption, on or after the Redemption Date).
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults. Within 90 days after the occurrence of any
------------------
default hereunder with respect to the Securities of any series, the Trustee
shall give to the Holders of the Securities of such series, and in the manner
and to the extent provided in Section 313(c) of the Trust Indenture Act to the
extent this Indenture is qualified (transmitted by mail to all Holders of
Securities, as the names and addresses of such Holders appear upon the Security
Register and to the extent the Securities are Bearer Securities, such Holders of
Securities as have, within the two years preceding such transmission, filed
their names and addresses with the Trustee for that purpose and to all Holders
of Securities whose names and addresses have been furnished to or received by
the Trustee pursuant to Article VII) notice of such default hereunder known to
the Trustee, unless such default has been cured or waived; provided, however,
-------- -------
that, except in the case of a default in the payment of the principal of (or
premium or Make-Whole Amount, if any, on) or interest or
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Additional Amounts, if any, on any Security of such series, or in the payment of
any sinking fund installment with respect to the Securities of such series, the
Trustee shall be protected in withholding such notice if and so long as
Responsible Officers of the Trustee in good faith determine that the withholding
of such notice is in the interests of the Holders of the Securities and coupons
of such series; and provided, further, that in the case of any default or breach
-------- -------
of the character specified in clause (4) of Section 501 with respect to the
Securities of such series and any coupons appertaining thereto, no such notice
to Holders shall be given until at least 60 days after the occurrence thereof.
For the purposes of this Section, the term "default" means any event which is,
-------
or after notice or lapse of time or both would become, an Event of Default with
respect to the Securities of such series.
SECTION 602. Certain Rights of Trustee. Subject to the provisions of
-------------------------
Section 315(a) of the Trust Indenture Act, to the extent this Indenture is
qualified, and with respect to Securities of any series, except during the
continuance of an Event of Default with respect to Securities of such series:
(1) the Trustee shall perform only such duties as are expressly
undertaken by it to perform under this Indenture;
(2) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, coupon or other paper or document believed by it to
be genuine and to have been signed or presented by the proper party or
parties;
(3) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order (other than
delivery of any Security, together with any coupons appertaining thereto,
to the Trustee for authentication and delivery pursuant to Section 303,
which shall be sufficiently evidenced as provided therein) and any
resolution of the Board of Directors shall be sufficiently evidenced by a
Board Resolution;
(4) whenever, in the administration of this Indenture, the Trustee
deems it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence is specifically prescribed herein) may, in the absence of bad
faith on its part, rely on a Company Certificate;
(5) the Trustee may consult with counsel and the advice of such
counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;
(6) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders of Securities of any series or any coupons
appertaining thereto pursuant to this Indenture, unless such Holders have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with
such request or direction;
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(7) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, coupon or other paper or document, but the Trustee,
in its discretion, may make such further inquiry or investigation into such
facts or matters as it may see fit, and, if the Trustee determines to make
such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or
attorney;
(8) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder;
(9) the Trustee shall not be liable for any action taken, suffered or
omitted by it in good faith and reasonably believed by it to be authorized
or within the discretion or rights or powers conferred on it by this
Indenture;
(10) The Trustee shall not be deemed to have knowledge of any event or
fact upon the occurrence of which it may be required to take action
hereunder or any other fact or matter, including without limitation, any
such event or fact requiring an adjustment in any conversion rate or
conversion price, unless it has actual knowledge of the occurrence of such
event or fact; and
(11) The Trustee shall not be required to expend or risk its own funds
or otherwise incur any financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights or powers, if it
has reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured
to it.
SECTION 603. Not Responsible for Recitals or Issuance of Securities. The
------------------------------------------------------
recitals contained herein and in the Securities, except the Trustee's
certificate of authentication, and in any coupons shall be taken as the
statements of the Company and neither the Trustee nor any Authenticating Agent
assumes any responsibility for their correctness. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Securities or any coupons, except that the Trustee represents that it is duly
authorized to execute and deliver this Indenture, authenticate the Securities
and perform its obligations hereunder. Neither the Trustee nor any
Authenticating Agent shall be accountable for the use or application by the
Company of Securities or the proceeds thereof.
SECTION 604. May Hold Securities. The Trustee, any Paying Agent, Security
-------------------
Registrar, Authenticating Agent or any other agent of the Company, in its
individual or any other capacity, may become the owner or pledgee of Securities
and coupons and, subject to Sections 310(b) and 311 of the Trust Indenture Act
to the extent this Indenture is qualified, may otherwise deal with the Company
with the same rights it would have if it were not Trustee, Paying Agent,
Security Registrar, Authenticating Agent or such other agent.
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SECTION 605. Money Held in Trust; Permitted Investments. Money held by the
------------------------------------------
Trustee in trust hereunder need not be segregated from other funds except to the
extent required by law. The Trustee shall be under no liability for interest on,
or investment of, any money received by it hereunder except as otherwise agreed
with and for the sole benefit of the Company.
Pending their use under this Indenture, moneys held by the Trustee
hereunder may be invested in Permitted Investments maturing or redeemable at the
option of the holder at or before the time when such moneys are expected to be
needed by the Trustee and shall be so invested pursuant to a Company Order if no
Event of Default known to the Trustee then exists under this Indenture and
otherwise at the discretion of the Trustee. Any investment pursuant to this
Section 605 shall be held by the Trustee as a part of the moneys held by the
Trustee hereunder, as applicable, and shall be sold or redeemed to the extent
necessary to make payments or transfers or anticipated payments from such
moneys.
The Trustee shall be entitled to rely on all written investment
instructions provided by the Company hereunder, and shall have no duty to
monitor the compliance thereof with the restrictions set forth herein. The
Trustee shall have no responsibility or liability for any depreciation in the
value of any investment or for any loss, direct or indirect, resulting from any
investment made in accordance with a Company Order. The Trustee shall be
without liability to the Company or any Holder or any other person in the event
that any investment made in accordance with a Company Order shall cause any
person to incur any liability or rebates or other monies payable pursuant to the
United States Internal Revenue Code of 1986, as amended.
Any interest realized on investments and any profit realized upon the sale
or other disposition thereof shall be credited to moneys held by the Trustee
hereunder and any loss shall be charged thereto.
SECTION 606. Compensation and Reimbursement. The Company agrees:
------------------------------
(1) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee
of an express trust);
(2) except as otherwise expressly provided herein, to reimburse each
of the Trustee and any predecessor Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by it in
connection with its administration of the trust hereunder (including the
reasonable compensation and the expenses and disbursements of its agents
and counsel), except to the extent any such expense, disbursement or
advance may be attributable to its negligence or bad faith; and
(3) to indemnify each of the Trustee and any predecessor Trustee for,
and to hold it harmless against, any loss, liability or expense, arising
out of or in connection with the acceptance or administration of the trust
or trusts or the performance of its duties hereunder, including the costs
and expenses of defending itself against any claim or liability in
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connection with the exercise or performance of any of its powers or duties
hereunder except to the extent any such loss, liability or expense may be
attributable to its own negligence or bad faith.
As security for the performance of the obligations of the Company under
this Section, the Trustee shall have a lien prior to the Securities on all
property and funds held or collected by the Trustee as such, except funds held
in trust for the payment of principal of (or premium or Make-Whole Amount, if
any, on) or interest or Additional Amounts, if any, on particular Securities or
any coupons.
The provisions of this Section shall survive the termination of this
Indenture.
SECTION 607. Trustee Eligibility. There shall at all times be a Trustee
-------------------
hereunder which, to the extent the Indenture is qualified, is eligible to act as
Trustee under Section 310(a) of the Trust Indenture Act and that has a combined
capital and surplus of at least $50,000,000. If such Trustee publishes reports
of condition at least annually, pursuant to law or the requirements of federal,
state, territorial or District of Columbia supervising or examining authority,
then for the purposes of this Section, the combined capital and surplus of such
Trustee shall be deemed to be its combined capital and surplus as set forth in
its most recent report of condition so published. No obligor on the Securities
or Affiliate of any such obligor shall serve as Trustee on such Securities. If
at any time the Trustee ceases to be eligible in accordance with the provisions
of this Section, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article.
SECTION 608. Disqualification; Conflicting Interest.
--------------------------------------
(a) If the Trustee has or shall acquire any conflicting interest, as
defined in this Section, with respect to the Securities of any series, it
shall, within 90 days after ascertaining that it has such conflicting
interest, either eliminate such conflicting interest or resign with respect
to the Securities of that series in the manner and with the effect
hereinafter specified in this Article.
(b) In the event that the Trustee shall fail to comply with the
provisions of Subsection (a) of this Section with respect to the Securities
of any series, the Trustee shall, within ten days after the expiration of
such 90-day period, transmit by mail to the Company and all Holders of
Securities of that series, as their names and addresses appear in the
Security Register, notice of such failure.
(c) For the purposes of this Section, the Trustee shall be deemed to
have a conflicting interest with respect to the Securities of any series if
the Securities of such series are in default (as determined in accordance
with the provisions of Section 501, but exclusive of any period of grace or
-----------
requirement of notice) and
(1) the Trustee is trustee under this Indenture with respect to
the Outstanding Securities of any series other than that series or is
trustee under another
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indenture under which any other securities or certificates of interest
or participation in any other securities of the Company are
outstanding, unless such other indenture is a collateral trust
indenture under which the only collateral consists of Securities
issued under this Indenture;
(2) the Trustee or any of its directors or executive officers is
an obligor upon the Securities or an underwriter for the Company upon
the Securities;
(3) the Trustee directly or indirectly controls or is directly
or indirectly controlled by or is under direct or indirect common
control with the Company or an underwriter for the Company;
(4) the Trustee or any of its directors or executive officers is
a director, officer, partner, employee, appointee, or representative
of the Company, or of an underwriter (other than the Trustee itself)
for the Company who is currently engaged in the business of
underwriting, except that (i) one individual may be a director or an
executive officer, or both, of the Trustee and a director or an
executive officer, or both, of the Company but may not be at the same
time an executive officer of both the Trustee and the Company; (ii) if
and so long as the number of directors of the Trustee in office is
more than nine, one additional individual may be a director or an
executive officer, or both, of the Trustee and a director of the
Company; and (iii) the Trustee may be designated by the Company or by
any underwriter for the Company to act in the capacity of transfer
agent, registrar, custodian, paying agent, fiscal agent, escrow agent
or depositary, or in any other similar capacity, or, subject to the
provisions of paragraph (1) of this Subsection, to act as trustee,
whether under an indenture or otherwise;
(5) 10% or more of the voting securities of the Trustee is
beneficially owned either by the Company or by any director, partner
or executive officer thereof, or 20% or more of such voting securities
is beneficially owned, collectively, by any two or more of such
persons; or 10% or more of the voting securities of the Trustee is
beneficially owned either by an underwriter for the Company or by any
director, partner or executive officer thereof, or is beneficially
owned, collectively, by any two or more such persons;
(6) the Trustee is the beneficial owner of, or holds as
collateral security for an obligation which is in default (as
hereinafter in this Subsection defined), (i) 5% or more of the voting
securities, or 10% or more of any other class of security, of the
Company not including the Securities issued under this Indenture and
securities issued under any other indenture for which the Trustee is
also trustee, or (ii) 10% or more of any class of security of an
underwriter for the Company;
(7) the Trustee is the beneficial owner of, or holds as
collateral security for an obligation which is in default (as
hereinafter in this Subsection defined), 5%
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or more of the voting securities of any person who, to the knowledge
of the Trustee, owns 10% or more of the voting securities of, or
controls directly or indirectly or is under direct or indirect common
control with, the Company;
(8) the Trustee is the beneficial owner of, or holds as
collateral security for an obligation which is in default (as
hereinafter in this Subsection defined), 10% or more of any class of
security of any person who, to the knowledge of the Trustee, owns 50%
or more of the voting securities of the Company; or
(9) the Trustee owns, on the date of an Event of Default upon
the Securities of any series or any anniversary of such date while
such default upon the Securities remains outstanding, in the capacity
of executor, administrator, testamentary or inter vivos trustee,
guardian, committee or conservator, or in any other similar capacity,
an aggregate of 25% or more of the voting securities, or of any class
of security, of any person, the beneficial ownership of a specified
percentage of which would have constituted a conflicting interest
under paragraph (6), (7) or (8) of this Subsection. As to any such
securities of which the Trustee acquired ownership through becoming
executor, administrator or testamentary trustee of an estate which
included them, the provisions of the preceding sentence shall not
apply, for a period of two years from the date of such acquisition, to
the extent that such securities included in such estate do not exceed
25% of such voting securities or 25% of any such class of security.
Promptly after the dates of any such default and annually in each
succeeding year that the Securities remain in default, the Trustee
shall make a check of its holdings of such securities in any of the
above-mentioned capacities as of such dates. If the Company fails to
make payment in full of the principal of or, if any Securities are
Original Issue Discount Securities or Indexed Securities, such portion
of the principal as may be specified in the terms thereof, premium (if
any), or interest on any of the Securities of any series when and as
the same becomes due and payable, and such failure continues for 30
days thereafter, the Trustee shall make a prompt check of its holdings
of such securities in any of the above-mentioned capacities as of the
date of the expiration of such 30-day period, and after such date,
notwithstanding the foregoing provisions of this paragraph, all such
securities so held by the Trustee, with sole or joint control over
such securities vested in it, shall, but only so long as such failure
shall continue, be considered as though beneficially owned by the
Trustee for the purposes of paragraphs (6), (7) and (8) of this
Subsection.
The specification of percentages in paragraphs (5) to (9), inclusive,
of this Subsection shall not be construed as indicating that the ownership
of such percentages of the securities of a person is or is not necessary or
sufficient to constitute direct or indirect control for the purposes of
paragraphs (3) or (7) of this Subsection.
For the purposes of paragraphs (6), (7), (8) and (9) of this
Subsection only, (i) the terms "security" and "securities" shall include
only such securities as are generally known
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as corporate securities, but shall not include any note or other evidence
of indebtedness issued to evidence an obligation to repay moneys lent to a
person by one or more banks, trust companies or banking firms, or any
certificate of interest or participation in any such note or evidence of
indebtedness; (ii) an obligation shall be deemed to be "in default" when a
default in payment of principal shall have continued for 30 days or more
and shall not have been cured; and (iii) the Trustee shall not be deemed to
be the owner or holder of (A) any security which it holds as collateral
security, as trustee or otherwise, for an obligation which is not in
default as defined in clause (ii) above, or (B) any security which it holds
as collateral security under this Indenture, irrespective of any default
hereunder, or (C) any security which it holds as agent for collection, or
as custodian, escrow agent or depositary, or in any similar representative
capacity.
(d) For the purposes of this Section:
(1) The term "underwriter," when used with reference to the
Company, means every person who, within one year prior to the time as
of which the determination is made, has purchased from the Company
with a view to, or has offered or sold for the Company in connection
with, the distribution of any security of the Company outstanding at
such time, or has participated or has had a direct or indirect
participation in any such undertaking, or has participated or has had
a participation in the direct or indirect underwriting of any such
undertaking, but such term shall not include a person whose interest
was limited to a commission from an underwriter or dealer not in
excess of the usual and customary distributors' or sellers'
commission.
(2) The term "director" means any director of a corporation or
any individual performing similar functions with respect to any
organization, whether incorporated or unincorporated.
(3) The term "person" means an individual, a corporation, a
partnership, an association, a joint-stock company, a trust, an
unincorporated organization or a government or political subdivision
thereof. As used in this paragraph, the term "trust" shall include
only a trust where the interest or interests of the beneficiary or
beneficiaries are evidenced by a security.
(4) The term "voting security" means any security presently
entitling the owner or holder thereof to vote in the direction or
management of the affairs of a person, or any security issued under or
pursuant to any trust, agreement or arrangement whereby a trustee or
trustees or agent or agents for the owner or holder of such security
are currently entitled to vote in the direction or management of the
affairs of a person.
(5) The term "Company" means any obligor upon the Securities of
any series.
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(6) The term "executive officer" means the president, every vice
president, every trust officer, the cashier, the secretary and the
treasurer of a corporation, and any individual customarily performing
similar functions with respect to any organization whether
incorporated or unincorporated, but shall not include the chairman of
the board of directors.
(e) The percentages of voting securities and other securities
specified in this Section shall be calculated in accordance with the
following provisions:
(1) A specified percentage of the voting securities of the
Trustee, the Company or any other person referred to in this
Section (each of whom is referred to as a "person" in this
paragraph) means such amount of the outstanding voting securities
of such person as entitles the holder or holders thereof to cast
such specified percentage of the aggregate votes which the
holders of all the outstanding voting securities of such person
are entitled to cast in the direction or management of the
affairs of such person.
(2) A specified percentage of a class of securities of a
person means such percentage of the aggregate amount of
securities of the class outstanding.
(3) The term "amount," when used in regard to securities,
means the principal amount if relating to evidences of
indebtedness, the number of shares if relating to capital shares
and the number of units if relating to any other kind of
security.
(4) The term "outstanding" means issued and not held by or
for the account of the issuer. The following securities shall not
be deemed outstanding within the meaning of this definition:
(i) securities of an issuer held in a sinking fund
relating to securities of the issuer of the same class;
(ii) securities of an issuer held in a sinking fund
relating to another class of securities of the issuer, if the
obligation evidenced by such other class of securities is not in
default as to principal or interest or otherwise;
(iii) securities pledged by the issuer thereof as
security for an obligation of the issuer not in default as to
principal or interest or otherwise; and
(iv) securities held in escrow if placed in escrow by
the issuer thereof;
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provided, however, that any voting securities of an issuer shall
-------- -------
be deemed outstanding if any person other than the issuer is
entitled to exercise voting rights thereof.
(5) A security shall be deemed to be of the same class as
another security if both securities confer upon the holder or
holders thereof substantially the same rights and privileges;
provided, however, that, in the case of secured evidences of
-------- -------
indebtedness, all of which are issued under a single indenture,
differences in the interest rates or maturity dates of various
series thereof shall not be deemed sufficient to constitute such
series different classes and provided, further, that, in the case
of unsecured evidences of indebtedness, differences in the
interest rates or maturity dates thereof shall not be deemed
sufficient to constitute them securities of different classes,
whether or not they are issued under a single indenture.
SECTION 609. Resignation and Removal; Appointment of Successor.
-------------------------------------------------
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 609.
(b) The Trustee may resign at any time with respect to the Securities
of one or more series by giving written notice thereof to the Company. If
an instrument of acceptance by a successor Trustee has not been delivered
to the Trustee within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time with respect to the
Securities of any series by Act of the Holders of a majority in principal
amount of the Outstanding Securities of such series delivered to the
Trustee and the Company.
(d) If at any time:
(1) the Trustee fails to comply with the provisions of Section
608 and, if the Indenture is qualified, Section 310(b) of the Trust
Indenture Act, after written request therefor by the Company or any
Holder of a Security who has been a bona fide Holder of a Security for
at least six months, or
(2) the Trustee ceases to be eligible under Section 607 and
fails to resign after written request therefor by the Company or any
Holder of a Security who has been a bona fide Holder of a Security for
at least six months, or
(3) the Trustee becomes incapable of acting or is adjudged a
bankrupt or insolvent or a receiver of the Trustee or of its property
is appointed or any public
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officer takes charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or
liquidation,
then, in any such case, (i) the Company, by or pursuant to a Board
Resolution, may remove the Trustee and appoint a successor Trustee with
respect to all Securities or (ii) subject to Section 515 and, to the extent
the Indenture is qualified, Section 315(c) of the Trust Indenture Act, any
Holder of a Security who has been a bona fide Holder of a Security for at
least six months may, on behalf of such Holder and all others similarly
situated, petition any court of competent jurisdiction for the removal of
the Trustee with respect to all Securities and the appointment of a
successor Trustee or Trustees.
(e) If the Trustee resigns, is removed or becomes incapable of
acting, or if a vacancy occurs in the office of Trustee for any cause with
respect to the Securities of one or more series, the Company, by or
pursuant to a Board Resolution, shall promptly appoint a successor Trustee
or Trustees with respect to the Securities of such series (it being
understood that any such successor Trustee may be appointed with respect to
the Securities of one or more or all of such series and that at any time
there shall be only one Trustee with respect to the Securities of any
particular series). If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee with
respect to the Securities of any series is appointed by Act of the Holders
of a majority in principal amount of the Outstanding Securities of such
series delivered to the Company and the retiring Trustee, the successor
Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee with respect to the Securities of
such series and to that extent supersede the successor Trustee appointed by
the Company. If no successor Trustee with respect to the Securities of any
series has been so appointed by the Company or the Holders of Securities
and accepted appointment in the manner hereinafter provided, any Holder of
a Security who has been a bona fide Holder of a Security of such series for
at least six months may, on behalf of such Holder and all others similarly
situated, petition any court of competent jurisdiction for the appointment
of a successor Trustee with respect to Securities of such series.
(f) The Company shall give notice of each resignation and each removal
of the Trustee with respect to the Securities of any series and each
appointment of a successor Trustee with respect to the Securities of any
series in the manner provided for notices to the Holders of Securities in
Section 106. Each notice shall include the name of the successor Trustee
with respect to the Securities of such series and the address of its
Corporate Trust Office.
SECTION 610. Acceptance of Appointment by Successor.
--------------------------------------
(a) In case of the appointment hereunder of a successor Trustee with
respect to all Securities, every such successor Trustee shall execute,
acknowledge and deliver to the Company and the retiring Trustee an
instrument accepting such appointment, and, thereupon, the resignation or
removal of the retiring Trustee shall become effective and such successor
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Trustee, without any further act, deed or conveyance, shall become vested
with all the rights, powers, trusts and duties of the retiring Trustee;
but, on request of the Company or the successor Trustee, such retiring
Trustee shall, upon payment of its charges, execute and deliver an
instrument transferring to such successor Trustee all the rights, powers
and trusts of the retiring Trustee, and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such
retiring Trustee hereunder, subject nevertheless to its claim, if any,
provided for in Section 606.
(b) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more (but not all) series, the Company,
the retiring Trustee and each successor Trustee with respect to the
Securities of one or more series shall execute and deliver a Supplemental
Indenture, pursuant to Article Nine, wherein each successor Trustee shall
accept such appointment and which (i) shall contain such provisions as are
necessary or desirable to transfer and confirm to, and to vest in, each
successor Trustee all the rights, powers, trusts and duties of the retiring
Trustee with respect to the Securities of such series to which the
appointment of such successor Trustee relates, (ii) if the retiring Trustee
is not retiring with respect to all Securities, shall contain such
provisions as are necessary or desirable to confirm that all the rights,
powers, trusts and duties of the retiring Trustee with respect to the
Securities of such series as to which the retiring Trustee is not retiring
shall continue to be vested in the retiring Trustee and (iii) shall add to
or change any of the provisions of this Indenture as are necessary to
provide for or facilitate the administration of the trusts hereunder by
more than one Trustee, it being understood that nothing herein or in such
Supplemental Indenture shall constitute such Trustees co-trustees of the
same trust and that each such Trustee shall be trustee of a trust or trusts
hereunder separate and apart from any trust or trusts hereunder
administered by any other such Trustee; and, upon the execution and
delivery of such Supplemental Indenture, the resignation or removal of the
retiring Trustee shall become effective to the extent provided therein and
each such successor Trustee, without any further act, deed or conveyance,
shall become vested with all the rights, powers, trusts and duties of the
retiring Trustee with respect to the Securities of such series to which the
appointment of such successor Trustee relates; but, on request of the
Company or any successor Trustee, such retiring Trustee shall duly assign,
transfer and deliver to such successor Trustee all property and money held
by such retiring Trustee hereunder with respect to the Securities of such
series to which the appointment of such successor Trustee relates.
(c) Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts
referred to in paragraph (a) or (b) of this Section, as the case may be.
(d) No successor Trustee shall accept its appointment unless at the
time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.
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SECTION 611. Merger, Conversion, Consolidation or Succession to Business.
-----------------------------------------------------------
Any corporation into which the Trustee may be merged or converted or with which
it may be consolidated, or any corporation resulting from any merger, conversion
or consolidation to which the Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder; provided that such
--------
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities or coupons have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities or coupons so authenticated with
the same effect as if such successor Trustee had itself authenticated such
Securities or coupons. In case any Securities or coupons have not been
authenticated by such predecessor Trustee, any such successor Trustee may
authenticate and deliver such Securities or coupons, in either its own name or
that of its predecessor Trustee, with the full force and effect which this
Indenture provides for the certificate of authentication of the Trustee.
SECTION 612. Appointment of Authenticating Agent. At any time when any of
-----------------------------------
the Securities remain Outstanding, the Trustee may appoint an Authenticating
Agent or Agents with respect to one or more series of Securities which shall be
authorized to act on behalf of the Trustee to authenticate Securities of such
series issued upon exchange, registration of transfer or partial redemption or
repayment thereof, and Securities so authenticated shall be entitled to the
benefits of this Indenture and shall be valid and obligatory for all purposes as
if authenticated by the Trustee hereunder. Any such appointment shall be
evidenced by an instrument in writing signed by a Responsible Officer of the
Trustee, a copy of which instrument shall be promptly furnished to the Company.
Whenever reference is made in this Indenture to the authentication and delivery
of Securities by the Trustee or the Trustee's certificate of authentication,
such reference shall be deemed to include authentication and delivery on behalf
of the Trustee by an Authenticating Agent and a certificate of authentication
executed on behalf of the Trustee by an Authenticating Agent. Each
Authenticating Agent shall be acceptable to the Company and, except as may
otherwise be provided pursuant to Section 301, shall at all times be a bank or
trust company or corporation organized and doing business and in good standing
under the laws of the United States of America or of any state thereof or the
District of Columbia, authorized under such laws to act as Authenticating Agent,
having a combined capital and surplus of not less than $50,000,000 and subject
to supervision or examination by federal, state or District of Columbia
authorities. If such Authenticating Agent publishes reports of condition at
least annually, pursuant to law or the requirements of the aforesaid supervising
or examining authority, then for the purposes of this Section, the combined
capital and surplus of such Authenticating Agent shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. In case at any time an Authenticating Agent ceases to be eligible
in accordance with the provisions of this Section, such Authenticating Agent
shall resign immediately in the manner and with the effect specified in this
Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or
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consolidation to which such Authenticating Agent is a party, or any corporation
succeeding to the corporate agency or corporate trust business of an
Authenticating Agent, shall continue to be an Authenticating Agent, provided
such corporation is otherwise eligible under this Section, without the execution
or filing of any paper or further act on the part of the Trustee or the
Authenticating Agent.
An Authenticating Agent for any series of Securities may at any time resign
by giving written notice of resignation to the Trustee for such series and the
Company. The Trustee for any series of Securities may at any time terminate the
agency of an Authenticating Agent by giving written notice of termination to
such Authenticating Agent and the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent ceases to be eligible in accordance with the provisions of
this Section, the Trustee for such series may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall give notice of such
appointment to all Holders of Securities of or within the series with respect to
which such Authenticating Agent will serve in the manner set forth in Section
106. Any successor Authenticating Agent upon acceptance of its appointment
hereunder shall become vested with all the rights, powers and duties of its
predecessor hereunder, with like effect as if originally named as an
Authenticating Agent herein. No successor Authenticating Agent shall be
appointed unless eligible under the provisions of this Section.
The Company agrees to pay to each Authenticating Agent from time to time
reasonable compensation including reimbursement of its reasonable expenses for
its services under this Section.
If an appointment with respect to one or more series is made pursuant to
this Section, the Securities of such series may have endorsed thereon, in
addition to or in lieu of the Trustee's certificate of authentication, an
alternate certificate of authentication substantially in the following form:
This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.
[name of Trustee],
as Trustee
By:____________________________,
as Authenticating Agent
By:____________________________
Authorized Officer
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SECTION 613. More Than One Trustee. At any time when more than one Person
---------------------
is acting as Trustee under this Indenture, no Trustee of one series will be
responsible for any of the acts or omissions of the Trustee of another series or
have any liability to the holders of Notes of such other series.
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ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Disclosure of Names and Addresses of Holders. Every Holder of
--------------------------------------------
Securities or coupons, by receiving and holding the same, agrees with the
Company and the Trustee that neither the Company nor the Trustee nor any
Authenticating Agent nor any Paying Agent nor any Security Registrar shall be
held accountable by reason of the disclosure of any information as to the names
and addresses of Holders of Securities in accordance with Section 312 of the
Trust Indenture Act to the extent this Indenture is qualified and to Section 702
of this Indenture, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made in accordance with Section 702.
SECTION 702. Preservation of Information; Communications to Holders.
------------------------------------------------------
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders of each series received by
the Trustee in its capacity as Security Registrar.
(b) If three or more Holders, or three or more Persons who own a
beneficial interest in a global Security, of any series (herein referred
to as "applicants") apply in writing to the Trustee and furnish to the
Trustee reasonable proof that each such applicant has owned a Security, or
a beneficial interest in a global Security, of such series for a period of
at least six months preceding the date of such application, and such
application states that the applicants desire to communicate with other
Holders, or Persons who own a beneficial interest in a global Security, of
such series, with respect to their rights under this Indenture or under
such Securities and is accompanied by a copy of the form of proxy or other
communication which such applicants propose to transmit, then the Trustee
shall, within five business days after the receipt of such application, at
its election, either
(i) afford such applicants access to the information preserved
at the time by the Trustee with respect to such series in accordance
with Section 702(a), or
(ii) inform such applicants as to the approximate number of
Holders whose names and addresses appear in the information preserved
at the time by the Trustee with respect to such series in accordance
with Section 702(a), and as to the approximate cost of mailing to such
Holders the form of proxy or other communication, if any, specified in
such application.
If the Trustee shall elect not to afford such applicants access to
such information, the Trustee shall, upon the written request of such
applicants, mail to each Holder of such series whose name and address
appear in the information preserved at the time by the Trustee with
respect to such series in accordance with Section 702(a) a copy of the
form of proxy or other communication which is specified in such request,
with reasonable promptness after a tender to the Trustee of the material
to be mailed and of payment, or provision for the payment, of
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the reasonable expenses of mailing, unless within five days after such
tender the Trustee shall mail to such applicants, together with a copy of
the material to be mailed, a written statement to the effect that, in the
opinion of the Trustee, such mailing would be contrary to the best interest
of the Holders or would be in violation of applicable law. Such written
statement shall specify the basis of such opinion.
(c) Every Holder, by receiving and holding Securities of each series,
agrees with the Company and the Trustee that neither the Company nor the
Trustee nor any agent of either of them shall be held accountable by reason
of the disclosure of any such information as to the names and addresses of
the Holders of such series in accordance with Section 702(b), regardless of
the source from which such information was derived, and that the Trustee
shall not be held accountable by reason of mailing any material pursuant to
a request made under Section 702(b).
SECTION 703. Reports by Trustee. Within 60 days after February 1 of each
------------------
year commencing with the first February 1 after the first issuance of Securities
pursuant to this Indenture, the Trustee shall transmit by mail to all Holders of
Securities, as provided in Section 313(c) of the Trust Indenture Act to the
extent the Indenture is qualified and a report is required thereunder, a brief
report dated as of such February 1 briefly describing any disqualifying or
conflicting interest contained in Section 608.
SECTION 704. Reports by Company. The Company shall:
------------------
(a) file with the Trustee and transmit to Holders, within 15 days
after the earlier of when the Company transmits to its shareholders or, to
the extent this Indenture is qualified, files the same with the Commission,
copies of the annual reports and of the information, documents and other
reports (or copies of such portions of any of the foregoing) as to which
the Company is required to provide to its shareholders pursuant to the laws
of the Grand Duchy of Luxembourg and, to the extent the Indenture is
qualified and the Company is subject to the reporting obligations of the
Exchange Act, to file with the Commission pursuant to Section 13 or Section
15(d) of the Exchange Act; or if the Company is not required to file
information, documents or reports pursuant to either of such Sections,
then, to the extent the Indenture is qualified, the Company will file with
the Trustee and the Commission, in accordance with rules and regulations
adopted by the Commission from time to time under the Trust Indenture Act,
such of the information, documents and reports as may be prescribed from
time to time by such rules and regulations.
(b) file with the Trustee and the Commission to the extent the
Indenture is qualified, in accordance with the rules and regulations
prescribed by the Commission, such additional information, documents, and
reports with respect to compliance by the Company with the conditions and
covenants provided for in this Indenture, as may be required by such rules
and regulations; and
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(c) transmit by mail to the Holders of Securities, within 30 days
after the filing thereof with the Trustee, in the manner and to the extent
provided in Section 313(c) of the Trust Indenture Act and to the extent the
Indenture is qualified, such summaries of any information, documents and
reports required to be filed by the Company pursuant to subparagraphs (1)
and (2) of this Section as may be required by rules and regulations
prescribed by the Commission.
SECTION 705. Company to Furnish Trustee Names and Addresses of Holders. The
---------------------------------------------------------
Company shall furnish or cause to be furnished to the Trustee:
(a) semi-annually, not later than 15 days after the Regular Record
Date for interest for each series of Securities, a list, in such form as
the Trustee may reasonably require, of the names and addresses of the
Holders of Registered Securities of such series as of such Regular Record
Date, or if there is no Regular Record Date for interest for such series of
Securities, semi-annually, on such dates as are set forth in the Board
Resolution, Company Certificate or Supplemental Indenture authorizing such
series, and
(b) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request, a list of
similar form and content as of a date not more than 15 days prior to the
time such list is furnished;
provided, however, that, so long as the Trustee is the Security Registrar, no
- -------- -------
such list shall be required to be furnished.
ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE, LEASE OR CONVEYANCE
SECTION 801. Consolidations and Mergers of Company and Sales, Leases and
-----------------------------------------------------------
Conveyances. The Company may consolidate with, or sell, lease or convey all or
- -----------
substantially all of its assets to, or merge with or into any other Person,
provided that in any such case, (i) either the Company is the continuing entity,
or the successor entity (if other than the Company) is a Person organized and
existing under the laws of the Grand Duchy of Luxembourg and such successor
entity expressly assumes the due and punctual payment of the principal of (and
premium or Make-Whole Amount, if any, on) and interest and Additional Amounts,
if any, on all of the Securities, according to their tenor, and the due and
punctual performance and observance of all of the covenants and conditions of
this Indenture to be performed by the Company by Supplemental Indenture,
complying with Article Nine, satisfactory to the Trustee, executed and delivered
to the Trustee by such Person and (ii) immediately after giving effect to such
transaction and treating any indebtedness which becomes an obligation of the
Company, the successor entity (if other than the Company) or any Subsidiary as a
result thereof as having been incurred by the Company, such successor entity or
such Subsidiary at the time of such transaction, no Event of Default, and no
event which, after notice or the lapse of time, or both, would become an Event
of Default, has occurred and is continuing.
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SECTION 802. Rights and Duties of Successor Entity. In case of any such
-------------------------------------
consolidation, merger, sale, lease or conveyance and upon any such assumption by
the successor entity, such successor entity shall succeed to and be substituted
for the Company, with the same effect as if it had been named herein as the
party of the first part, and the predecessor entity, except in the event of a
lease, shall be relieved of any further obligation under this Indenture and the
Securities. Such successor entity thereupon may cause to be signed, and may
issue either in its own name or in the name of the Company, any or all of the
Securities issuable hereunder which theretofore have not been signed by the
Company and delivered to the Trustee; and, upon the order of such successor
entity, instead of the Company, and subject to all the terms, conditions and
limitations in this Indenture prescribed, the Trustee shall authenticate and
shall deliver any Securities which previously have been signed and delivered by
the officers of the Company to the Trustee for authentication, and any
Securities which such successor entity thereafter shall cause to be signed and
delivered to the Trustee for that purpose. All the Securities so issued shall
in all respects have the same legal rank and benefit under this Indenture as the
Securities theretofore or thereafter issued in accordance with the terms of this
Indenture as though all of such Securities had been issued at the date of the
execution hereof.
In case of any such consolidation, merger, sale, lease or conveyance, such
changes in phraseology and form (but not in substance) may be made in the
Securities thereafter to be issued as may be appropriate.
SECTION 803. Company Certificate and Opinion of Counsel. Any consolidation,
------------------------------------------
merger, sale, lease or conveyance permitted under Section 801 is also subject to
the condition that the Trustee receive a Company Certificate and an Opinion of
Counsel to the effect that any such consolidation, merger, sale, lease or
conveyance, and the assumption by any successor entity, complies with the
provisions of this Article and that all conditions precedent herein provided for
relating to such transaction have been complied with.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders. Without
--------------------------------------------------
the consent of any Holders of Securities or coupons, the Company, when
authorized by or pursuant to a Board Resolution, and the Trustee, at any time
and from time to time, may enter into one or more Supplemental Indentures, in
form satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company
contained herein and in the Securities; or
(2) to add to the covenants of the Company for the benefit of the
Holders of all or any series of Securities (and if such covenants are to be
for the benefit of less than all series of Securities, stating that such
covenants are expressly being included solely for the
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benefit of such series) or to surrender any right or power herein conferred
on the Company; or
(3) to add any additional Events of Default for the benefit of the
Holders of all or any series of Securities (and if such Events of Default
are to be for the benefit of less than all series of Securities, stating
that such Events of Default are expressly being included solely for the
benefit of such series); provided, however, that, in respect of any such
-------- -------
additional Events of Default, such Supplemental Indenture may provide for a
particular period of grace after default (which period may be shorter or
longer than that allowed in the case of other defaults) or may provide for
an immediate enforcement upon such default or may limit the remedies
available to the Trustee upon such default or may limit the right of the
Holders of a majority in aggregate principal amount of such series of
Securities to which such additional Events of Default apply to waive such
default; or
(4) to add to or change any of the provisions of this Indenture to
provide that Bearer Securities may be registrable as to principal, to
change or eliminate any restrictions on the payment of the principal of (or
premium or Make-Whole Amount, if any, on) or interest or Additional
Amounts, if any, on Bearer Securities, to permit Bearer Securities to be
issued in exchange for Registered Securities, to permit Bearer Securities
to be issued in exchange for Bearer Securities of other authorized
denominations or to permit or facilitate the issuance of Securities in
uncertificated form; provided that any such action shall not adversely
--------
affect the interests of the Holders of Securities of any series or any
coupons appertaining thereto in any material respect; or
(5) to change or eliminate any of the provisions of this Indenture,
provided that any such change or elimination shall become effective only
--------
when there is no Security Outstanding of any series created prior to the
execution of such Supplemental Indenture which is entitled to the benefit
of such provision; or
(6) to secure the Securities; or
(7) to establish the form or terms of Securities of any series and any
coupons appertaining thereto as permitted by Sections 201 and 301,
including the provisions and procedures, if applicable, for the conversion
of such Securities into Shares or other securities of the Company; or
(8) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities of one or
more series and to add to or change any of the provisions of this Indenture
as are necessary to provide for or facilitate the administration of the
trusts hereunder by more than one Trustee; or
(9) to cure any ambiguity, to correct or supplement any provision
hereof which may be defective or inconsistent with any other provision
hereof, or to make any other provisions with respect to matters or
questions arising under this Indenture which shall not
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be inconsistent with the provisions of this Indenture or to make any other
changes, provided that, in each case, such provisions shall not adversely
--------
affect the interests of the Holders of Securities of any series or any
coupons appertaining thereto in any material respect; or
(10) to close this Indenture with respect to the authentication and
delivery of additional series of Securities; or
(11) to qualify, or maintain qualification of, this Indenture under
the Trust Indenture Act; or
(12) to supplement any of the provisions of this Indenture to such
extent as are necessary to permit or facilitate the defeasance and
discharge of any series of Securities pursuant to Sections 1401, 1402 and
1403; provided that, in each case, any such action shall not adversely
--------
affect the interests of the Holders of Securities of such series and any
coupons appertaining thereto or any other series of Securities in any
material respect.
SECTION 902. Supplemental Indentures with Consent of Holders. With the
-----------------------------------------------
consent of the Holders of not less than a majority in principal amount of all
Outstanding Securities affected by such Supplemental Indenture, by Act of such
Holders delivered to the Company and the Trustee, the Company (when authorized
by or pursuant to a Board Resolution) and the Trustee may enter into an
indenture or indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or of modifying in any manner the rights of the Holders of
Securities and coupons under this Indenture; provided, however, that no such
-------- -------
Supplemental Indenture shall, without the consent of the Holder of each
Outstanding Security affected thereby:
(1) change the Stated Maturity of the principal of (or premium or
Make-Whole Amount, if any, on) or any installment of principal of or
interest on any Security; or reduce the principal amount thereof or the
rate or amount of interest thereon or any Additional Amounts payable in
respect thereof, or any premium or Make-Whole Amount payable upon the
redemption thereof, or change any obligation of the Company to pay
Additional Amounts pursuant to Section 1010 (except as contemplated by
clause (1) of Section 801 and permitted by clause (1) of Section 901), or
reduce the amount of the principal of an Original Issue Discount Security
or Make-Whole Amount, if any, which would be due and payable upon a
declaration of acceleration of the Maturity thereof pursuant to Section 502
or the amount thereof provable in bankruptcy pursuant to Section 504; or
adversely affect any right of repayment at the option of the Holder of any
Security, or change any Place of Payment where, or the currency or
currencies, currency unit or units or composite currency or currencies in
which, the principal of any Security or any premium or Make-Whole Amount or
any Additional Amounts payable in respect thereof or the interest thereon
is payable; or impair the right to institute suit for the enforcement of
any such payment on or after the Stated Maturity thereof (or, in the case
of redemption or repayment at the option of the Holder, on or after the
Redemption Date or the Repayment Date, as the case may be); or
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(2) reduce the percentage in principal amount of the Outstanding
Securities of any series, the consent of the Holders of which is required
for any such Supplemental Indenture, or the consent of the Holders of which
is required for any waiver with respect to such series (or compliance with
certain provisions of this Indenture or certain defaults hereunder and
their consequences) provided for in this Indenture, or reduce the
requirements of Section 1504 for quorum or voting; or
(3) modify any of the provisions of this Section, Section 513 or
Section 1011, except to increase the required percentage to effect such
action or to provide that certain other provisions of this Indenture cannot
be modified or waived without the consent of the Holder of each Outstanding
Security affected thereby.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed Supplemental Indenture, but it shall
be sufficient if such Act approves the substance thereof.
A Supplemental Indenture which changes or eliminates any covenant or other
provision of this Indenture which has expressly been included for the benefit of
one or more particular series of Securities, or which modifies the rights of the
Holders of Securities of such series with respect to such covenant or other
provision, shall be deemed not to affect the rights under this Indenture of the
Holders of Securities of any other series.
SECTION 903. Execution of Supplemental Indentures. In executing, or
------------------------------------
accepting the additional trusts created by, any Supplemental Indenture permitted
by this Article or the modification thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and shall be fully
protected in relying on, an Opinion of Counsel stating that the execution of
such Supplemental Indenture is authorized or permitted by this Indenture. The
Trustee may, but shall not be obligated to, enter into any such Supplemental
Indenture which affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures. Upon the execution of any
---------------------------------
Supplemental Indenture under this Article, this Indenture shall be modified in
accordance therewith, and such Supplemental Indenture shall form a part of this
Indenture for all purposes; and every Holder of Securities theretofore or
thereafter authenticated and delivered hereunder and of any coupon appertaining
thereto shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act. Every Supplemental
-----------------------------------
Indenture executed pursuant to this Article shall conform to the requirements of
the Trust Indenture Act as then in effect if at that date the Indenture shall
then be qualified under the Trust Indenture Act.
SECTION 906. Reference in Securities to Supplemental Indentures. Securities
--------------------------------------------------
of any series authenticated and delivered after the execution of any
Supplemental Indenture pursuant to this Article may, and shall, if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such Supplemental Indenture. Failure to make such a notation
shall
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not affect the validity or enforceability of any such Supplemental Indenture. If
the Company so determines, new Securities of any series so modified as to
conform, in the opinion of the Trustee and the Company, to any such Supplemental
Indenture may be prepared and executed by the Company and authenticated and
delivered by the Trustee in exchange for Outstanding Securities of such series.
SECTION 907. Notice of Supplemental Indentures. Promptly after the
---------------------------------
execution by the Company and the Trustee of any Supplemental Indenture pursuant
to the provisions of Section 902, the Company shall give notice thereof to the
Holders of each Outstanding Security affected, in the manner provided for in
Section 106, setting forth in general terms the substance of such Supplemental
Indenture.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium or Make-Whole Amount, Interest
------------------------------------------------------------
and Additional Amounts. The Company covenants and agrees for the benefit of the
- ----------------------
Holders of each series of Securities that it shall duly and punctually pay to
the Trustee prior to 12:00 noon on the applicable date of payment the principal
of (and premium or Make-Whole Amount, if any, on) and interest and Additional
Amounts, if any, on the Securities of such series in accordance with the terms
of such series of Securities, any coupons appertaining thereto and this
Indenture. Unless otherwise specified as contemplated by Section 301 with
respect to any series of Securities, any interest and Additional Amounts, if
any, on Bearer Securities on or before Maturity, other than Additional Amounts,
if any, payable as provided in Section 1010 in respect of principal of (or
premium or Make-Whole Amount, if any, on) such a Security, shall be payable only
upon presentation and surrender of the several coupons for such interest
installments as are evidenced thereby as they severally mature. Unless
otherwise specified with respect to Securities of any series pursuant to Section
301, at the option of the Company, all payments of principal may be paid by
check to the registered Holder of the Registered Security or other person
entitled thereto against surrender of such Security.
SECTION 1002. Maintenance of Office or Agency. If Securities of a series
-------------------------------
are issuable only as Registered Securities, the Company shall maintain in each
Place of Payment for any series of Securities an office or agency where
Securities of such series may be presented or surrendered for payment, where
Securities of such series may be surrendered for registration of transfer or
exchange and where notices and demands to or on the Company in respect of the
Securities of such series and this Indenture may be served. If Securities of a
series are issuable as Bearer Securities, the Company shall maintain: (i) in the
city of Boston, Massachusetts, an office or agency where any Registered
Securities of such series may be presented or surrendered for payment, where any
Registered Securities of such series may be surrendered for exchange, where
notices and demands to or on the Company in respect of the Securities of such
series and this Indenture may be served and where Bearer Securities of such
series and any coupons appertaining thereto may be presented or surrendered for
payment in the circumstances described in the following paragraph (and not
otherwise); (ii) subject to any laws or regulations applicable thereto, in a
Place of Payment for such
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series which is located outside the United States, an office or agency where
Securities of such series and any coupons appertaining thereto may be presented
and surrendered for payment (including payment of any Additional Amounts payable
on Securities of such series pursuant to Section 1010); provided, however, that
-------- -------
if the Securities of such series are listed on the Luxembourg Stock Exchange,
the International Stock Exchange or any other stock exchange located outside the
United States and such stock exchange so requires, the Company shall maintain a
Paying Agent for the Securities of such series in Luxembourg, London, England or
any other required city located outside the United States, as the case may be,
so long as the Securities of such series are listed on such exchange; and (iii)
subject to any laws or regulations applicable thereto, in a Place of Payment for
such series located outside the United States an office or agency where any
Securities of such series may be surrendered for registration of transfer, where
Securities of such series may be surrendered for exchange and where notices and
demands to or on the Company in respect of the Securities of such series and
this Indenture may be served. The Company shall give prompt written notice to
the Trustee of the location, and any change in the location, of each such office
or agency. If at any time the Company fails to maintain any such required office
or agency or fails to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, except that Bearer Securities of such
series and the related coupons may be presented and surrendered for payment
(including payment of any Additional Amounts payable on Bearer Securities of
such series pursuant to Section 1010) at the offices specified in the Security,
in London, England, and the Company hereby appoints the same as its agent to
receive all such presentations, surrenders, notices and demands, and the Company
hereby appoints the Trustee as its agent to receive all such presentations,
surrenders, notices and demands.
Unless otherwise specified with respect to any Securities pursuant to
Section 301, no payment of the principal of (or premium or Make-Whole Amount, if
any, on) or interest or Additional Amounts, if any, on Bearer Securities shall
be made at any office or agency of the Company in the United States or by check
mailed to any address in the United States or by transfer to an account
maintained with a bank located in the United States; provided, however, that, if
-------- -------
the Securities of a series are payable in Dollars, payment of the principal of
(and premium and Make-Whole Amount, if any, on) and interest and Additional
Amounts, if any, on any Bearer Security shall be made at the office of the
Company's Paying Agent in the city of Boston, Massachusetts, if (but only if)
payment in Dollars of the full amount of such principal, premium, Make-Whole
Amount, interest or Additional Amounts, as the case may be, at all offices or
agencies outside the United States maintained for the purpose by the Company in
accordance with this Indenture, is illegal or effectively precluded by exchange
controls or other similar restrictions.
The Company may from time to time designate one or more other offices or
agencies where the Securities of one or more series and any coupons appertaining
thereto may be presented or surrendered for any or all of such purposes, and may
from time to time rescind such designations; provided, however, that no such
-------- -------
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in accordance with the requirements
set forth above for Securities of any series for such purposes. The Company
shall give prompt written notice to the Trustee of any such designation or
rescission and of any change in the location of any such other office or agency.
Unless otherwise specified with respect to any Securities pursuant to Section
301,
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the Company hereby designates as a Place of Payment for each series of
Securities the office or agency of the Company in the city of Boston,
Massachusetts, and initially appoints the Trustee at its Corporate Trust Office
as Paying Agent in such city and as its agent to receive all such presentations,
surrenders, notices and demands.
This Indenture shall be available for inspection by a Holder at the offices
of the Company or at the Corporate Trust Office of the Trustee and through the
office of an affiliate of the Trustee in the Grand Duchy of Luxembourg and, upon
the request of a Holder, a copy of the Indenture will be promptly transmitted to
the requesting Holder, at the expense of the Company.
Unless otherwise specified with respect to any Securities pursuant to
Section 301, if and so long as the Securities of any series (i) are denominated
in a Foreign Currency or (ii) may be payable in a Foreign Currency, or so long
as it is required under any other provision of the Indenture, then the Company
shall maintain with respect to each such series of Securities, or as so
required, at least one exchange rate agent.
SECTION 1003. Money for Securities Payments to Be Held in Trust. If the
-------------------------------------------------
Company at any time acts as its own Paying Agent with respect to any series of
any Securities and any coupons appertaining thereto, it shall, on or before each
due date of the principal of (and premium or Make-Whole Amount, if any, on) or
interest or Additional Amounts, if any, on any of the Securities of such series,
segregate and hold in trust for the benefit of the Persons entitled thereto a
sum in the currency or currencies, currency unit or units or composite currency
or currencies in which the Securities of such series are payable (except as
otherwise specified pursuant to Section 301 for the Securities of such series)
sufficient to pay the principal (and premium or Make-Whole Amount, if any) or
interest or Additional Amounts, if any, so becoming due until such sums shall be
paid to such Persons or otherwise disposed of as herein provided, and shall
promptly notify the Trustee of its action or failure so to act.
Whenever the Company has one or more Paying Agents for any series of
Securities and any coupons appertaining thereto, it shall, on or before each due
date of the principal of (and premium or Make-Whole Amount, if any, on) or
interest or Additional Amounts, if any, on any Securities of such series,
deposit with a Paying Agent a sum (in the currency or currencies, currency unit
or units or composite currency or currencies described in the preceding
paragraph) sufficient to pay the principal (and premium or Make-Whole Amount, if
any) or interest or Additional Amounts, if any, so becoming due, such sum to be
held in trust for the benefit of the Persons entitled to such principal,
premium, Make-Whole Amount, interest or Additional Amounts and (unless such
Paying Agent is the Trustee) the Company shall promptly notify the Trustee of
its action or failure so to act.
The Company shall cause each Paying Agent other than the Trustee to execute
and deliver to the Trustee an instrument in which such Paying Agent shall agree
with the Trustee, subject to the provisions of this Section, that such Paying
Agent shall:
(1) hold all sums held by it for the payment of principal of (and
premium or Make-Whole Amount, if any, on) or interest or Additional
Amounts, if any, on Securities
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in trust for the benefit of the Persons entitled thereto until such sums
shall be paid to such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor on the Securities) in the making of any such payment of
principal (and premium or Make-Whole Amount, if any) or interest or
Additional Amounts, if any; and
(3) at any time during the continuance of any such default, on the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee on the
same trusts as those on which such sums were held by the Company or such Paying
Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying
Agent shall be released from all further liability with respect to such sums.
Except as otherwise provided in the Securities of any series, any money
deposited with the Trustee or any Paying Agent, or then held by the Company, in
trust for the payment of the principal of (and premium or Make-Whole Amount, if
any, on) or interest or Additional Amounts, if any, on any Security of any
series and remaining unclaimed for two years after such principal (and premium
or Make-Whole Amount, if any), interest or Additional Amounts, if any, has
become due and payable shall be paid to the Company upon Company Request or (if
then held by the Company) shall be discharged from such trust; and the Holder of
such Security shall thereafter, as an unsecured general creditor, look only to
the Company for payment of the principal of (and premium or Make-Whole Amount,
if any, on) and interest and any Additional Amounts, if any, on any Security of
such series, without interest thereon, and all liability of the Trustee or such
Paying Agent with respect to such trust money, and all liability of the Company
as trustee thereof, shall thereupon cease; provided, however, that the Trustee
-------- -------
or such Paying Agent, before being required to make any such repayment, may at
the expense of the Company cause to be published once, in an Authorized
Newspaper, notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
publication, any unclaimed balance of such money then remaining will be repaid
to the Company.
SECTION 1004. Existence. Subject to Article Eight, the Company shall do or
---------
cause to be done all things necessary to preserve and keep in full force and
effect the existence, rights (charter and statutory) and franchises of the
Company and its Subsidiaries; provided, however, that the Company shall not be
-------- -------
required to preserve any right or franchise if the Board of Directors determines
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and its Subsidiaries as a whole and that the loss
thereof is not disadvantageous in any material respect to the Holders of
Securities of any series.
SECTION 1005. Maintenance of Properties. The Company shall cause all of
-------------------------
its properties used or useful in the conduct of its business or the business of
any Subsidiary to be maintained and
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kept in good condition, repair and working order and supplied with all necessary
equipment and shall cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
--------
however, that nothing in this Section shall prevent the Company or any
- -------
Subsidiary from selling or otherwise disposing for value its properties in the
ordinary course of its business.
SECTION 1006. Insurance. The Company shall, and shall cause each of its
---------
Subsidiaries to, keep all of its insurable properties insured against loss or
damage at least equal to their then full insurable value with financially sound
and reputable insurance companies.
SECTION 1007. Payment of Taxes and Other Claims. The Company shall pay or
---------------------------------
discharge or cause to be paid or discharged, before the same become delinquent,
(i) all taxes, assessments and governmental charges levied or imposed on the
Company or any Subsidiary or on the income, profits or property of the Company
or any Subsidiary and (ii) all lawful claims for labor, materials and supplies
which, if unpaid, might by law become a lien on the property of the Company or
any Subsidiary; provided, however, that the Company shall not be required to pay
-------- -------
or discharge or cause to be paid or discharged any such tax, assessment, charge
or claim whose amount, applicability or validity is being contested in good
faith by appropriate proceedings.
SECTION 1008. Provision of Financial Information. At any time when the
----------------------------------
Company is not subject to Section 13 or 15(d) of the Exchange Act or is not
exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act, for the
benefit of Holders from time to time of any of the Securities which are not
registered under the Securities Act ("Exempt Securities"), upon request of a
Holder of Exempt Securities, the Company will furnish or cause to be furnished
at its expense information satisfying the requirements of Rule 144A under the
Securities Act to that Holder or to a prospective purchaser of the Exempt
Security designated by that Holder, as the case may be, unless at that time (1)
the Commission shall have waived such requirement in writing or otherwise taken
the position that subsection 144A(d)(4)(i) does not apply to the Company or (2)
the provision of such information shall no longer be required by law to effect
resales under Rule 144A under the Securities Act or otherwise to effect resales
without registration under the Securities Act. As used in this Section 1008
only, "Holder" shall include a holder of interest in a global Security which is
an Exempt Security and a prospective purchaser of an Exempt Security shall
include a prospective purchaser of an interest represented by a global Security
which is an Exempt Security.
SECTION 1009. Statement as to Compliance. The Company shall deliver to the
--------------------------
Trustee, within 120 days after the end of each fiscal year, a brief certificate
from the principal executive officer, principal financial officer or principal
accounting officer as to his or her knowledge of the Company's compliance with
all conditions and covenants under this Indenture verified in the case of
conditions precedent compliance with which is subject to verification by
accountants by the certificate or opinion of an accountant and, in the event of
any noncompliance, specifying such noncompliance and the nature and status
thereof. For purposes of this Section 1009, such compliance shall be determined
without regard to any period of grace or requirement of notice provided under
this Indenture.
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SECTION 1010. Additional Amounts. If any Securities of a series provide for
------------------
the payment of Additional Amounts, the Company covenants and agrees for the
benefit of the Holders of Securities of such series that it shall pay to the
Holder of any Security of such series or any coupon appertaining thereto
Additional Amounts as may be specified as contemplated by Section 301. Whenever
in this Indenture there is mentioned, in any context except in the case of
clause (1) of Section 502, the payment of the principal of or of any premium,
Make-Whole Amount or interest on, or in respect of, any Security of any series
or payment of any coupon or the net proceeds received on the sale or exchange of
any Security of any series, such mention shall be deemed to include mention of
the payment of Additional Amounts provided by the terms of such series
established pursuant to Section 301 to the extent that, in such context,
Additional Amounts are, were or would be payable in respect thereof pursuant to
such terms and express mention of the payment of Additional Amounts (if
applicable) in any provisions hereof shall not be construed as excluding
Additional Amounts in those provisions hereof in which such express mention is
not made.
Except as otherwise specified as contemplated by Section 301, if the
Securities of a series provide for the payment of Additional Amounts, at least
ten days prior to the first Interest Payment Date with respect to Securities of
such series (or if the Securities of such series will not bear interest prior to
Maturity, the first day on which a payment of principal and any premium is
made), and at least ten days prior to each date of payment of principal and any
premium or Make-Whole Amount or interest, if there has been any change with
respect to the matters set forth in the below-mentioned Company Certificate, the
Company shall furnish the Trustee and the principal Paying Agent or Paying
Agents, if other than the Trustee, with a Company Certificate instructing the
Trustee and such Paying Agent or Paying Agents whether such payment of principal
of and any premium or Make-Whole Amount or interest on the Securities of such
series shall be made to Holders of Securities of such series or any coupons
appertaining thereto who are not United States persons without withholding for
or on account of any tax, assessment or other governmental charge described in
the Securities of or within the series. If any such withholding is required,
then such Company Certificate shall specify by country the amount, if any,
required to be withheld on such payments to such Holders of Securities of such
series or any coupons appertaining thereto and the Company shall pay to the
Trustee or such Paying Agent the Additional Amounts required by the terms of
such Securities. In the event that the Trustee or any Paying Agent, as the case
may be, shall not so receive the above-mentioned certificate, then the Trustee
or such Paying Agent shall be entitled (i) to assume that no such withholding or
deduction is required with respect to any payment of principal or interest with
respect to any Securities of such series or any coupons appertaining thereto
until it has received a certificate advising otherwise and (ii) to make all
payments of principal and interest with respect to the Securities of such series
or any coupons appertaining thereto without withholding or deductions until
otherwise advised. The Company covenants to indemnify the Trustee and any
Paying Agent for, and to hold them harmless against, any loss, liability or
expense reasonably incurred without negligence or bad faith on their part
arising out of or in connection with actions taken or omitted by any of them or
in reliance on any Company Certificate furnished pursuant to this Section or in
reliance on the Company's not furnishing such a Company Certificate.
SECTION 1011. Waiver of Certain Covenants. The Company may omit in any
---------------------------
particular instance to comply with any term, provision or condition set forth in
Sections 1004 to 1008,
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inclusive, and with any other term, provision or condition with respect to the
Securities of any series specified in accordance with Section 301 (except any
such term, provision or condition which could not be amended without the consent
of all Holders of Securities of such series pursuant to Section 902), if before
or after the time for such compliance the Holders of at least a majority in
principal amount of all outstanding Securities of such series, by Act of such
Holders, either waive such compliance in such instance or generally waive
compliance with such covenant or condition, but no such waiver shall extend to
or affect such covenant or condition except to the extent so expressly waived,
and, until such waiver shall become effective, the obligations of the Company
and the duties of the Trustee in respect of any such term, provision or
condition shall remain in full force and effect.
SECTION 1012. Venue. Any legal suit, action or proceeding against the
-----
Company brought by any Holder arising out of or based upon this Indenture may be
instituted in any State or Federal Court located in the Borough of Manhattan,
City of New York. The Company waives, to the fullest extent it may effectively
do so, any objection which it may not or hereafter have to the laying of venue
of any such proceeding and the Company submits to the non-exclusive jurisdiction
of such courts in any such suit, action or proceeding. The Company has
appointed CT Corporation System, New York, New York, as its authorized agent
(the "Authorized Agent") upon whom process may be served in any such action
arising out of or based on this Indenture which may be instituted in any State
of Federal Court located in the Borough of Manhattan, City of New York, by any
Holder. The Company expressly consents to the jurisdiction of any such court in
respect of any such action and waives any other requirements of or objections to
personal jurisdiction with respect thereto. The Company represents and warrants
that the Authorized Agent has agreed to act as such agent for service of process
and agrees to take any and all action, including the filing of any and all
documents and instruments, that may be necessary to continue such appointment in
full force and effect as aforesaid. Service of process upon the Authorized
Agent and written notice of such service to the Company shall be deemed, in
every respect, effective service of process upon the Company.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Applicability of Article. Securities of any series which are
------------------------
redeemable before their Stated Maturity shall be redeemable in accordance with
their terms and (except as otherwise specified as contemplated by Section 301
for Securities of any series) in accordance with this Article.
SECTION 1102. Election to Redeem; Notice to Trustee. The election of the
-------------------------------------
Company to redeem any Securities shall be evidenced by or pursuant to a Board
Resolution. In case of any redemption at the election of the Company of less
than all of the Securities of any series, the Company shall, at least 45 days
prior to the giving of the notice of redemption in Section 1104 (unless a
shorter notice shall be satisfactory to the Trustee), notify the Trustee of such
Redemption Date and of the principal amount, or if any Securities are Original
Issue Discount Securities or Indexed Securities, such portion of the principal
as may be specified in the terms thereof, of
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Securities of such series to be redeemed. In the case of any redemption of
Securities prior to the expiration of any restriction on such redemption
provided in the terms of such Securities or elsewhere in this Indenture, the
Company shall furnish the Trustee with a Company Certificate evidencing
compliance with such restriction.
SECTION 1103. Selection by Trustee of Securities to Be Redeemed. If less
-------------------------------------------------
than all the Securities of any series issued on the same day with the same terms
are to be redeemed, the particular Securities to be redeemed shall be selected
not more than 60 days prior to the Redemption Date by the Trustee, from the
Outstanding Securities of such series issued on such date with the same terms
not previously called for redemption, by lot or pro rata and which may provide
for the selection for redemption of portions (equal to the minimum authorized
denomination for Securities of such series or any integral multiple thereof) of
the principal amount of Securities of such series of a denomination larger than
the minimum authorized denomination for Securities of such series.
The Trustee shall promptly notify the Company and the Security Registrar
(if other than itself) in writing of the Securities selected for redemption and,
in the case of any Securities selected for partial redemption, the principal
amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Security redeemed or to be redeemed only in part, to the portion of
the principal amount of such Security which has been or is to be redeemed.
SECTION 1104. Notice of Redemption. Notice of redemption shall be given in
--------------------
the manner provided in Section 106, not less than 30 days nor more than 60 days
prior to the Redemption Date, unless a shorter period is specified by the terms
of such series established pursuant to Section 301, to each Holder of Securities
to be redeemed, but failure to give such notice in the manner herein provided to
the Holder of any Security designated for redemption as a whole or in part, or
any defect in the notice to any such Holder, shall not affect the validity of
the proceedings for the redemption of any other such Security or portion
thereof.
Any notice which is mailed to the Holders of Registered Securities in the
manner herein provided shall be conclusively presumed to have been duly given,
whether or not the Holder receives the notice.
All notices of redemption shall state:
(1) the Redemption Date;
(2) the Redemption Price, accrued interest to the Redemption Date
payable as provided in Section 1106, if any, and Additional Amounts, if
any;
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(3) if less than all Outstanding Securities of any series are to be
redeemed, the identification (and, in the case of partial redemption, the
principal amount) of the particular Security or Securities to be redeemed;
(4) in case any Security is to be redeemed in part only, the notice
which relates to such Security shall state that on and after the Redemption
Date, on surrender of such Security, the holder will receive, without a
charge, a new Security or Securities of authorized denominations for the
principal amount thereof remaining unredeemed;
(5) that on the Redemption Date, the Redemption Price and accrued
interest to the Redemption Date payable as provided in Section 1106, if
any, will become due and payable on each such Security, or the portion
thereof, to be redeemed and, if applicable, that interest thereon shall
cease to accrue on and after such date;
(6) the Place or Places of Payment where such Securities, together in
the case of Bearer Securities with all coupons appertaining thereto, if
any, maturing after the Redemption Date, are to be surrendered for payment
of the Redemption Price and accrued interest, if any;
(7) that the redemption is for a sinking fund, if such is the case;
(8) that, unless otherwise specified in such notice, Bearer
Securities of any series, if any, surrendered for redemption must be
accompanied by all coupons appertaining thereto maturing subsequent to the
date fixed for redemption or the amount of any such missing coupon or
coupons will be deducted from the Redemption Price, unless security or
indemnity satisfactory to the Company, the Trustee for such series and any
Paying Agent is furnished;
(9) if Bearer Securities of any series are to be redeemed and any
Registered Securities of such series are not to be redeemed, and if such
Bearer Securities may be exchanged for Registered Securities not subject to
the redemption on this Redemption Date pursuant to Section 305 or
otherwise, the last date, as determined by the Company, on which such
exchanges may be made; and
(10) the CUSIP number of such Security, if any, provided that neither
--------
the Company nor the Trustee shall have any responsibility for any such
CUSIP number.
Notice of redemption of Securities to be redeemed shall be given by the
Company or, at the Company's request, by the Trustee in the name and at the
expense of the Company.
SECTION 1105. Deposit of Redemption Price. At least one Business Day prior
---------------------------
to any Redemption Date, the Company shall deposit with the Trustee or with a
Paying Agent (or, if the Company is acting as its own Paying Agent, which it may
not do in the case of a sinking fund payment under Article Twelve, segregate and
hold in trust as provided in Section 1003) an amount
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of money in the currency or currencies, currency unit or units or composite
currency or currencies in which the Securities of such series are payable
(except as otherwise specified pursuant to Section 301 for the Securities of
such series) sufficient to pay on the Redemption Date the Redemption Price of,
and (except if the Redemption Date is an Interest Payment Date) accrued interest
on, all the Securities or portions thereof which are to be redeemed on such
date.
SECTION 1106. Securities Payable on Redemption Date. Notice of redemption
-------------------------------------
having been given as provided above, the Securities so to be redeemed shall, on
the Redemption Date, become due and payable at the Redemption Price therein
specified in the currency or currencies, currency unit or units or composite
currency or currencies in which the Securities of such series are payable
(except as otherwise specified pursuant to Section 301 for the Securities of
such series) (together with accrued interest, if any, to the Redemption Date),
and from and after such date (unless the Company defaults in the payment of the
Redemption Price and accrued interest) such Securities shall, if the same are
interest-bearing, cease to bear interest and the coupons for such interest
appertaining to any Bearer Securities so to be redeemed, except to the extent
provided below, shall be void. Upon surrender of any such Security for
redemption in accordance with such notice, together with any coupons
appertaining thereto maturing after the Redemption Date, such Security shall be
paid by the Company at the Redemption Price, together with accrued interest, if
any, to the Redemption Date; provided, however, that installments of interest on
-------- -------
Bearer Securities whose Stated Maturity is on or prior to the Redemption Date
shall be payable only at an office or agency located outside the United States
(except as otherwise provided in Section 1002) and, unless otherwise specified
as contemplated by Section 301, only upon presentation and surrender of coupons
for such interest; and provided, further, that installments of interest on
-------- -------
Registered Securities whose Stated Maturity is on or prior to the Redemption
Date shall be payable to the Holders of such Securities, or one or more
Predecessor Securities, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section
307.
If any Bearer Security surrendered for redemption is not accompanied by all
coupons appertaining thereto maturing after the Redemption Date, such Security
may be paid after deducting from the Redemption Price an amount equal to the
face amount of all such missing coupons, or the surrender of such missing coupon
or coupons may be waived by the Company and the Trustee if there is furnished to
them such security or indemnity as they may require to save each of them and any
Paying Agent harmless. If thereafter the Holder of such Security surrenders to
the Trustee or any Paying Agent any such missing coupon in respect of which a
deduction has been made from the Redemption Price, such Holder shall be entitled
to receive the amount so deducted; provided, however, that interest represented
-------- -------
by a coupon shall be payable only at an office or agency located outside the
United States (except as otherwise provided in Section 1002) and, unless
otherwise specified as contemplated by Section 301, only upon presentation and
surrender of such coupon.
If any Security called for redemption is not so paid upon surrender thereof
for redemption, the principal (and premium or Make-Whole Amount, if any) shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Security.
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SECTION 1107. Securities Redeemed in Part. Any Security which is to be
---------------------------
redeemed only in part (pursuant to the provisions of this Article or of Article
Twelve) shall be surrendered at a Place of Payment therefor (with, if the
Company or the Trustee so requires, due endorsement by, or a written instrument
of transfer in form satisfactory to the Company and the Trustee duly executed
by, the Holder thereof or his attorney duly authorized in writing and
accompanied by appropriate evidence of genuineness and authority) and the
Company shall execute and the Trustee shall authenticate and deliver to the
Holder of such Security without service charge a new Security or Securities of
the same series, of any authorized denomination as requested by such Holder in
aggregate principal amount equal to and in exchange for the unredeemed portion
of the principal of the Security so surrendered.
ARTICLE TWELVE
SINKING FUNDS
SECTION 1201. Applicability of Article. The provisions of this Article
------------------------
shall be applicable to any sinking fund for the retirement of Securities of a
series except as otherwise specified as contemplated by Section 301 for
Securities of such series.
The minimum amount of any sinking fund payment provided for by the terms
of Securities of any series is herein referred to as a "mandatory sinking fund
----------------------
payment," and any payment in excess of such minimum amount provided for by the
- -------
terms of such Securities of any series is herein referred to as an "optional
--------
sinking fund payment." If provided for by the terms of any Securities of any
- --------------------
series, the cash amount of any mandatory sinking fund payment may be subject to
reduction as provided in Section 1202. Each sinking fund payment shall be
applied to the redemption of Securities of any series as provided for by the
terms of Securities of such series.
SECTION 1202. Satisfaction of Sinking Fund Payments with Securities. The
-----------------------------------------------------
Company may, in satisfaction of all or any part of any mandatory sinking fund
with respect to the Securities of a series, (i) deliver Outstanding Securities
of such series (other than any previously called for redemption), together in
the case of any Bearer Securities of such series with all unmatured coupons
appertaining thereto and (ii) apply as a credit Securities of such series which
have been redeemed either at the election of the Company pursuant to the terms
of such Securities or through the application of permitted optional sinking fund
payments pursuant to the terms of such Securities, as provided for by the terms
of such Securities, or which have otherwise been acquired by the Company,
provided that such Securities so delivered or applied as a credit have not been
- --------
previously so credited. Such Securities shall be received and credited for such
purpose by the Trustee at the applicable Redemption Price specified in such
Securities for redemption through operation of the sinking fund and the amount
of such mandatory sinking fund payment shall be reduced accordingly.
SECTION 1203. Redemption of Securities for Sinking Fund. Not less than 60
-----------------------------------------
days prior to each sinking payment date for Securities of any series, the
Company shall deliver to the Trustee a Company Certificate specifying the amount
of the next ensuing mandatory sinking fund payment for such series pursuant to
the terms of such series, the portion thereof, if any, which is to be
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satisfied by payment of cash in the currency or currencies, currency unit or
units or composite currency or currencies in which the Securities of such series
are payable (except as otherwise specified pursuant to Section 301 for the
Securities of such series) and the portion thereof, if any, which is to be
satisfied by delivering and crediting Securities of such series pursuant to
Section 1202, and the optional amount, if any, to be added in cash to the next
ensuing mandatory sinking fund payment, and shall also deliver to the Trustee
any Securities to be so delivered and credited. If such Company Certificate
specifies an optional amount to be added in cash to the next ensuing mandatory
sinking fund payment, the Company shall thereupon be obligated to pay the amount
therein specified. Not less than 30 days before each such sinking fund payment
date the Trustee shall select the Securities to be redeemed on such sinking fund
payment date in the manner specified in Section 1103 and cause notice of the
redemption thereof to be given in the name of and at the expense of the Company
in the manner provided in Section 1104. Such notice having been duly given, the
redemption of such Securities shall be made upon the terms and in the manner
stated in Sections 1106 and 1107.
ARTICLE THIRTEEN
REPAYMENT AT THE OPTION OF HOLDERS
SECTION 1301. Applicability of Article. Repayment of Securities of any
------------------------
series before their Stated Maturity at the option of Holders thereof shall be
made in accordance with the terms of such Securities, if any, and (except as
otherwise specified by the terms of such series established pursuant to Section
301) in accordance with this Article.
SECTION 1302. Repayment of Securities. Securities of any series subject to
-----------------------
repayment in whole or in part at the option of the Holders thereof will, unless
otherwise provided in the terms of such Securities, be repaid at a price equal
to the principal amount thereof, together with interest, if any, thereon accrued
to the Repayment Date specified in or pursuant to the terms of such Securities.
The Company covenants that at least one Business Day prior to the Repayment Date
it shall deposit with the Trustee or with a Paying Agent (or, if the Company is
acting as it own Paying Agent, segregate and hold in trust as provided in
Section 1003) an amount of money in the currency or currencies, currency unit or
units or composite currency or currencies in which the Securities of such series
are payable (except as otherwise specified pursuant to Section 301 for the
Securities of such series) sufficient to pay the principal (or, if so provided
by the terms of the Securities of any series, a percentage of the principal) of,
and (except if the Repayment Date is an Interest Payment Date) accrued interest
on, all the Securities or portions thereof, as the case may be, to be repaid on
such date.
SECTION 1303. Exercise of Option. Securities of any series subject to
------------------
repayment at the option of the Holders thereof will contain an "Option to Elect
Repayment" form on the reverse of such Securities. In order for any Security to
be repaid at the option of the Holder, the Trustee must receive at the Place of
Payment therefor specified in the terms of such Security (or at such other place
or places of which the Company shall from time to time notify the Holders of
such Securities), not earlier than 60 days nor later than 30 days prior to the
Repayment Date, (i) the Security so
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providing for such repayment together with the "Option to Elect Repayment" form
on the reverse thereof duly completed by the Holder (or by the Holder's attorney
duly authorized in writing) or (ii) a telegram, telex, facsimile transmission or
a letter from a member of a national securities exchange, or the National
Association of Securities Dealers, Inc., or a commercial bank or trust company
in the United States setting forth the name of the Holder of the Security, the
principal amount of the Security, the principal amount of the Security to be
repaid, the CUSIP number, if any, or a description of the tenor and terms of the
Security, a statement that the option to elect repayment is being exercised
thereby and a guarantee that the Security to be repaid, together with the duly
completed form entitled "Option to Elect Repayment" on the reverse of the
Security, will be received by the Trustee not later than the fifth Business Day
after the date of such telegram, telex, facsimile transmission or letter;
provided, however, that such telegram, telex, facsimile transmission or letter
- -------- -------
shall only be effective if such Security and form duly completed are received by
the Trustee by such fifth Business Day. If less than the entire principal amount
of such Security is to be repaid in accordance with the terms of such Security,
the principal amount of such Security to be repaid, in increments of the minimum
denomination for Securities of such series, and the denomination or
denominations of the Security or Securities to be issued to the Holder for the
portion of the principal amount of such Security surrendered which is not to be
repaid, must be specified. The principal amount of any Security providing for
prepayment at the option of the Holder thereof may not be repaid in part if,
following such repayment, the unpaid principal amount of such Security would be
less than the minimum authorized denomination of Securities of or within the
series of which such Security to be repaid is a part. Except as otherwise may be
provided by the terms of any Security providing for repayment at the option of
the Holder thereof, exercise of the repayment option by the Holder shall be
irrevocable unless waived by the Company.
SECTION 1304. When Securities Presented for Repayment Become Due and
------------------------------------------------------
Payable. If Securities of any series providing for repayment at the option of
the Holders thereof have been surrendered as provided in this Article and as
provided by or pursuant to the terms of such Securities, such Securities or the
portions thereof, as the case may be, to be repaid shall become due and payable
and shall be paid by the Company on the Repayment Date therein specified, and on
and after such Repayment Date (unless the Company defaults in the payment of
such Securities on such Repayment Date) such Securities shall, if the same were
interest-bearing, cease to bear interest and the coupons for such interest
appertaining to any Bearer Securities so to be repaid, except to the extent
provided below, shall be void. Upon surrender of any such Security for
repayment in accordance with such provisions, together with any coupons
appertaining thereto maturing after the Repayment Date, the principal amount of
such security so to be repaid shall be paid by the Company, together with
accrued interest, if any, to the Repayment Date; provided, however, that coupons
-------- -------
whose Stated Maturity is on or prior to the Repayment Date shall be payable only
at an office or agency located outside the United States (except as otherwise
provided in Section 1002) and, unless otherwise specified pursuant to Section
301, only upon presentation and surrender of such coupons; and provided,
--------
further, that, in the case of Registered Securities, installments of interest,
- -------
if any, whose Stated Maturity is on or prior to the Repayment Date shall be
payable (but without interest thereon, unless the Company defaults in the
payment thereof) to the Holders of such Securities, or one or more Predecessor
Securities, registered as such at the close of business on the relevant Record
Dates according to their terms and the provisions of Section 307.
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<PAGE>
If any Bearer Security surrendered for repayment is not accompanied by all
coupons appertaining thereto maturing after the Repayment Date, such Security
may be paid after deducting from the amount payable therefor as provided in
Section 1302 an amount equal to the face amount of all such missing coupons, or
the surrender of such missing coupon or coupons may be waived by the Company and
the Trustee if there is furnished to them such security or indemnity as they may
require to save each of them and any Paying Agent harmless. If thereafter the
Holder of such Security surrenders to the Trustee or any Paying Agent any such
missing coupon in respect of which a deduction has been made as provided in the
preceding sentence, such Holder shall be entitled to receive the amount so
deducted; provided, however, that interest represented by a coupon shall be
-------- -------
payable only at an office or agency located outside the United States (except as
otherwise provided in Section 1002) and, unless otherwise specified as
contemplated by Section 301, only upon presentation and surrender of such
coupon.
If the principal amount of any Security surrendered for repayment shall
not be so repaid upon surrender thereof, such principal amount (together with
interest, if any, thereon accrued to such Repayment Date) shall, until paid,
bear interest from the Repayment Date at the rate of interest or Yield to
Maturity (in the case of Original Issue Discount Securities) set forth in such
Security.
SECTION 1305. Securities Repaid in Part. Upon surrender of any Registered
-------------------------
Security which is to be repaid in part only, the Company shall execute and the
Trustee shall authenticate and deliver to the Holder of such Security, without
service charge and at the expense of the Company, a new Registered Security or
Securities of the same series, of any authorized denomination specified by the
Holder, in an aggregate principal amount equal to and in exchange for the
portion of the principal of such Security so surrendered which is not to be
repaid.
ARTICLE FOURTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1401. Applicability of Article; Company's Option to Effect
----------------------------------------------------
Defeasance or Covenant Defeasance. If, pursuant to Section 301, provision is
- ---------------------------------
made for either or both of (i) defeasance of the Securities of or within a
series under Section 1402 or (ii) covenant defeasance of the Securities of or
within a series under Section 1403 to be applicable to the Securities of any
series, then the provisions of such Section or Sections, as the case may be,
together with the other provisions of this Article (with such modifications
thereto as may be specified pursuant to Section 301 with respect to any
Securities), shall be applicable to such Securities and any coupons appertaining
thereto, and the Company may at its option by Board Resolution, at any time,
with respect to such Securities and any coupons appertaining thereto, elect to
defease such Outstanding Securities and any coupons appertaining thereto
pursuant to Section 1402 (if applicable) or Section 1403 (if applicable) upon
compliance with the conditions set forth below in this Article.
SECTION 1402. Defeasance and Discharge. Upon the Company's exercise of the
------------------------
above option applicable to this Section with respect to any Securities of or
within a series, the Company shall be deemed to have been discharged from its
obligations with respect to such Outstanding
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<PAGE>
Securities and any coupons appertaining thereto on the date the conditions set
forth in Section 1404 are satisfied (hereinafter, "defeasance"). For this
----------
purpose, such defeasance means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented by such Outstanding Securities
and any coupons appertaining thereto, which shall thereafter be deemed
"Outstanding" only for the purposes of Section 1405 and the other Sections of
this Indenture referred to in clauses (i) and (ii) below, and to have satisfied
all of its other obligations under such Securities and any coupons appertaining
thereto and this Indenture insofar as such Securities and any coupons
appertaining thereto are concerned (and the Trustee, at the expense of the
Company, shall execute proper instruments acknowledging the same), except for
the following which shall survive until otherwise terminated or discharged
hereunder: (i) the rights of Holders of such Outstanding Securities and any
coupons appertaining thereto to receive, solely from the trust fund described in
Section 1404 and as more fully set forth in such Section, payments in respect of
the principal of (and premium or Make-Whole Amount, if any, on) and interest and
Additional Amounts, if any, on such Securities and any coupons appertaining
thereto when such payments are due; (ii) the Company's obligations with respect
to such Securities under Sections 305, 306, 1002 and 1003 and with respect to
the payment of Additional Amounts, if any, on such Securities as contemplated by
Section 1010; (iii) the rights, powers, trusts, duties and immunities of the
Trustee hereunder; and (iv) this Article Fourteen. Subject to compliance with
this Article Fourteen, the Company may exercise its option under this Section
notwithstanding the prior exercise of its option under Section 1403 with respect
to such Securities and any coupons appertaining thereto.
SECTION 1403. Covenant Defeasance. Upon the Company's exercise of the
-------------------
above option applicable to this Section with respect to any Securities of or
within a series, the Company shall be released from its obligations under
Sections 1004 to 1008, inclusive, and, if specified pursuant to Section 301, its
obligations under any other covenant, with respect to such Outstanding
Securities and any coupons appertaining thereto on and after the date the
conditions set forth in Section 1404 are satisfied (hereinafter, "covenant
--------
defeasance"), and such Securities and any coupons appertaining thereto shall
- ----------
thereafter be deemed not "Outstanding" for the purposes of any direction,
waiver, consent or declaration or Act of Holders (and the consequences of any
thereof) in connection with Sections 1004 to 1008, inclusive, or such other
covenant, but shall continue to be deemed "Outstanding" for all other purposes
hereunder. For this purpose, such covenant defeasance means that, with respect
to such Outstanding Securities and any coupons appertaining thereto, the Company
may omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such Section or such other covenant,
whether directly or indirectly, by reason of any reference elsewhere herein to
any such Section or such other covenant or by reason of reference in any such
Section or such other covenant to any other provision herein or in any other
document and such omission to comply shall not constitute a default or an Event
of Default under clause (5) or (10) of Section 501 or otherwise, as the case may
be, but, except as specified above, the remainder of this Indenture and such
Securities and any coupons appertaining thereto shall be unaffected thereby.
SECTION 1404. Conditions to Defeasance or Covenant Defeasance. The
-----------------------------------------------
following shall be the conditions to application of Section 1402 or Section 1403
to any Outstanding Securities of or within a series and any coupons appertaining
thereto:
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(a) The Company has irrevocably deposited or caused to be deposited
with the Trustee (or another trustee satisfying the requirements of Section
607 who shall agree to comply with the provisions of this Article Fourteen
applicable to it) funds in trust for the purpose of making the following
payments, specifically pledged as security for, and dedicated solely to,
the benefit of the Holders of such Securities and any coupons appertaining
thereto: (i) an amount in such currency or currencies, currency unit or
units or composite currency or currencies in which such Securities and any
coupons appertaining thereto are then specified as payable at Stated
Maturity; (ii) Government Obligations applicable to such Securities and any
coupons appertaining thereto (determined on the basis of the currency or
currencies, currency unit or units or composite currency or currencies in
which such Securities and any coupons appertaining thereto are then
specified as payable at Stated Maturity) which through the scheduled
payment of principal and interest in respect thereof in accordance with
their terms will provide, not later than one day before the due date of any
payment of principal of (and premium or Make-Whole Amount, if any, on) and
interest and Additional Amounts, if any, on such Securities and any coupons
appertaining thereto, money in an amount; or (iii) a combination thereof in
an amount, sufficient, without consideration of any reinvestment of such
principal and interest, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay and discharge, and which shall be applied
by the Trustee (or other qualifying trustee) to pay and discharge (A) the
principal of (and premium or Make-Whole Amount, if any, on) and interest
and Additional Amounts, if any, on such Outstanding Securities and any
coupons appertaining thereto on the Stated Maturity of such principal or
installment of principal or interest and (B) any mandatory sinking fund
payments or analogous payments applicable to such Outstanding Securities
and any coupons appertaining thereto on the day on which such payments are
due and payable in accordance with the terms of this Indenture and of such
Securities and any coupons appertaining thereto, provided that the Trustee
--------
has been irrevocably instructed to apply such money or the proceeds of such
Government Obligations to such payments with respect to such Securities.
Before such a deposit, the Company may give to the Trustee, in accordance
with Section 1102, a notice of its election to redeem all or any portion of
such Outstanding Securities at a future date in accordance with the terms
of the Securities of such series and Article Eleven, which notice shall be
irrevocable. Such irrevocable redemption notice, if given, shall be given
effect in applying the foregoing.
(b) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, this Indenture or
any other material agreement or instrument to which the Company is a party
or by which it is bound (and shall not cause the Trustee to have a
conflicting interest pursuant to Section 608, and Section 310(b) of the
Trust Indenture Act to the extent the Indenture is qualified, with respect
to any Security of the Company).
(c) No Event of Default or event which with notice or lapse of time or
both would become an Event of Default with respect to such Securities and
any coupons appertaining thereto has occurred and is continuing on the date
of such deposit or, insofar
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as clauses (7), (8), (9) or (10) of Section 501 are concerned, at any time
during the period ending on the 91st day after the date of such deposit (it
being understood that this condition shall not be deemed satisfied until
the expiration of such period).
(d) In the case of an election under Section 1402, the Company shall
deliver to the Trustee an Opinion of Counsel stating that (i) the Company
has received from, or there has been published by, the Internal Revenue
Service a ruling or (ii) since the date of execution of this Indenture,
there has been a change in the applicable federal income tax law, in either
case to the effect that, and based thereon such opinion shall confirm that,
the Holders of such Outstanding Securities and any coupons appertaining
thereto will not recognize income, gain or loss for federal income tax
purposes as a result of such defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such defeasance had not occurred.
(e) In the case of an election under Section 1403, the Company shall
deliver to the Trustee an Opinion of Counsel to the effect that the Holders
of such Outstanding Securities and any coupons appertaining thereto will
not recognize income, gain or loss for federal income tax purposes as a
result of such covenant defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as would
have been the case if such covenant defeasance had not occurred.
(f) The Company shall deliver to the Trustee a Company Certificate and
an Opinion of Counsel, each stating that all conditions precedent to the
defeasance under Section 1402 or the covenant defeasance under Section 1403
(as the case may be) have been complied with and an Opinion of Counsel to
the effect that either (i) as a result of a deposit pursuant to paragraph
(a) above and the related exercise of the Company's option under Section
1402 or Section 1403 (as the case may be), registration is not required
under the Investment Company Act of 1940, as amended, by the Company with
respect to the trust funds representing such deposit or by the Trustee for
such trust funds or (ii) all necessary registrations under such Act have
been effected.
(g) After the 91st day following the deposit, the trust funds will not
be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally.
(h) Notwithstanding any other provisions of this Section, such
defeasance or covenant defeasance shall be effected in compliance with any
additional or substitute terms, conditions or limitations which may be
imposed on the Company in connection therewith pursuant to Section 301.
SECTION 1405. Deposited Money and Government Obligations to Be Held in
--------------------------------------------------------
Trust; Other Miscellaneous Provisions. Subject to the provisions of the last
- -------------------------------------
paragraph of Section 1003, all money and Government Obligations (or other
property as may be provided pursuant to Section 301) (including the proceeds
thereof) deposited with the Trustee (or other qualifying trustee) pursuant to
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Section 1404 in respect of any Outstanding Securities of any series and any
coupons appertaining thereto shall be held in trust and applied by the Trustee
or such other qualifying trustee, in accordance with the provisions of such
Securities and any coupons appertaining thereto and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee or such other qualifying trustee
may determine, to the Holders of such Securities and any coupons appertaining
thereto of all sums due and to become due thereon in respect of principal (and
premium or Make-Whole Amount, if any) and interest and Additional Amounts, if
any, but such money need not be segregated from other funds except to the extent
required by law.
Unless otherwise specified with respect to any Security pursuant to Section
301, if, after a deposit referred to in Section 1404(a) has been made, (i) the
Holder of a Security in respect of which such deposit was made is entitled to,
and does, elect pursuant to Section 301 or the terms of such Security to receive
payment in a currency, currency unit or composite currency other than that in
which the deposit pursuant to Section 1404(a) has been made in respect of such
Security or (ii) a Conversion Event occurs in respect of the currency, currency
unit or composite currency in which the deposit pursuant to Section 1404(a) has
been made, the indebtedness represented by such Security and any coupons
appertaining thereto shall be deemed to have been, and will be, fully discharged
and satisfied through the payment of the principal of (and premium or Make-Whole
Amount, if any, on), and interest and Additional Amounts, if any, on such
Security as the same become due out of the proceeds yielded by converting (from
time to time as specified below in the case of any such election) the amount or
other property deposited in respect of such Security into the currency, currency
unit or composite currency in which such Security becomes payable as a result of
such election or Conversion Event based on the applicable market exchange rate
for such currency, currency unit or composite currency in effect on the second
Business Day prior to each payment date, except, with respect to a Conversion
Event, for such currency, currency unit or composite currency in effect (as
nearly as feasible) at the time of the Conversion Event.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the Government Obligations deposited
pursuant to Section 1404 or the principal and interest received in respect
thereof other than any such tax, fee or other charge which by law is for the
account of the Holders of such Outstanding Securities and any coupons
appertaining thereto.
Anything in this Article to the contrary notwithstanding, the Trustee or
such other qualifying trustee shall deliver or pay to the Company, from time to
time upon Company Request, any money or Government Obligations (or other
property and any proceeds therefrom) held by it as provided in Section 1404
which, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee or such other qualifying trustee, are in excess of the amount thereof
which would then be required to be deposited to effect a defeasance or covenant
defeasance, as applicable, in accordance with this Article.
87
<PAGE>
ARTICLE FIFTEEN
MEETINGS OF HOLDERS OF SECURITIES
SECTION 1501. Purposes for Which Meetings May Be Called. A meeting of
-----------------------------------------
Holders of Securities of any series may be called at any time and from time to
time pursuant to this Article to make, give or take any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be made, given or taken by Holders of Securities of such
series.
SECTION 1502. Call, Notice and Place of Meetings.
----------------------------------
(a) The Trustee may at any time call a meeting of Holders of
Securities of any series for any purpose specified in Section 1501, to be
held at such time and at such place in the city of Boston, Massachusetts,
as the Trustee determines. Notice of every meeting of Holders of
Securities of any series, setting forth the time and the place of such
meeting and in general terms the action proposed to be taken at such
meeting, shall be given, in the manner provided in Section 106, not less
than 21 nor more than 180 days prior to the date fixed for the meeting.
(b) In case at any time the Company, pursuant to a Board Resolution,
or the Holders of at least 10% in principal amount at maturity of the
Outstanding Securities of any series have requested the Trustee to call a
meeting of the Holders of Securities of such series for any purpose
specified in Section 1501, by written request setting forth in reasonable
detail the action proposed to be taken at the meeting, and the Trustee has
not made the first publication of the notice of such meeting within 21 days
after receipt of such request or does not thereafter proceed to cause the
meeting to be held as provided herein, then the Company or the Holders of
Securities of such series in the amount above specified, as the case may
be, may determine the time and the place in the city of Boston,
Massachusetts, for such meeting and may call such meeting for such purposes
by giving notice thereof as provided in paragraph (a) above.
SECTION 1503. Persons Entitled to Vote at Meetings. To be entitled to vote
------------------------------------
at any meeting of Holders of Securities of any series, a Person shall be (i) a
Holder of one or more Outstanding Securities of such series or (ii) a Person
appointed by an instrument in writing as proxy for a Holder or Holders of one or
more Outstanding Securities of such series by such Holder or Holders. The only
Persons who shall be entitled to be present or to speak at any meeting of
Holders of Securities of any series are the Persons entitled to vote at such
meeting and their counsel, any representatives of the Trustee and its counsel,
and any representatives of the Company and its counsel.
SECTION 1504. Quorum; Action. The Persons entitled to vote a majority in
--------------
principal amount of the Outstanding Securities of a series shall constitute a
quorum for a meeting of Holders of Securities of such series; provided, however,
-------- -------
that if any action is to be taken at such meeting with respect to a consent or
waiver which this Indenture expressly provides may be given by the Holders of
not less than a specified percentage in principal amount at maturity of
88
<PAGE>
the Outstanding Securities of a series, the Persons entitled to vote such
specified percentage in principal amount at maturity of the Outstanding
Securities of such series shall constitute a quorum. In the absence of a quorum
within 30 minutes after the time appointed for any such meeting, the meeting
shall, if convened at the request of Holders of Securities of such series, be
dissolved. In any other case the meeting may be adjourned for a period of not
less than ten days as determined by the chairman of the meeting prior to the
adjournment of such meeting. In the absence of a quorum at any such adjourned
meeting, such adjourned meeting may be further adjourned for a period of not
less than ten days as determined by the chairman of the meeting prior to the
adjournment of such adjourned meeting. Notice of the reconvening of any
adjourned meeting shall be given as provided in Section 1502(a), except that
such notice need be given only once not less than five days prior to the date on
which the meeting is scheduled to be reconvened. Notice of the reconvening of
any adjourned meeting shall state expressly the percentage, as provided above,
of the principal amount at maturity of the Outstanding Securities of such series
which shall constitute a quorum.
Except as limited by the proviso to Section 902, any resolution presented
to a meeting or adjourned meeting duly reconvened at which a quorum is present
as aforesaid may be adopted by the affirmative vote of the Holders of a majority
in principal amount at maturity of the Outstanding Securities of such series;
provided, however, that, except as limited by the proviso to Section 902, any
- -------- -------
resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action which this Indenture expressly provides
may be made, given or taken by the Holders of a specified percentage, which is
less than a majority, in principal amount at maturity of the Outstanding
Securities of a series may be adopted at a meeting or an adjourned meeting duly
reconvened and at which a quorum is present as aforesaid by the affirmative vote
of the Holders of such specified percentage in principal amount at maturity of
the Outstanding Securities of such series.
Any resolution passed or decision taken at any meeting of Holders of
Securities of any series duly held in accordance with this Section shall be
binding on all the Holders of Securities of such series and any coupons
appertaining thereto, whether or not present or represented at the meeting.
Notwithstanding the foregoing provisions of this Section 1504, if any
action is to be taken at a meeting of Holders of Securities of any series with
respect to any request, demand, authorization, direction, notice, consent,
waiver or other action which this Indenture expressly provides may be made,
given or taken by the Holders of a specified percentage in principal amount at
maturity of all Outstanding Securities affected thereby, or of the Holders of
such series and one or more additional series:
(1) there shall be no minimum quorum requirement for such meeting; and
(2) the principal amount at maturity of the Outstanding Securities of
such series which vote in favor of such request, demand, authorization,
direction, notice, consent, waiver or other action shall be taken into
account in determining whether such request, demand, authorization,
direction, notice, consent, waiver or other action has been made, given or
taken under this Indenture.
89
<PAGE>
SECTION 1505. Determination of Voting Rights; Conduct and Adjournment of
----------------------------------------------------------
Meetings.
- --------
(a) Notwithstanding any provisions of this Indenture, the Trustee may
make such reasonable regulations as it may deem advisable for any meeting
of Holders of Securities of a series in regard to proof of the holding of
Securities of such series and of the appointment of proxies and in regard
to the appointment and duties of inspectors of votes, the submission and
examination of proxies, certificates and other evidence of the right to
vote, and such other matters concerning the conduct of the meeting as it
deems appropriate. Except as otherwise permitted or required by any such
regulations, the holding of Securities shall be proved in the manner
specified in Section 104 and the appointment of any proxy shall be proved
in the manner specified in Section 104 or by having the signature of the
Person executing the proxy witnessed or guaranteed by any trust company,
bank or banker authorized by Section 104 to certify to the holding of
Bearer Securities. Such regulations may provide that written instruments
appointing proxies, regular on their face, may be presumed valid and
genuine without the proof specified in Section 104 or other proof.
(b) The Trustee shall, by an instrument in writing appoint a temporary
chairman of the meeting, unless the meeting has been called by the Company
or by Holders of Securities as provided in Section 1502(b), in which case
the Company or the Holders of Securities of or within the series calling
the meeting, as the case may be, shall in like manner appoint a temporary
chairman. A permanent chairman of the meeting shall be elected by vote of
the Persons entitled to vote a majority in principal amount at maturity of
the Outstanding Securities of such series represented at the meeting.
(c) At any meeting, each Holder of a Security of such series or proxy
shall be entitled to one vote for each $1,000 principal amount at maturity
of the Outstanding Securities of such series held or represented by such
Holder; provided, however, that no vote shall be cast or counted at any
-------- -------
meeting in respect of any Security challenged as not Outstanding and ruled
by the chairman of the meeting to be not Outstanding. The chairman of the
meeting shall have no right to vote, except as a Holder of a Security of
such series or proxy.
(d) Any meeting of Holders of Securities of any series duly called
pursuant to Section 1502 at which a quorum is present may be adjourned from
time to time by Persons entitled to vote a majority in principal amount at
maturity of the Outstanding Securities of such series represented at the
meeting, and the meeting may be held as so adjourned without further
notice.
SECTION 1506. Counting Votes and Recording Action of Meetings. The vote on
-----------------------------------------------
any resolution submitted to any meeting of Holders of Securities of any series
shall be by written ballots on which shall be subscribed the signatures of the
Holders of Securities of such series or of their representatives by proxy and
the principal amounts and series numbers of the Outstanding Securities of such
series held or represented by them. The permanent chairman of the meeting shall
appoint two inspectors of votes who shall count all votes cast at the meeting
for or against any resolution and
90
<PAGE>
who shall make and file with an Authorized Officer their verified written
reports in duplicate of all votes cast at the meeting. A record, at least in
duplicate, of the proceedings of each meeting of Holders of Securities of any
series shall be prepared by an Authorized Officer and there shall be attached to
such record the original reports of the inspectors of votes on any vote by
ballot taken thereat and affidavits by one or more persons having knowledge of
the fact, setting forth a copy of the notice of the meeting and showing that
such notice was given as provided in Section 1502 and, if applicable, Section
1504. Each copy shall be signed and verified by the affidavit of the permanent
chairman or his or her duly appointed representative and one such copy shall be
delivered to the Company and another to the Trustee to be preserved by the
Trustee, the latter to have attached thereto the ballots voted at the meeting.
Any record so signed and verified shall be conclusive evidence of the matters
therein stated.
SECTION 1507. Evidence of Action Taken by Holders. Any request, demand,
-----------------------------------
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by a specified percentage in principal
amount at maturity of the Holders of any or all series may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such specified percentage of Holders in person or by agent duly appointed in
writing; and, except as otherwise expressly provided herein, such action shall
become effective when such instrument or instruments are delivered to the
Trustee. Proof of execution of any instrument or of a writing appointing any
such agent shall be sufficient for any purpose of this Indenture and (subject to
Article Six) conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Article.
SECTION 1508. Proof of Execution of Instruments. Subject to Article Six,
---------------------------------
the execution of any instrument by a Holder or his agent or proxy may be proved
in accordance with such reasonable rules and regulations as may be prescribed by
the Trustee or in such manner as shall be satisfactory to the Trustee.
SECTION 1509. Inapplicability of Luxembourg Law. Articles 86 to 94-8
---------------------------------
(inclusive) of the law of August 10, 1915 on commercial companies (as amended)
of Luxembourg relating to the representation of Holders shall not be applicable.
91
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and the corporate seal of the Trustee to be hereunto affixed and
attested, all as of the day and year first above written.
SECURITY CAPITAL U.S. REALTY
By:________________________________
name:
title:
Attest:
__________________________
name:
title:
STATE STREET BANK AND TRUST COMPANY,
As Trustee
By:________________________________
Name:__________________________
[SEAL] Title:_____________________________
Attest:
__________________________
Secretary
92
<PAGE>
EXHIBIT A
FORMS OF CERTIFICATION
EXHIBIT A-1
FORM OF CERTIFICATE TO BE GIVEN BY PERSON ENTITLED
TO RECEIVE BEARER SECURITY OR TO OBTAIN INTEREST
PAYABLE PRIOR TO THE EXCHANGE DATE
CERTIFICATE
[INSERT TITLE OR SUFFICIENT DESCRIPTION OF SECURITIES TO BE DELIVERED]
This is to certify that, as of the date hereof, and except as set forth
below, the above-captioned Securities held by you for our account (i) are owned
by person(s) which are not citizens or residents of the United States, domestic
partnerships, domestic corporations or any estate or trust the income of which
is subject to United States federal income taxation regardless of its source
("United States person(s)"), (ii) are owned by United States person(s) which are
(a) foreign branches of United States financial institutions (financial
institutions, as defined in United States Treasury Regulations Section 1.165-
12(c)(1)(v) are herein referred to as "financial institutions") purchasing for
their own account or for resale, or (b) United States person(s) who acquired the
Securities through foreign branches of United States financial institutions and
who hold the Securities through such United States financial institutions on the
date hereof (and in either case (a) or (b), each such United States financial
institution hereby agrees, on its own behalf or through its agent, that you may
advise Security Capital U.S. Realty or its agent that such financial institution
will provide a certificate within a reasonable time stating that it agrees to
comply with the requirements of Section 165(j)(3)(A), (B) or (C) of the United
States Internal Revenue Code of 1986, as amended, and the regulations
thereunder), or (iii) are owned by a financial institution for purposes of
resale during the restricted period (as defined in United States Treasury
Regulations Section 1.163-5(c)(2)(i)(D)(7)), and, such financial institution
described in clause (iii) above (whether or not also described in clause (i) or
(ii)), certifies that it has not acquired the Securities for purposes of resale
directly or indirectly to a United States person or to a person within the
United States or its possessions.
As used herein, "United States" means the United States of America
(including the States and the District of Columbia); and its "possessions"
include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island
and the Northern Mariana Islands.
We undertake to advise you promptly by tested telex on or prior to the date
on which you intend to submit your certification relating to the above-captioned
Securities held by you for our account in accordance with your Operating
Procedures if any applicable statement herein is not correct on such date, and
in the absence of any such notification it may be assumed that this
certification applies as of such date.
<PAGE>
This certificate excepts and does not relate to [U.S.$] _______________ of
such interest in the above-captioned Securities in respect of which we are not
able to certify and as to which we understand an exchange for an interest in a
Permanent Global Security or an exchange for and delivery of definitive
Securities (or, if relevant, collection of any interest) cannot be made until we
do so certify.
We understand that this certificate may be required in connection with
certain tax legislation in the United States. If administrative or legal
proceedings are commenced or threatened in connection with which this
certificate is or would be relevant, we irrevocably authorize you to produce
this certificate or a copy thereof to any interested party in such proceedings.
Dated: __________ ___, ____
[To be dated no earlier than the 15th day prior
to the earlier of (i) the Exchange Date or
(ii) the relevant Interest Payment Date occurring
prior to the Exchange Date, as applicable]
[Name of Person Making Certification]
____________________________________
(Authorized Signatory)
Name:
Title:
<PAGE>
EXHIBIT A-2
FORM OF CERTIFICATE TO BE GIVEN BY EUROCLEAR
AND CEDEL S.A. IN CONNECTION WITH THE EXCHANGE OF
A PORTION OF A TEMPORARY GLOBAL SECURITY OR TO
OBTAIN INTEREST PAYABLE PRIOR TO THE EXCHANGE DATE
CERTIFICATE
[INSERT TITLE OR SUFFICIENT DESCRIPTION OF SECURITIES TO BE DELIVERED]
This is to certify that, based solely on written certifications that we
have received in writing, by tested telex or by electronic transmission from
each of the persons appearing in our records as persons entitled to a portion of
the principal amount set forth below (our "Member Organizations") substantially
in the form attached hereto, as of the date hereof, [U.S.$] _______________
principal amount of the above-captioned Securities (i) is owned by person(s)
which are not citizens or residents of the United States, domestic partnerships,
domestic corporations or any estate or trust the income of which is subject to
United States Federal income taxation regardless of its source ("United States
person(s)"), (ii) is owned by United States persons(s) which are (a) foreign
branches of United States financial institutions (financial institutions, as
defined in United States Treasury Regulations Section 1.165-12(c)(1)(v) are
herein referred to as "financial institutions") purchasing for their own account
or for resale, or (b) United States person(s) who acquired the Securities
through foreign branches of United States financial institutions and who hold
the Securities through such United States financial institutions on the date
hereof (and in either case (a) or (b), each such financial institution has
agreed, on its own behalf or through its agent, that we may advise Security
Capital U.S. Realty or its agent that such financial institution will provide a
certificate within a reasonable time stating that it agrees to comply with the
requirements of Section 165(j)(3)(A), (B) or (C) of the Internal Revenue Code of
1986, as amended, and the regulations thereunder), or (iii) is owned by a
financial institution for purposes of resale during the restricted period (as
defined in United States Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7)),
and that such financial institutions described in clause (iii) above (whether or
not also described in clause (i) or (ii)) have certified that they have not
acquired the Securities for purposes of resale directly or indirectly to a
United States person or to a person within the United States or its possessions.
As used herein, "United States" means the United States of America
(including the States and the District of Columbia); and its "possessions"
include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island
and the Northern Mariana Islands.
We further certify that (i) we are not making available herewith for
exchange (or, if relevant, collection of any interest) any portion of the
temporary global Security representing the above-captioned Securities excepted
in the above-referenced certificates of Member Organizations and (ii) as of the
date hereof we have not received any notification from any of our Member
Organizations to the effect that the statements made by such Member
Organizations with respect to any portion of
<PAGE>
the part submitted herewith for exchange (or, if relevant, collection of any
interest) are no longer true and cannot be relied on as of the date hereof.
We understand that this certification is required in connection with
certain tax legislation in the United States. If administrative or legal
proceedings are commenced or threatened in connection with which this
certificate is or would be relevant, we irrevocably authorize you to produce
this certificate or a copy thereof to any interested party in such proceedings.
Dated: __________ ___, 19___
[To be dated no earlier than the earlier of
the Exchange Date or the relevant Interest
Payment Date occurring prior to the Exchange
Date, as applicable]
[Morgan Guaranty Trust Company of New York,
Brussels Office,] as Operator of the Euroclear
System [Cedel S.A.]
By:______________________________________
<PAGE>
EXHIBIT 4.3
THIS FIRST SUPPLEMENTAL INDENTURE, dated as of May 22, 1998, is between
SECURITY CAPITAL U.S. REALTY, a Luxembourg corporation (the "Company") and STATE
-------
STREET BANK AND TRUST COMPANY, as trustee (the "Trustee").
-------
PRELIMINARY STATEMENT
The Company and the Trustee have entered into an Indenture, dated as of May
22, 1998 (the "Indenture"). Capitalized terms used herein, not otherwise
---------
defined herein, shall have the meanings given them in the Indenture.
There have heretofore been no Securities authenticated and delivered by the
Trustee under the Indenture.
In Section 301 of Article Three of the Indenture it is provided, among
other things, that the Securities may be issued in series, that all Securities
of any one series shall be identical, except as otherwise provided, that the
Securities of each series may differ as to terms and provisions thereof and that
the maximum amount of the Securities issuable of any series may or may not be
limited as the Board of Directors shall determine.
In Section 901 of Article Nine of the Indenture it is provided that, among
other things, that the Company and the Trustee, from time to time and at any
time, subject to the restrictions in the Indenture contained, may enter into one
or more Supplemental Indentures , in form satisfactory to the Trustee (which
Supplemental Indenture or Indentures shall thereafter form a part of the
Indenture) for the following purposes among others: to add to the covenants and
agreements of the Company for the protections of Holders of any series of
Securities and to establish the form or terms of Securities of any series.
The Company desires, for its corporate purposes, to create and issue under
and in accordance with the provisions of the Indenture, up to $450,000,000
aggregate principal amount at maturity of Securities to be known as its 2%
Senior Unsecured Convertible Notes due 2003 (the "2003 Convertible Notes") and
----------------------
to enter into this First Supplemental Indenture to add to the covenants and
agreements of the Company for the protection of the Holders of the 2003
Convertible Notes and to establish the form and terms of the 2003 Convertible
Notes.
The form, terms and provisions of the Indenture and the execution thereof
by the Company have been duly authorized and all things necessary to make this
First Supplemental Indenture a valid agreement of the Company and the Trustee
and a valid amendment of and supplement to the Indenture and to make the 2003
Convertible Notes, when authenticated by the Trustee, and delivered, the valid
and binding obligations of the Company, have been done.
<PAGE>
NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH:
For and in consideration of the premises, it is mutually covenanted and
agreed, for the equal and proportionate benefit of all Holders of the 2003
Convertible Notes issued under the Indenture on or after the date of this First
Supplemental Indenture, as follows:
THE TERMS AND PROVISIONS OF THE 2003 CONVERTIBLE NOTES
SECTION 1. The title of the new series of Securities shall be: 2% Senior
Unsecured Convertible Notes Due 2003.
SECTION 2. The maximum aggregate principal amount at maturity of the 2003
Convertible Notes which may be authenticated and delivered under the Indenture
(except for 2003 Convertible Notes authenticated and delivered upon registration
of, transfer of, or in exchange for, or in lieu of, other 2003 Convertible Notes
pursuant to Section 304, 305, 306, 906, 1107 or 1305 of the Indenture and except
for any 2003 Convertible Notes which pursuant to Section 303 are deemed never to
have been authenticated and delivered) is $450,000,000.
SECTION 3. Principal on the 2003 Convertible Notes shall be payable on May
22, 2003, unless earlier converted at the option of the Holder or redeemed at
the option of the Company.
SECTION 4. Interest on the 2003 Convertible Notes will be payable semi-
annually at the rate of 2% per annum on the aggregate principal amount at
maturity of the 2003 Convertible Notes in cash in arrears (on the basis of a
360-day year or twelve 30-day months) on May 22 and November 22 (the "Interest
--------
Payment Dates") of each year, commencing November 22, 1998. Interest shall be
- -------------
payable on the Interest Payment Dates to the persons in whose names the 2003
Convertible Notes are registered at the close of business on the preceding May 8
and November 8, respectively (the "Regular Record Dates").
--------------------
SECTION 5. The principal of, premium, if any, and interest (including
liquidated damages, if any, as determined in accordance with the provisions of
the registration rights agreement attached hereto as Annex I) on the 2003
Convertible Notes shall initially be payable, and the 2003 Convertible Notes may
be surrendered for registration of transfer, exchange, redemption or conversion
and notices or demands to or on the Company with respect to the 2003 Convertible
Notes may be served, at the offices of State Street Bank and Trust Company in
Boston, Massachusetts and State Street Bank Luxembourg, S.A. in Luxembourg
(collectively, the "Paying Agent").
------------
SECTION 6. The 2003 Convertible Notes may be redeemed, in whole or in
part, at the option of the Company, on or after May 23, 2001 upon at least 30
days' notice at the Accreted Value thereof in U.S. Dollars, together with
accrued and unpaid interest.
"Accreted Value" means, as of any date of redemption, the sum of (a)
--------------
$801.23 (the offering price of each 2003 Convertible Note) and (b) the portion
of the excess of (i) the
2
<PAGE>
aggregate principal amount of each 2003 Convertible Note over (ii) the offering
price of each 2003 Convertible Note that shall have been amortized through such
date, such amount to be so amortized on a daily basis and compounded semi-
annually on each May 22 and November 22 from May 22, 1998 through the date of
determination to achieve, during such period, an annual rate of return on the
aggregate principal amount of each 2003 Convertible Note equal to 6 3/4,
assuming a current rate of return of 2% per annum on the aggregate principal
amount of each 2003 Convertible Note.
For each $1,000 in aggregate principal amount at maturity of the 2003
Convertible Notes, the following table shows the offering price, accrued
original issue discount and accreted value of the 2003 Convertible Notes at six-
month intervals through May 22, 2003. If the Notes are converted between any
two such dates, the accreted value would include an additional amount reflecting
the additional original issue discount accrued from the previous date in the
table to the conversion date.
<TABLE>
<CAPTION>
ACCRUED ORIGINAL
----------------
DATE OFFERING PRICE ISSUE DISCOUNT ACCRETED VALUE
---- -------------- -------------- --------------
<S> <C> <C> <C>
November 22, 1998.......... $ 801.23 $ 17.04 $ 818.27
May 22, 1999............... 801.23 34.66 835.89
November 22, 1999.......... 801.23 52.87 854.10
May 22, 2000............... 801.23 71.70 872.93
November 22, 2000.......... 801.23 91.16 892.39
May 22, 2001............... 801.23 111.27 912.50
November 22, 2001.......... 801.23 132.07 933.30
May 22, 2002............... 801.23 153.57 954.80
November 22, 2002.......... 801.23 175.80 977.03
May 22, 2003............... 801.23 198.77 1,000.00
</TABLE>
SECTION 7. The Company shall have no obligation to redeem, repay or
repurchase 2003 Convertible Notes pursuant to any sinking fund or analogous
provision.
SECTION 8. The 2003 Convertible Notes will be issued in denominations of
$1,000 in principal amount at maturity and integral multiples of $1,000 in
excess thereof.
SECTION 9. The Security Registrar and the Paying Agent initially shall be
the Trustee
3
<PAGE>
at its offices in Boston, Massachusetts and State Street Bank Luxembourg, S.A.
in Luxembourg.
SECTION 10. The 2003 Convertible Notes are being sold at a discount from
their aggregate principal amount at maturity. The rate of interest payable on
the 2003 Convertible Notes and the accrual of original issue discount represents
a yield to maturity of 6 3/4% per annum (computed on a semi-annual bond
equivalent basis, i.e., a daily basis compounded semi-annually). The portion of
the principal amount of the 2003 Convertible Notes which is payable upon the
declaration of acceleration of their maturity pursuant to Section 502 of the
Indenture is the Accreted Value thereof at the time of the declaration of
acceleration.
SECTION 11. The 2003 Convertible Notes shall be issuable in United States
dollars.
SECTION 12. The amount of payments of principal of, premium (if any), or
interest (including liquidated damages, if any) on the 2003 Convertible Notes
shall not be determined with reference to any index.
SECTION 13. Payments of principal of, premium (if any), and interest
(including liquidated damages, if any) on the 2003 Convertible Notes shall be
payable only in United States dollars.
SECTION 14. Except as set forth below, there are no other provisions
granting special rights to the holders of the 2003 Convertible Notes on the
occurrence of any event.
(1) If a Change in Control (as defined below) occurs, each Holder of
2003 Convertible Notes shall have the right to require the Company to
repurchase all of such Holder's 2003 Convertible Notes, or any portion of
the principal amount thereof that is an integral multiple of $1,000 in
aggregate principal amount at maturity, on the date (the "Repurchase Date")
---------------
that is 30 days after the date of mailing of the Company Notice (as defined
below), for cash at a price equal to the Accreted Value thereof (the
"Repurchase Price") together with accrued and unpaid interest to (including
----------------
liquidated damages, if any), but excluding, the Repurchase Date; provided
that any semi-annual payment of interest becoming due on the Repurchase
Date shall be payable to the holders of record on the relevant record date
of the 2003 Convertible Notes being repurchased.
(2) Within 30 days following any Change in Control, the Company shall
give notice (the "Company Notice') to each Holder of 2003 Convertible Notes
--------------
(with a copy to the Trustee and any other Paying Agent) at such Holder's
registered address stating: (i) that an offer ("Offer") is being made
-----
pursuant to a Change in Control, the length of time the Offer shall remain
open and the Repurchase Date, (ii) the Repurchase Price, the amount of
accrued and unpaid interest (including liquidated damages, if any), at the
Repurchase Date and (iii) such other information required by applicable law
and regulations. Such notice shall also be given by publication in a daily
newspaper of general circulation in The City of New York and in Luxembourg
or, if publication in Luxembourg is not practical, in Western Europe.
4
<PAGE>
(3) On any Repurchase Date, the Company will, to the extent lawful
and required by the Indenture and such Offer, (i) accept for payment all
2003 Convertible Notes or portions thereof tendered pursuant to such Offer,
(ii) deposit with the Trustee the aggregate Repurchase Price of all 2003
Convertible Notes or portions thereof accepted for payment together with
any accrued and unpaid interest (including liquidated damages, if any), to
the Repurchase Date and (iii) deliver or cause to be delivered to the
Trustee the 2003 Convertible Notes so accepted together with a Company
Certificate stating the aggregate principal amount at maturity of the 2003
Convertible Notes or portions thereof tendered to the Company. The Trustee
shall promptly mail to each Holder of 2003 Convertible Notes so accepted,
payment in an amount equal to the Repurchase Price for such 2003
Convertible Notes together with any accrued and unpaid interest (including
liquidated damages, if any), to the Repurchase Date, and the Trustee shall
promptly authenticate and mail (or cause to be transferred by book-entry)
to such Holder a new 2003 Convertible Note equal in aggregate principal
amount at maturity to any unpurchased portion of the 2003 Convertible Notes
surrendered, provided that each such new 2003 Convertible Note shall be in
a principal amount of $1,000 aggregate principal amount at maturity or
integral multiples thereof. The Company will publicly announce the results
of the Offer on or as soon as practicable after the Repurchase Date.
(4) A "Change in Control" will be deemed to have occurred at such
-----------------
time after the original issuance of the 2003 Convertible Notes as:
(A) any "person" or "group" (as such items are used under
Section 13(d) and 14(d) of the Exchange Act) other than the Company,
any subsidiary of the Company, Security Capital Group Incorporated or
any affiliate of Security Capital Group Incorporated or any employee
benefit plan of the Company or any such subsidiary, is or becomes the
beneficial owner, directly or indirectly, through a purchase or other
acquisition transaction or series of transactions (other than a merger
or consolidation involving the Company), of Shares entitling such
person to exercise in excess of 50% of the total voting power of all
shares of capital stock of the Company entitled to vote generally in
the election of directors; or
(B) there occurs any consolidation of the Company with, or
merger of the Company into, any other person, any merger of another
person into the Company, or any sale or transfer of all or
substantially all of the assets of the Company to another person
(other than (i) any such transaction pursuant to which the holders of
the Shares immediately prior to such transaction have, directly or
indirectly, shares of capital stock of the continuing or surviving
corporation immediately after such transaction which entitle such
holders to exercise in excess of 50% of the total voting power of all
shares of capital stock of the continuing or surviving corporation
entitled to vote generally in the election of directors and (ii) any
merger (a) which does not result in any reclassification, conversion,
exchange or cancellation of outstanding Shares or (b) which is
effected solely to change the jurisdiction of incorporation of the
Company and results in a reclassification,
5
<PAGE>
conversion or exchange of outstanding Shares solely into shares of
common stock).
SECTION 15. Solely for the benefit of the Holders of the 2003 Convertible
Notes, the following shall be additions to the
(1) Events of Default set forth in Section 501 of the Indenture:
(11) failure by the Company to repurchase the 2003 Convertible Notes
when and as required by Section 14 of the First Supplemental Indenture
following a Change in Control.
(2) covenants set forth in Article Ten of the Indenture:
SECTION 1012. Limitations on Incurrence of Indebtedness. The Company
-----------------------------------------
shall not incur (i) Senior Indebtedness that is not subordinated to the
same extent as the 2003 Convertible Notes or (ii) Secured Indebtedness that
is by its terms senior in right of payment to the 2003 Convertible Notes,
except that the Company is permitted to guarantee, on a secured basis
and/or a senior unsubordinated basis, the obligations of any Wholly-Owned
Subsidiary with respect to any Permitted Indebtedness of such Wholly-Owned
Subsidiary. No Wholly-Owned Subsidiary may incur (i) any Indebtedness that
is by its terms subordinated in right of payment to any Permitted
Indebtedness of such Wholly-Owned Subsidiary, (ii) any Secured Indebtedness
if such Wholly-Owned Subsidiary is an obligor under any unsecured Permitted
Indebtedness or (iii) any Unsecured Indebtedness if such Wholly-Owned
Subsidiary is an obligor under any Secured Indebtedness which is Permitted
Indebtedness. It being understood that a Wholly-Owned Subsidiary may
refinance Secured Indebtedness with unsecured Indebtedness and vice versa.
Indebtedness shall be deemed to be incurred by the Company or a
Wholly-Owned Subsidiary whenever the Company or such Wholly-Owned
Subsidiary shall create, assume, guarantee or otherwise become liable in
respect thereof.
"Permitted Indebtedness" means a line of credit, credit agreement,
credit facility, note issuance or similar arrangement entered into by a
Wholly-Owned Subsidiary and the lender parties thereto or purchasers
thereof, together with all loan documents and instruments thereunder
(including, without limitation, any guarantee agreements and security
documents) and any other Indebtedness ranking pari passu with any of the
foregoing, in each case as such agreements may be amended (including any
amendment and restatement thereof), supplemented, replaced, or otherwise
modified from time to time, including any agreement extending the maturity
of, refinancing, replacing or otherwise restructuring (including, without
limitation, increasing the amount of available borrowings or notes issued,
and all obligations with respect thereto) all or any portion of the
Indebtedness under such agreement and whether by the same or any other
agent,
6
<PAGE>
lender or group of lenders.
"Secured Indebtedness" means Indebtedness of the types described in
clauses (i), (iii) and (iv) of the definition thereof which is secured by
any mortgage, lien, charge, pledge or security interest of any kind on any
of the properties of the Company or any Wholly-Owned Subsidiary.
"Senior Indebtedness" means all Indebtedness of the Company which by
its terms or the terms of the instrument creating or evidencing such
Indebtedness, is senior in right of payment to the 2003 Convertible Notes.
"Wholly-Owned Subsidiary" means any corporation or other entity, other
than a Strategic Investee, of which all of (a) the voting power of the
voting equity securities or (b) in the case of a partnership or any other
entity other than a corporation, the outstanding equity interests are
owned, directly or indirectly, by the Company. For the purposes of this
definition, "voting equity securities" means equity securities having
voting power for the election of directors, whether at all times or only so
long as no senior class of securities has such voting power by reason of
any contingency.
SECTION 16. The 2003 Convertible Notes shall be issued in the form of
fully registered global notes, which will be deposited with, or on behalf of,
DTC and registered in the name of DTC's nominee and the circumstances under
which any global note may be transferred to, and registered and exchanged for
notes registered in the name of a Person other than DTC shall, except as set
forth below, be as set forth in Section 305 of the Indenture. Principal of,
premium, if any, and interest payments (including liquidated damages, if any) on
the 2003 Convertible Notes will be made to DTC or its nominee.
(1) Global Note or Notes. The Company shall execute and the Trustee
--------------------
shall, in accordance with Section 303, authenticate and deliver, such
global note or notes, which shall represent, and shall be denominated in an
amount equal to the aggregate principal amount at maturity of the 2003
Convertible Notes to be represented by such global note or notes.
(A) U.S. Global Note. 2003 Convertible Notes initially offered
----------------
and sold in reliance on Rule 144A under the Securities Act to
qualified institutional buyers (as defined in Rule 144A) shall be
issued in the form of a permanent global note in definitive fully
registered form without interest coupons, substantially in the form of
Exhibit A hereto (the "U.S. Global Note"). The U.S. Global Note shall
--------- ----------------
be deposited on behalf of the purchaser of the 2003 Convertible Notes
represented thereby with the custodian for DTC, and registered in the
name of a nominee of DTC, duly executed by the Company and
authenticated by the Trustee as provided in the Indenture. The
aggregate principal amount at maturity of the U.S. Global Note may
from time to time be increased or decreased by adjustments made on the
Security Register and the records of the custodian for
7
<PAGE>
DTC, DTC or its nominee, as the case may be, as herein provided.
(B) Regulation S Global Note. 2003 Convertible Notes initially
------------------------
offered and sold to persons outside the United States in reliance on
Regulation S under the Securities Act shall be issued in the form of a
permanent global note in definitive fully registered form without
interest coupons, substantially in the form of Exhibit B hereto (the
---------
"Regulation S Global Note"). The Regulation S Global Note shall be
-------------------------
deposited on behalf of the purchasers of the 2003 Convertible Notes
represented thereby with the custodian for DTC, and registered in the
name of a nominee of DTC, duly executed by the Company and
authenticated by the Trustee as provided herein, for credit to their
respective accounts (or to such other accounts as they may direct) at
Euroclear or Cedel. The aggregate principal amount at maturity of
the Regulation S Global Note may from time to time be increased or
decreased by adjustments made on the Security Register and the records
of the custodian for DTC, DTC or its nominee, as the case may be, as
herein provided.
(2) Book-Entry Provisions.
---------------------
(A) The Company shall execute and the Trustee shall, in
accordance with Section 303, authenticate and deliver, such global
note or notes, which (a) shall represent, and shall be denominated in
an amount equal to the aggregate principal amount at maturity of the
2003 Convertible Notes to be represented by such global note or notes,
(b) shall be registered in the name of DTC or its nominee, (c) shall
be delivered by the Trustee to the custodian for DTC or pursuant to
DTC's instruction and (D) shall bear a legend substantially to the
following effect:
"UNLESS THIS GLOBAL NOTE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (THE "DEPOSITORY")
TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE, REDEMPTION OR PAYMENT, AND ANY GLOBAL NOTE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. ("CEDE") OR SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY (AND ANY PAYMENT HEREON IS MADE TO CEDE OR TO SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE, HAS AN INTEREST HEREIN."
8
<PAGE>
Members of, or participants in, DTC shall have no rights under
the Indenture or this First Supplemental Indenture with respect to any
global note held on their behalf by DTC or its nominee. DTC or its
nominee may be treated by the Company, the Trustee and any agent of
the Company or the Trustee as the absolute owner of such global note
for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee, or any agent of the
Company or the Trustee from giving effect to any written
certification, proxy or other authorization furnished by DTC or
impair, as between DTC and its agent members, the operation of
customary practices governing the exercise of the rights of a Holder
of any global note.
(B) Offshore Book-Entry Provisions. This provision shall apply
------------------------------
only to the global note deposited on behalf of the purchasers of the
2003 Convertible Notes represented thereby with the custodian for DTC
for credit to their respective accounts (or to such other accounts as
they may direct) at Euroclear or Cedel insofar as interests in such
global note are held by the agent members of Euroclear or Cedel.
The provisions of the "Operating Procedures of the Euroclear
System" and the "Terms and Conditions Governing Use of Euroclear" and
the "Management Regulations" and "Instructions to Participants" of
Cedel, respectively, shall be applicable to any such global note
insofar as interests in such global note are held by the agent members
of Euroclear or Cedel. Account holders or participants in Euroclear
and Cedel shall have no rights under the Indenture or this First
Supplemental Indenture with respect to such global note, and DTC or
its nominee may be treated by the Company, the Trustee, and any agent
of the Company or the Trustee as the owner of such global note for all
purposes whatsoever. Notwithstanding the foregoing, nothing herein
shall prevent the Company, the Trustee, or any agent of the Company or
the Trustee from giving effect to any written certification, proxy or
other authorization furnished by DTC or impair, as between DTC and its
agent members, the operation of customary practices governing the
exercise of the rights of a Holder of any global note.
(3) Definitive Securities.
---------------------
(A) If at any time DTC notifies the Company that it is unwilling
or unable to continue as depositary for such global notes or if at any
time DTC shall no longer be eligible or in good standing under the
Exchange Act, or other applicable statute or regulation, the Company
shall appoint a successor depositary with respect to such global note.
If a successor depositary of such global note is not appointed by the
Company within 90 days after the Company receives such notice or
becomes aware of such ineligibility or an Event of Default has
occurred and is continuing, the Company will execute, and the Trustee
upon receipt of a Company Order for the authentication and delivery of
individual 2003
9
<PAGE>
Convertible Notes in exchange of such global note, will authenticate
and deliver individual 2003 Convertible Notes of like tenor and terms
in definitive form substantially in the form of Exhibit C hereto in an
aggregate principal amount at maturity equal to the aggregate
principal amount at maturity of the global note in exchange for such
global note and will bear such transfer restrictions as are set forth
in the legend thereto.
(B) The Company may at any time in its sole discretion determine
that the 2003 Convertible Notes issued or issuable in the form of one
or more global notes shall no longer be represented by such global
note or notes. In such event the Company will execute, and the
Trustee, upon receipt of a Company Order for the authentication and
delivery of individual definitive 2003 Convertible Notes in exchange
in whole or in part for such global note, will authenticate and
deliver individual definitive 2003 Convertible Notes in an aggregate
principal amount at maturity equal to the aggregate principal amount
at maturity of such global note or notes representing such series in
exchange for such global note or notes.
(C) In any exchange provided for in any of the paragraphs (3)(A)
and (3)(B) of this Section 16 of the First Supplemental Indenture, the
Company will execute and the Trustee will authenticate and deliver
individual definitive 2003 Convertible Notes in authorized
denominations for global notes of the same series or any integral
multiple thereof. Upon the exchange of a global note for individual
definitive 2003 Convertible Notes, such global note shall be cancelled
by the Trustee. Definitive 2003 Convertible Notes issued in exchange
for a global note pursuant to this Section 16 of the First
Supplemental Indenture shall be registered on the Security Register in
such names and in such authorized denominations as DTC, pursuant to
instructions from its direct or indirect participants or otherwise,
shall instruct the Trustee. The Trustee shall deliver such definitive
2003 Convertible Notes to the persons in whose names such 2003
Convertible Notes are so registered in accordance with DTC's
instructions.
SECTION 17. Interest on the 2003 Convertible Notes will be payable to the
Persons in whose name the 2003 Convertible Notes are registered at the close of
business on the Regular Record Date for such interest.
SECTION 18. Section 1402 and Section 1403 of the Indenture shall be
applicable to the 2003 Convertible Notes.
SECTION 19. 2003 Convertible Notes are issuable in definitive form only in
accordance with the provisions of Section 16 of this First Supplemental
Indenture.
SECTION 20. The 2003 Convertible Notes are not issuable, and will not be
issued, upon the exercise of debt warrants.
10
<PAGE>
SECTION 21. The Company will not pay any Additional Amounts on the 2003
Convertible Notes to a Holder who is not a United States person in respect of
any tax, assessment or governmental charge.
SECTION 22.
(1) Conversion Privilege.
--------------------
(A) Subject to and upon compliance with the provisions of this
Section 22 of the First Supplemental Indenture, the entire outstanding
aggregate principal amount at maturity of the 2003 Convertible Notes,
or any portion thereof, is convertible into Shares at the option of
the Holder at any time prior to maturity, unless previously redeemed
in accordance with Sections 6 or 14 of this First Supplemental
Indenture, at a conversion rate of 52.7819 Shares per $1,000 aggregate
principal amount at maturity of 2003 Convertible Notes (the
"Conversion Rate"). The Conversion Rate shall be adjusted in certain
---------------
instances as provided in paragraph (3) of this Section 22 of the First
Supplemental Indenture.
(B) On conversion of the entire outstanding aggregate principal
amount at maturity of the 2003 Convertible Notes, or any portion
thereof, (x) any interest (including liquidated damages, if any) that
is past due on the aggregate principal amount at maturity of such 2003
Convertible Notes that are being converted shall be paid to the Holder
thereof and (y) that portion of accrued and unpaid interest (including
liquidated damages, if any) attributable to the period from the most
recent Interest Payment Date to the date of conversion with respect to
the aggregate principal amount at maturity of the 2003 Convertible
Notes that are being converted and interest thereon shall not be
cancelled, extinguished or forfeited, but rather shall be deemed to be
paid in full to the Holder thereof, along with the aggregate principal
amount at maturity of the 2003 Convertible Notes being converted,
through the delivery of the Shares (together with the cash payment, if
any, in lieu of a fractional Share) in exchange for the 2003
Convertible Notes being converted pursuant to the terms hereof. A
fractional Share will not be issued upon conversion, instead cash will
be paid in lieu of issuing a fractional Share based on the net asset
value of the Company on the valuation date immediately preceding the
conversion date.
(2) Exercise of Conversion Privilege.
--------------------------------
(A) Beneficial owners of interests in a global note may exercise
their right of conversion by delivering to DTC the appropriate
instruction form for conversion pursuant to DTC's conversion program
and, in the case of conversion through Euroclear or Cedel, in
accordance with Euroclear's or Cedel's normal
11
<PAGE>
operating procedures when application has been made to make the
underlying Shares eligible for trading on Euroclear or Cedel. To
convert a 2003 Convertible Note held in certificated form into Shares,
a holder must (i) complete and manually sign the conversion notice on
the back of a definitive 2003 Convertible Note (or complete and
manually sign a facsimile thereof) and deliver such notice to the
Trustee in Boston, Massachusetts or the Paying Agents in Boston,
Massachusetts or Luxembourg, (ii) surrender the definitive 2003
Convertible Note to the Trustee in Boston, Massachusetts or the Paying
Agents in Boston, Massachusetts or Luxembourg, as the case may be,
(iii) if required, furnish appropriate endorsements and transfer
documents, (iv) if required, pay all transfer or similar taxes, and
(v) if required, pay funds equal to interest payable on the next
succeeding Interest Payment Date. The date on which all of the
foregoing requirements have been satisfied is the date of surrender
for conversion. Such notice of conversion can be obtained from the
Trustee at its Corporate Trust Office or at the office of any Paying
Agent. Any definitive 2003 Convertible Note surrendered for conversion
during the period from the close of business on any Regular Record
Date to the opening of business on the next succeeding Interest
Payment Date must be accompanied by payment of an amount equal to the
interest payable on such Interest Payment Date on the aggregate
principal amount at maturity of the 2003 Convertible Notes being
surrendered for conversion. In the case of any 2003 Convertible Note
which has been converted after any Regular Record Date, but on or
before the next Interest Payment Date, interest due on such Interest
Payment Date shall be payable on such Interest Payment Date
notwithstanding such conversion. Such interest shall be paid to the
Holder of such 2003 Convertible Note on such Regular Record Date. A
Holder that surrenders 2003 Convertible Notes for conversion on a date
that is not an Interest Payment Date will not receive any interest for
the period from the Interest Payment Date next preceding the date of
conversion to the date of conversion or for any later period, even if
the 2003 Convertible Notes are surrendered after a notice of
redemption. No other payment or adjustment for interest, or for any
dividends in respect of Shares, will be made upon conversion. Holders
of Shares issued upon conversion will not be entitled to receive any
dividends payable to holders of Shares as of any record time before
the close of business on the conversion date. No fractional Share will
be issued upon conversion but, in lieu thereof, the equivalent amount
will be paid in cash by the Company based on the net asset value on
the valuation date immediately preceding the conversion date.
(B) A 2003 Convertible Note surrendered before the close of
business shall be deemed to have been converted immediately prior to
the close of business on the day of surrender of the 2003 Convertible
Note for conversion in accordance with the foregoing provisions, and,
at such time, the rights of the Holder of the 2003 Convertible Note as
a Holder shall cease, in whole or in part to the extent converted, and
the Person or Persons entitled to receive the Shares issuable upon
conversion shall be treated for all purposes as
12
<PAGE>
the record holder or holders of such Shares at such time. As promptly
as practicable on or after the day of conversion, the Company shall
have First European Transfer Agent S.A., the transfer agent for the
Shares, register the Shares on the Share Register of the Company and
issue and shall deliver to the Trustee at its principal office or
other office or agency which it may designate in writing a certificate
or certificates for the number of Shares issuable upon conversion,
together with payment in lieu of any fractional Share. The Trustee
will forward such to the appropriate Paying Agent for delivery to the
Holder entitled thereto. Such Shares issuable upon conversion of the
Notes will be fully paid and nonassessable
(C) If a 2003 Convertible Note is converted in part only, upon
such conversion the Company shall execute and the Trustee shall
authenticate and deliver to the Holder thereof, at the expense of the
Company, a new 2003 Convertible Note or Notes of authorized
denominations in aggregate principal amount at maturity equal to the
unconverted portion of the aggregate principal amount at maturity of
the 2003 Convertible Notes.
(3) Adjustments of Conversion Rate; Certain Other Adjustments.
---------------------------------------------------------
(A) To the extent permitted by the Company's Articles of
Incorporation, in case the Company shall issue or sell any Shares or
is deemed to have issued or sold such Shares pursuant to Section
(3)(B) below (except as provided in (3)(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 closing market price on the
principal exchange on which the Shares are then traded (the "Closing
Price") per Share immediately prior to the pricing of such issuance or
sale, then immediately after such issuance or sale the Conversion Rate
shall be determined by multiplying (i) the Conversion Rate in effect
immediately prior to such issuance or sale by (ii) a fraction, the
numerator of which shall be the total number of Shares outstanding
(and deemed to be outstanding pursuant to (3)(B) below) immediately
after such issuance or sale and the denominator of which shall be the
sum of (x) the number of Shares outstanding (and deemed to be
outstanding pursuant to (3)(B) below) immediately prior to the pricing
of such issuance or sale and (ii) 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 Closing
Price per Share immediately prior to such issuance or sale. For
purposes of this paragraph (3), the Shares into which the 2003
Convertible Notes are convertible shall not be deemed to be
outstanding. Notwithstanding the foregoing, no adjustment of the
Conversion Rate shall be required pursuant to this paragraph (3)(A)
unless such adjustment would require an increase of at least one
percent in the Conversion Rate, but any lesser adjustment shall be
13
<PAGE>
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 an increase of at least one percent in
the Conversion Rate.
(B) For the purposes of this paragraph (3), the following
paragraphs (i) - (vii), inclusive, shall also be applicable:
(i) In case the Company shall grant, (whether directly or
by assumption in a merger or otherwise) to holders of Shares any
rights (including options and warrants) to subscribe for, or any
rights, options or warrants to purchase, Shares or any stock or
other securities convertible into or exchangeable for Shares
(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 Shares are issuable upon the
exercise of such rights or options or upon conversion or exchange
of such Convertible Securities (determined by dividing (x) the
total amount, if any, received or receivable by the Company as
consideration for the granting of such rights, options or
warrants, plus the minimum aggregate amount of additional
consideration, if any, payable upon the exercise 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 (y) the total maximum
number of Shares 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
Closing Price per Share in effect immediately prior to the time
of the granting of such rights, options or warrants, then the
total maximum number of Shares 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 paragraph (3)(D) below, no further
adjustments of the Conversion Rate shall be made upon the actual
issuance of such Shares or of such Convertible Securities upon
exercise of such rights, options or warrants or upon the actual
issue of such Shares upon conversion or exchange of such
Convertible Securities.
14
<PAGE>
(ii) 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 are immediately exercisable, and the price
per share for which Shares are issuable upon such conversion or
exchange (determined by dividing (x) 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 (y) the total maximum
number of Shares issuable upon the conversion or exchange of all
such Convertible Securities) shall be less than 94% of the
Closing Price per Share in effect immediately prior to the time
of the pricing of such issuance or sale, then the total maximum
number of Shares 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 (a)
--------
except as provided in paragraph (3)(D), no further adjustments of
the Conversion Rate shall be made upon the actual issue of such
Shares upon conversion or exchange of such Convertible Securities
and (b) 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 Rate have been
or are to be made pursuant to other provisions of this paragraph
(3)(B), no further adjustment of the Conversion Rate shall be
made by reason of such issue or sale.
(iii) In case at any time the Company shall declare a
dividend or make any other distribution upon any Shares payable
in Shares, any Shares issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold with
zero consideration.
(iv) Subject to the last sentence of this paragraph
(3)(B)(iv), in case the Company shall, by dividend or otherwise,
distribute to all holders of its Shares 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 (3)(B)(i) above, (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 (3)(B)(iii)
above), then, in lieu of the adjustments provided for in
paragraph (3)(A), the Conversion Rate shall be increased so that
the same shall equal the rate determined by multiplying the
Conversion Rate in effect
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<PAGE>
immediately prior to the effectiveness of the Conversion Rate
increase contemplated by this paragraph (3)(B)(iv) by a fraction
of which the numerator shall be the current market price (as
defined below) per Share on the date of such effectiveness and
the denominator shall be the current market price per share
(determined as provided in paragraph (3)(B)(vi)) on the date of
such effectiveness less the fair market 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, such increase
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. If the
Company determines the fair market value of any distribution for
purposes of this paragraph (3)(B)(iv) 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
market price per share pursuant to paragraph (3)(B)(vi). For
purposes of this paragraph (3)(B)(iv), any dividend or
distribution that includes Shares, rights, options or warrants to
subscribe for or purchase Shares or other securities convertible
into or exchangeable for Shares shall be deemed instead to be
(a)(x) a dividend or distribution of the evidences of
indebtedness, cash, assets or shares other than such Shares, such
rights, options or warrants or such other convertible or
exchangeable securities (making any Conversion Rate adjustment
required by paragraph (3)(B)(iv)) immediately followed by (y) in
the case of such Shares or such rights, options or warrants, a
dividend or distribution thereof (making any further Conversion
Rate adjustment required by paragraph (3)(B)(i) and paragraph
(3)(B)(iii), and any Shares included in such dividend or
distribution shall be deemed to be "outstanding" within the
meaning of paragraph (3)(A)) or (b) in the case of such other
convertible or exchangeable securities, a dividend or
distribution of such number of Shares 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 Rate adjustment
required by paragraph (3)(B)(iii), and any Shares deemed to
constitute such dividend or distribution shall be deemed to be
"outstanding" within the meaning of paragraph (3)(A)).
(v) In case at any time any Shares or Convertible
Securities or any rights, options or warrants to purchase any
such Shares 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
16
<PAGE>
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 or Convertible Securities or any
rights, options or warrants to purchase any such Shares 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 or Convertible Securities or any
rights, options or warrants to purchase any such Shares or
Convertible Securities shall be issued in connection with any
merger 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 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.
(vi) In case at any time the Company shall take a record
of the holders of Shares for the purpose of entitling them (i) to
receive a dividend or other distribution payable in Shares or in
Convertible Securities, or (ii) to subscribe for or purchase
Shares or Convertible Securities, then such record date shall be
deemed to be the date of the issue or sale of the Shares or
Convertible Securities deemed to have been issued or sold upon
the payment 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.
(vii) For the purpose of any computation under paragraph
(3)(B)(iv) above, the current market price per Share on any date
shall be deemed to be the average of the daily Closing Prices for
30 consecutive trading days commencing 45 days before such date
(or if less than 30 consecutive trading days, for the maximum
number of consecutive trading days elapsed commencing 45 days
before such date).
(C) In case at any time the Company shall subdivide its
outstanding Shares into a greater number of Shares, the Conversion Rate in
effect
17
<PAGE>
immediately prior to such subdivision shall be proportionately increased
and conversely, in case the outstanding Shares of the Company shall be
combined into a smaller number of shares, the Conversion Rate in effect
immediately prior to such combination shall be proportionately decreased.
(D) If the purchase price provided for in any right, option or
warrant referred to in paragraph (3)(B)(i), or the rate at which any
Convertible Securities referred to in paragraphs (3)(B)(i) or (ii) are
convertible into or exchangeable for Shares, 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 Rate then in effect hereunder shall forthwith be increased or
decreased to such Conversion Rate 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 (i) the
issuance of the number of Shares 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 (ii) 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
(3)(B)(i), or on the termination of any right to convert or exchange any
Convertible Securities referred to in paragraphs (3)(B)(i) or (ii), the
Conversion Rate 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 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 Shares,
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 Shares upon the exercise of any such right, option or warrant or upon
conversion or exchange of any such Convertible Security, the Conversion
Rate then in effect hereunder shall forthwith be adjusted to such
Conversion Rate 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 delivered as aforesaid.
(E) The Company shall not be required to make any adjustment of
the Conversion Rate in the case of:
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<PAGE>
(i) the issuance of any Shares in exchange for, or on
conversion of (in either case, on a one-for-one basis), any
shares of another class or series; provided that the only
--------
material differences between (i) the Shares surrendered in
exchange or converted, and (ii) the shares of another class or
series 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;
(ii) the issuance of the 2003 Convertible Notes and the
issuance of any Shares upon conversion of any such 2003
Convertible Notes;
(iii) the issuance of Shares pursuant to the exercise of
stock options or warrants (i) outstanding, authorized or issued
to directors of the Company or (ii) issued by an entity as to
which or with which the Company merges, combines or consolidates
or, prior to date hereof, has merged, combined or consolidated;
or
(iv) Holders of 2003 Convertible Notes being able to
participate in the transaction described in the Section (3)(B) on
the same terms, conditions and provisions as the holders of
Shares on the basis of a 2003 Convertible Note being converted
immediately prior to the occurrence of said transaction.
(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 Rate pursuant to paragraph (3), but
the holder of a 2003 Convertible Note shall have the right after such
consolidation, merger, statutory exchange, sale or conveyance to
convert a 2003 Convertible Note 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 into which a 2003 Convertible Note might have been
converted immediately prior to such consolidation, merger, statutory
exchange, sale or conveyance, assuming such holder of Shares 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 in
such
19
<PAGE>
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 paragraph (3)(F).
The above provisions of this paragraph (3)(F) shall similarly
apply to successive reorganizations, reclassifications,
consolidations, mergers, sales or other dispositions.
(4) Notice of Adjustments of Conversion Rate. Whenever the Conversion
----------------------------------------
Rate is adjusted as herein provided:
(A) the Company shall compute the adjusted Conversion Rate in
accordance with paragraph (3) and shall prepare a certificate signed
by an Authorized Officer setting forth the adjusted Conversion Rate
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 and a copy delivered to the Trustee;
(B) a notice stating that the Conversion Rate has been adjusted
and setting forth the adjusted Conversion Rate shall forthwith be
prepared, and as soon as practicable after it is prepared, such notice
shall be mailed by the Company to the holders at the addresses
appearing in the Security Register (with a copy to the Trustee) and a
notice shall be published in a daily newspaper of general circulation
in the United States and in a daily newspaper of general circulation
in Luxembourg, or if publication in Luxembourg is not practical,
elsewhere in Western Europe; and
(C) the certificate of the Authorized Officer setting forth the
adjusted Conversion Rate shall be conclusive evidence that the
adjustment is correct absent manifest error.
(5) Notice of Certain Corporate Action. In case:
----------------------------------
(A) the Company shall declare a dividend (or any other
distribution) on its Shares, other than cash dividends payable from
current earnings; or
(B) the Company shall authorize the granting of its (i) rights
or warrants to subscribe for or purchase any Shares of any class, or
(ii) any other rights; or
(C) of any reclassification of the Shares of the Company (other
than a subdivision or combination of its outstanding Shares), or of
any consolidation or merger to which the Company is a party and for
which approval of any shareholders of the Company is required, or of
the sale or transfer of all or
20
<PAGE>
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 Holders of the 2003
Convertible Notes at the Holders' last addresses appearing in the
Security Register, at least 30 days prior to the applicable record or
effective date hereinafter specified, a notice stating (i) 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 Shares of record to be entitled to
such dividend, distribution, rights or warrants are to be determined,
or (ii) 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 Shares of record shall be entitled to exchange their
Shares for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up.
(6) Company to Reserve Shares. The Company shall at all times reserve
-------------------------
and keep available, free from preemptive rights, out of its authorized
but unissued Shares, for the purpose of effecting the conversion of
the 2003 Convertible Notes, the full number of Shares then issuable
upon the conversion of all outstanding 2003 Convertible Notes, and the
Company will maintain at all times all other rights and privileges
sufficient to enable it to fulfill all its obligations hereunder.
(7) 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 on conversion of the 2003 Convertible Notes 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 in a name other than that of the Holder
of the 2003 Convertible Notes 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.
(8) Covenant as to Shares. The Company covenants that all Shares
---------------------
which may be issued upon conversion of the 2003 Convertible Notes will
upon issue be duly authorized, validly issued, fully paid and
nonassessable.
(9) Registration and Listing of the Shares. If any Shares required to
--------------------------------------
be reserved for purposes of conversions of 2003 Convertible Notes
hereunder require registration with or approval of any governmental
authority under any law before such
21
<PAGE>
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. So long as the Shares are listed on any 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 issuable upon conversion of the then outstanding
2003 Convertible Notes and maintain the listing of such Shares after
their issuance.
(10) Temporary Increase in Conversion Rate. The Company from time to
-------------------------------------
time may to the extent permitted by the Company's Articles of Incorporation
increase the Conversion Rate by any amount for any period of at least 20
days, in which case the Company shall give at least 15 days notice of such
increase, if the Board of Directors has made a determination that such
increase would be in the best interests of the Company, which determination
shall be conclusive. The Company may also, at its option, make such
increases in the Conversion Rate, in addition to that set forth above, as
the Board of Directors deems advisable to avoid or diminish any income tax
to holders of Shares resulting from any dividend or distribution of stock
(or rights to acquire stock) or from any event treated as such for income
tax purposes.
(11) Rights Plan. If the Company implements a shareholder rights plan,
-----------
such rights plan must provide that upon conversion of the 2003 Convertible
Notes the Holders will receive, in addition to the Shares issuable upon
such conversion, the rights issued under such plan (notwithstanding the
occurrence of an event causing such rights to separate from the Shares at
or prior to the time of conversion).
SECTION 23. The 2003 Convertible Notes are subordinate to the guarantee by
the Company of the borrowings of Security Capital Holdings S.A. ("HOLDINGS")
under the provisions of a secured revolving credit facility (the "Credit
Facility") dated June 12, 1996, as supplemented, amended, renewed or modified
from time to time entered into between HOLDINGS and Commerzbank AG, New York
Branch, as administrative agent (the "Administrative Agent"). Pursuant to the
terms of the Credit Facility, the Company and the Trustee, solely in its
capacity as trustee are required to enter into a subordination agreement (a
"Subordination Agreement") perfecting the interest of the lenders under the
Credit Facility. Pursuant to the terms of the Subordination Agreement, the
Trustee will not permit the terms of any of the 2003 Convertible Notes to be
changed in such a manner as to have an adverse effect upon the rights of the
Administrative Agent or and of the lenders under the Credit Facility. In
addition, in specified circumstances, the terms of the Subordination Agreement
require that certain payments be made to the lenders under the Credit Facility
before any payments may be made to the Holders and that the Trustee take certain
actions in those circumstances in furtherance of assuring that such payments be
made to the lenders under the Credit Facility before any payments are made to
Holders. The Company hereby authorizes the Trustee to execute and deliver the
form of Subordination Agreement attached hereto as Annex II.
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<PAGE>
IN WITNESS HEREOF, the parties hereto have caused this First Supplemental
Indenture to be duly executed, and the corporate seal of the Trustee to be
hereunto affixed and attested, all as of the day and year first above written.
SECURITY CAPITAL U.S. REALTY
By:_______________________________
name:
title:
Attest:
________________________________
name:
title:
STATE STREET BANK AND TRUST COMPANY,
As Trustee
By:__________________________________
name:
[SEAL] title:
Attest:
- --------------------------------
Secretary
23
<PAGE>
Exhibit 4.4
U.S. GLOBAL NOTE
TRANSFERS OF THIS U.S. GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO THE DEPOSITORY TRUST COMPANY (THE "DEPOSITORY"), NOMINEES OF
THE DEPOSITORY OR A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE, AND TRANSFERS
OF PORTIONS OF THIS U.S. GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN
ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO IN THIS
U.S. GLOBAL NOTE.
UNLESS THIS GLOBAL NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE,
REDEMPTION OR PAYMENT, AND ANY GLOBAL NOTE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. ("CEDE") OR SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY (AND ANY PAYMENT HEREON IS MADE TO CEDE OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY
OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE, HAS AN
INTEREST HEREIN.
THIS NOTE IS A PERMANENT U.S. GLOBAL NOTE, WITHOUT COUPONS, EXCHANGEABLE
UNDER CERTAIN LIMITED CIRCUMSTANCES FOR DEFINITIVE SECURITIES NOTES. THE RIGHTS
ATTACHING TO THIS PERMANENT GLOBAL NOTE ARE AS SPECIFIED PURSUANT TO THE TERMS
OF THE INDENTURE (AS DEFINED HEREIN).
1
<PAGE>
SECURITY CAPITAL U.S. REALTY
2% SENIOR UNSECURED CONVERTIBLE NOTES DUE 2003
U.S. GLOBAL NOTE
CUSIP NO.: 814136AA5 PRINCIPAL AMOUNT
AT MATURITY REPRESENTED
$200,000,000
SECURITY CAPITAL U.S. REALTY, a corporation duly organized and existing
under the laws of the Grand Duchy of Luxembourg (the "Company", which term
includes any successor corporation under the Indenture hereinafter referred to),
for value received, hereby promises to pay to CEDE & Co., as the nominee of The
Depository Trust Company (the "Depository"), or registered assigns, the
principal sum of TWO HUNDRED MILLION DOLLARS ($200,000,000) (or such lesser
amount as shall be the outstanding principal amount of this U.S. Global Note
shown in Schedule A hereto) on May 22, 2003 (the "Stated Maturity"), and to pay
interest thereon semiannually in cash in arrears on each May 22 and November 22
(each, an "Interest Payment Date"), beginning November 22, 1998, and at
maturity, from the later of May 22, 1998, or the most recent Interest Payment
Date to which interest has been paid or duly provided for, at the rate of 2% per
annum, until the principal hereof becomes due and payable, and at such rate on
any overdue principal and on any overdue installments of interest (to the extent
that the payment of such interest shall be legally enforceable).
This security is one of the U.S. Global Notes which, in the aggregate,
represent 100% of the principal face amount of the Company's 2% Senior Unsecured
Convertible Notes Due 2003 (the "Notes") offered and sold in the United States
to Qualified Institutional Buyers. The Notes are being sold at a discount from
their principal amount at maturity. The rate of interest and accrual of
original issue discount represents a yield to maturity of 6 3/4% per annum
(computed on a semi-annual bond equivalent basis). This U.S. Global Note is one
of the duly authorized issues of securities of the Company (the "Securities"),
issued or to be issued in one or more series under the Indenture dated as of May
22, 1998 between STATE STREET BANK AND TRUST COMPANY (the "Trustee") and the
Company, as amended by the First Supplemental Indenture dated as of May 22, 1998
between the Trustee and the Company (collectively, the "Indenture"), to which
Indenture reference is hereby made for a statement of the respective rights,
limitations of rights, duties and immunities thereunder of the Company, the
Trustee and each of the holders of the Notes and of the terms upon which the
Notes are, and are to be, authenticated and delivered and transferred. All
terms used in this U.S. Global Note which are not defined herein shall have the
meanings assigned to them in the Indenture.
2
<PAGE>
The interest payable hereunder, and punctually paid or duly provided for,
on any Interest Payment Date will be paid to the Person in whose name this U.S.
Global Note is registered at the close of business on the May 8 or November 8,
as the case may be, immediately preceding such Interest Payment Date (the
"Regular Record Date"). "Business Day" with respect to the Notes means any day
that is not a Saturday, a Sunday, a legal holiday or a day on which banking
institutions in the Place of Payment are authorized or required by law,
regulation or executive order to close. Any such interest not so punctually paid
or duly provided for shall forthwith cease to be payable to the registered
holder on such Regular Record Date by virtue of such Person having been such
holder, and may either be paid to the Person in whose name this U.S. Global Note
is registered at the close of business on a Special Record Date to be fixed by
the Trustee for the payment of such defaulted interest, notice of which having
been given to each holder of Notes not more than 15 days nor less than 10 days
prior to such Special Record Date, or be paid at any time in any other lawful
manner not inconsistent with the requirements of any securities exchange on
which the Notes may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in said Indenture.
Payment of the principal of and interest on this U.S. Global Note will be
made by the Company to the Trustee, and if such payments are made by the
Company, the Trustee in turn will make such payments to the Depository.
Interest on the Notes will be computed on the basis of a 360-day year of
twelve 30-day months. Each payment of interest in respect of an Interest Payment
Date will include interest accrued through the day before such Interest Payment
Date. If an Interest Payment Date falls on a day that is not a Business Day, the
interest payment to be made on such Interest Payment Date will be made on the
next succeeding Business Day with the same force and effect as if made on such
Interest Payment Date, and no additional interest will accrue as a result of
such delayed payment.
The Notes are convertible, in whole or in part, into shares of the
Company's common stock ("Shares") at the option of the holder at any time prior
to maturity, unless previously redeemed, at a conversion rate equal to 52.7819
Shares per $1,000 aggregate principal amount at maturity of Notes, subject to
adjustments under certain conditions in accordance with the terms of the
Indenture. Holders of Notes called for redemption will be entitled to convert
their Notes to and including, but not after, the close of business on the date
fixed for redemption.
The Notes may be redeemed, in whole or in part, at the option of the
Company upon at least 30 days notice on or after May 23, 2001 at the Accreted
Value thereof, together with accrued and unpaid interest, in accordance with the
terms of the Indenture.
If an Event of Default with respect to the Notes shall have occurred and be
continuing, the Accreted Value of the Notes may be declared due and payable in
the manner and with the effect provided in the Indenture.
3
<PAGE>
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the holders of not less than a majority in aggregate principal amount
of the Securities at the time Outstanding of each series to be affected. The
Indenture contains provisions permitting the holders of not less than a majority
in aggregate principal amount of the Securities of any series at the time
Outstanding, on behalf of the holders of all the Securities of such series, to,
in certain circumstances, waive compliance by the Company with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by the holders of this U.S.
Global Note shall be conclusive and binding upon such holders and upon all
future holders of interests in this U.S. Global Note and of any U.S. Global Note
issued upon the registration of transfer hereof or in exchange herefor or in
lieu hereof, whether or not notation of such consent or waiver is made upon this
U.S. Global Note.
Holders of Notes may not enforce their rights pursuant to the Indenture or
the Notes except as provided in the Indenture. No reference herein to the
Indenture and no provision of this U.S. Global Note or of the Indenture shall
alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of (and premium, if any) and interest on
this U.S. Global Note at the times, place and rate, and in the coin or currency,
herein prescribed.
Interests in this U.S. Global Note are exchangeable or transferable in
whole or in part for interests in a Regulation S Global Note of the same series,
only if such exchange or transfer complies with the Indenture.
Under certain conditions set forth in the Indenture, interests in this U.S.
Global Note are exchangeable in whole or in part for duly executed and issued
definitive Securities.
The statements set forth in the legend, if any, set forth hereon are an
integral part of the terms of this U.S. Global Note and by acceptance hereof
each holder of this U.S. Global Note agrees to be subject to and bound by the
terms and provisions set forth in such legend.
The Notes are issuable only in registered form without coupons in
denominations of $1,000 aggregate principal amount at maturity and integral
multiples of $1,000 in excess thereof.
No service charge shall be made for any registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this U.S. Global Note for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this U.S. Global Note is registered as the
owner hereof for all purposes, whether
4
<PAGE>
or not this U.S. Global Note shall be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
Unless the certificate of authentication hereon has been duly executed by
the Trustee by manual signature, this U.S. Global Note shall not be entitled to
any benefit under the Indenture or be valid or obligatory for any purposes.
THE INDEBTEDNESS EVIDENCED BY THIS SECURITY IS SUBORDINATED TO THE PRIOR
PAYMENT IN FULL OF THE SENIOR OBLIGATIONS (AS DEFINED IN THE SUBORDINATION
AGREEMENT HEREINAFTER REFERRED TO) PURSUANT TO, AND TO THE EXTENT PROVIDED IN,
THE SUBORDINATION AGREEMENT DATED MAY 22, 1998 BY SECURITY CAPITAL U.S. REALTY
AND THE TRUSTEE IN FAVOR OF COMMERZBANK AG, NEW YORK BRANCH, AS ADMINISTRATIVE
AGENT FOR THE LENDERS AND FOR THE RATABLE BENEFIT OF SUCH LENDERS.
THIS SECURITY (OR ITS PREDECESSORS) WAS ORIGINALLY ISSUED IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND THE HOLDER HEREOF, BY PURCHASING THIS
SECURITY, AGREES FOR THE BENEFIT OF SECURITY CAPITAL U.S. REALTY THAT THIS
SECURITY AND THE SHARES ISSUABLE UPON ITS CONVERSION MAY NOT BE REOFFERED,
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHO THE
SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING
OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE
903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT OR (3) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, INCLUDING THE EXEMPTION
PROVIDED BY RULE 144 THEREUNDER (IF APPLICABLE), AND (B) IN ACCORDANCE WITH ALL
APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES.
THIS SECURITY MAY ONLY BE SOLD IN ACCORDANCE WITH THE INDENTURE, AS
AMENDED, COPIES OF WHICH ARE AVAILABLE FOR INSPECTION AT THE CORPORATE TRUST
OFFICE OF THE TRUSTEE IN BOSTON, MASSACHUSETTS AND LUXEMBOURG. NO REPRESENTATION
CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 FOR
RESALES OF THE SECURITIES.
THIS SECURITY AND SHARES ISSUABLE UPON ITS CONVERSION AND ANY RELATED
DOCUMENTATION MAY BE AMENDED OR SUPPLEMENTED FROM TIME
5
<PAGE>
TO TIME TO MODIFY THE RESTRICTION ON ANY PROCEDURES FOR RESALES AND OTHER
TRANSFERS OF THIS SECURITY AND ANY SUCH SHARES TO REFLECT ANY CHANGE IN
APPLICABLE LAW OR REGULATION (OR THE INTERPRETATION THEREOF) OR IN PRACTICES
RELATING TO THE RESALE OR TRANSFER OF RESTRICTED SECURITIES GENERALLY. THE
HOLDER OF THIS SECURITY AND ANY SUCH SHARES SHALL BE DEEMED TO HAVE AGREED TO
ANY SUCH AMENDMENT OR SUPPLEMENT.
CONVERSION OF THIS SECURITY IS SUBJECT TO CERTIFICATION AND OTHER
REQUIREMENTS AND ANY SHARES ISSUED ON SUCH CONVERSION WILL BE SUBJECT TO THE
TRANSFER RESTRICTIONS REFERRED TO ABOVE.
* * * * *
6
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: May 28, 1998
SECURITY CAPITAL U.S. REALTY
By:________________________
Name:
Title:
SECURITY CAPITAL U.S. REALTY
By:________________________
Name:
Title:
Attest:
By:_______________________
Name:
Title:
CERTIFICATE OF AUTHENTICATION
This is one of the U.S. Global Notes issued
pursuant to the within-mentioned Indenture.
STATE STREET BANK AND TRUST COMPANY, as Trustee
By:_______________________
Authorized Signatory
7
<PAGE>
CERTIFICATE OF TRANSFER
To transfer or assign this Note, fill in the form below:
I or we transfer and assign this Note to
_________________________________________________________________
(Insert assignee's tax I.D. number)
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
____________________
(Print or Type assignee's name, address and zip code)
and irrevocably appoint _____________________________ agent to transfer this
Note on the books of the Company. The agent may substitute another to act for
him.
Date:_____________ Your signature:_________________________
8
<PAGE>
SCHEDULE A
----------
SCHEDULE OF EXCHANGES, CONVERSIONS AND REDEMPTIONS
--------------------------------------------------
The following exchanges, conversions and redemptions of Notes for Notes
represented by this U.S. Global Note have been made:
<TABLE>
<CAPTION>
==================================================================================================================
Principal
Change in amount of this
principal U.S. Global
Date amount of this Note following
Principal Amount of exchange, U.S. Global Note such
this U.S. Global conversion or due to exchange, exchange, Notation made
Note as of May 22, redemption conversion or conversion or by or on behalf of
1998 made redemption redemption the Company
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
$200,000,000
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
==================================================================================================================
</TABLE>
<PAGE>
CONVERSION NOTICE
To convert this Note into Shares of the Company, check the box: [_]
To convert only part of this Note, state the aggregate principal amount at
maturity of the Note to be converted: $__________________________________
If you want the Share certificate made out in another person's name, fill in the
form below:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
Date:__________________________________________________________________________
Your signature:________________________________________________________________
(Sign exactly as your name appears on the other side of this Note)
_______________________________________________________________________________
(Sign exactly as your name appears on the other side of this Note)
*Signature guaranteed by:______________________________________________________
By:____________________________________________________________________________
__________________
* The signature must be guaranteed by a bank, a trust company or a member
firm of the New York Stock Exchange.
<PAGE>
NOTICE OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant to
Section 14 of the First Supplemental Indenture, check the box: [_]
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 14 of the First Supplemental Indenture, state the
aggregate principal amount at maturity of the Notes to be purchased: $__________
Date:___________________________________________________________________________
Your signature:_________________________________________________________________
(Sign exactly as your name appears on the other side of this Note)
________________________________________________________________________________
(Sign exactly as your name appears on the other side of this Note)
*Signature guaranteed by:_______________________________________________________
By:_____________________________________________________________________________
__________________
* The signature must be guaranteed by a bank, a trust company or a member
firm of the New York Stock Exchange.
<PAGE>
Exhibit 4.5
REGULATION S GLOBAL NOTE
TRANSFERS OF THIS REGULATION S GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO THE DEPOSITORY TRUST COMPANY (THE "DEPOSITORY"),
NOMINEES OF THE DEPOSITORY OR A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE,
AND TRANSFERS OF PORTIONS OF THIS REGULATION S GLOBAL NOTE SHALL BE LIMITED TO
TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE
REFERRED TO IN THIS REGULATION S GLOBAL NOTE.
UNLESS THIS GLOBAL NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE,
REDEMPTION, OR PAYMENT, AND ANY GLOBAL NOTE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. ("CEDE") OR SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY (AND ANY PAYMENT HEREON IS MADE TO CEDE OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY
OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE, HAS AN
INTEREST HEREIN.
THIS NOTE IS A PERMANENT REGULATION S GLOBAL NOTE, WITHOUT COUPONS,
EXCHANGEABLE UNDER CERTAIN LIMITED CIRCUMSTANCES FOR DEFINITIVE NOTES. THE
RIGHTS ATTACHING TO THIS PERMANENT GLOBAL NOTE ARE AS SPECIFIED PURSUANT TO THE
TERMS OF THE INDENTURE (AS DEFINED HEREIN).
<PAGE>
SECURITY CAPITAL U.S. REALTY
2% SENIOR UNSECURED CONVERTIBLE NOTES DUE 2003
REGULATION S GLOBAL NOTE
CUSIP NO.: L81838AB7 PRINCIPAL AMOUNT
AT MATURITY REPRESENTED
$200,000,000
SECURITY CAPITAL U.S. REALTY, a corporation duly organized and existing
under the laws of the Grand Duchy of Luxembourg (the "Company", which term
includes any successor corporation under the Indenture hereinafter referred to),
for value received, hereby promises to pay to CEDE & Co., as the nominee of The
Depository Trust Company (the "Depository"), or registered assigns, the
principal sum of TWO HUNDRED MILLION DOLLARS ($200,000,000) (or such lesser
amount as shall be the outstanding principal amount of this Regulation S Global
Note shown in Schedule A hereto) on May 22, 2003 (the "Stated Maturity Date"),
and to pay interest thereon semiannually in cash in arrears on each May 22 and
November 22 (each, an "Interest Payment Date"), beginning November 22, 1998, and
at maturity, from the later of May 22, 1998 or the most recent Interest Payment
Date to which interest has been paid or duly provided for, at the rate of 2% per
annum, until the principal hereof becomes due and payable, and at such rate on
any overdue principal and (to the extent that the payment of such interest shall
be legally enforceable) on any overdue installments of interest.
This security is one of the Regulation S Global Notes which, in the
aggregate, represent 100% of the principal face amount of the Company's 2%
Senior Unsecured Convertible Notes Due 2003 (the "Notes") deposited on behalf of
the purchasers of the Notes with the custodian for the Depository for credit to
their respective accounts at Euroclear or Cedel. The Notes are being sold at a
discount from the principal amount at maturity. The rate of interest and accrual
of original issue discount represents a yield to maturity of 6 3/4% per annum
(computed on a semi-annual bond equivalent basis). This Regulation S Global Note
is one of the duly authorized issues of securities of the Company (the
"Securities"), issued or to be issued in one or more series under the Indenture
dated as of May 22, 1998 between STATE STREET BANK AND TRUST COMPANY (the
"Trustee") and the Company, as amended by the First Supplemental Indenture dated
as of May 22, 1998 between the Trustee and the Company (collectively, the
"Indenture"), to which Indenture reference is hereby made for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee and each of the holders of the Notes and of the terms
upon which the Notes are, and are to be, authenticated and delivered. All terms
used in this Regulation S Global Note which are not defined herein shall have
the meanings assigned to them in the Indenture.
2
<PAGE>
The interest payable hereunder, and punctually paid or duly provided for,
on any Interest Payment Date will be paid to the Person in whose name this
Regulation S Global Note is registered at the close of business on May 8 or
November 8, as the case may be, immediately preceding such Interest Payment Date
(the "Regular Record Date"). "Business Day" with respect to the Notes means any
day that is not a Saturday, a Sunday, a legal holiday or a day on which banking
institutions in the Place of Payment are authorized or obligated by law,
regulation or executive order to close. Any such interest not so punctually paid
or duly provided for shall forthwith cease to be payable to the registered
holder on such Regular Record Date by virtue of such Person having been such
holder, and may either be paid to the Person in whose name this Regulation S
Global Note is registered at the close of business on a Special Record Date to
be fixed by the Trustee for the payment of such defaulted interest, notice of
which having been given to each holder of Notes not more than 15 days nor less
than 10 days prior to such Special Record Date, or be paid at any time in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Notes may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in said Indenture.
Payment of the principal of and interest on this Regulation S Global Note
will be made by the Company to the Trustee, and if such payments are made by the
Company, the Trustee in turn will make such payments to the Depository.
Interest on the Notes will be computed on the basis of a 360-day year of
twelve 30-day months. Each payment of interest in respect of an Interest Payment
Date will include interest accrued through the day before such Interest Payment
Date. If an Interest Payment Date falls on a day that is not a Business Day, the
interest payment to be made on such Interest Payment Date will be made on the
next succeeding Business Day with the same force and effect as if made on such
Interest Payment Date, and no additional interest will accrue as a result of
such delayed payment.
The Notes are convertible, in whole or in part, into shares of the
Company's common stock ("Shares") at the option of the holder at any time prior
to maturity, unless previously redeemed, at a conversion rate equal to 52.7819
Shares per $1,000 aggregate principal amount at maturity of Notes, subject to
adjustments under certain conditions in accordance with the terms of the
Indenture. Holders of Notes called for redemption will be entitled to convert
their Notes to and including, but not after, the close of business on the date
fixed for redemption.
The Notes may be redeemed, in whole or in part, at the option of the
Company upon at least 30 days notice on or after May 23, 2001 at the Accreted
Value thereof, together with accrued and unpaid interest, in accordance with the
terms of the Indenture.
Interests in this Regulation S Global Note will be transferable in
accordance with the rules and procedures for the time being of Euroclear or
Cedel. Each person who is shown in the records of Euroclear and Cedel as
entitled to a particular number of Notes by way of an
3
<PAGE>
interest in this Regulation S Global Note will be treated by the Trustee and any
paying agent as the holder of such number of Notes, other than with respect to
the payment of principal and interest and other amounts payable on this
Regulation S Global Note, the right to which shall (except as provided below) be
vested, as against the Trustee and the paying agents, solely in the bearer of
this Regulation S Global Note. For purposes of this Regulation S Global Note,
the securities account records of Euroclear or Cedel shall, in the absence of
manifest error, be conclusive evidence of the identity of the holders of Notes
and of the principal amount of Notes represented by this Regulation S Global
Note credited to the securities accounts of such holders of Notes. Any statement
issued by Euroclear or Cedel to any holder relating to a specified Note or Notes
credited to the securities account of such holder and stating the principal
amount of such Note or Notes and certified by Euroclear or Cedel to be a true
record of such securities account shall, in the absence of manifest error, be
conclusive evidence of the records of Euroclear or Cedel for the purposes of the
next preceding sentence (but without prejudice to any other means of producing
such records in evidence).
If an Event of Default with respect to the Notes shall have occurred and be
continuing, the Accreted Value of all of the Notes may be declared due and
payable in the manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the holders of not less than a majority in aggregate principal amount
of the Securities at the time Outstanding of each series to be affected. The
Indenture contains provisions permitting the holders of not less than a majority
in aggregate principal amount of the Securities of any series at the time
Outstanding, on behalf of the holders of all the Securities of such series, to,
in certain circumstances, waive compliance by the Company with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by the holder of this Regulation
S Global Note shall be conclusive and binding upon such holder and upon all
future holders of this Regulation S Global Note and of any Notes issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this Regulation S
Global Note.
Holders of Notes may not enforce their rights pursuant to the Indenture or
the Securities except as provided in the Indenture. No reference herein to the
Indenture and no provision of this Regulation S Global Note or of the Indenture
shall alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of (and premium, if any) and interest on
this Regulation S Global Note at the times, place and rate, and in the coin or
currency, herein prescribed.
Interests in this Regulation S Global Note are exchangeable or transferable
in whole or in part for interests in a U.S. Global Note of the same series, only
if such exchange or transfer complies with the Indenture.
4
<PAGE>
Under certain conditions set forth in the Indenture, interests in this
Regulation S Global Note are exchangeable in whole or in part for duly executed
and issued definitive Securities.
The statements set forth in the legend, if any, set forth hereon are an
integral part of the terms of this Regulation S Global Note and by acceptance
hereof each holder of this Regulation S Global Note agrees to be subject to and
bound by the terms and provisions set forth in such legend.
No service charge shall be made for any registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Regulation S Global Note for registration
of transfer, the Company, the Trustee and any agent of the Company or the
Trustee may treat the Person in whose name this Regulation S Global Note is
registered as the owner hereof for all purposes, whether or not this Regulation
S Global Note shall be overdue, and neither the Company, the Trustee nor any
such agent shall be affected by notice to the contrary.
Unless the certificate of authentication hereon has been duly executed by
the Trustee by manual signature, this Regulation S Global Note shall not be
entitled to any benefit under the Indenture or be valid or obligatory for any
purposes.
THE INDEBTEDNESS EVIDENCED BY THIS SECURITY IS SUBORDINATED TO THE PRIOR
PAYMENT IN FULL OF THE SENIOR OBLIGATIONS (AS DEFINED IN THE SUBORDINATION
AGREEMENT HEREINAFTER REFERRED TO) PURSUANT TO, AND TO THE EXTENT PROVIDED IN,
THE SUBORDINATION AGREEMENT DATED MAY 22, 1998 BY SECURITY CAPITAL U.S. REALTY
AND THE TRUSTEE IN FAVOR OF COMMERZBANK AG, NEW YORK BRANCH, AS ADMINISTRATIVE
AGENT FOR THE LENDERS AND FOR THE RATABLE BENEFIT OF SUCH LENDERS.
THIS SECURITY (OR ITS PREDECESSORS) WAS ORIGINALLY ISSUED IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND THE HOLDER HEREOF, BY PURCHASING THIS
SECURITY, AGREES FOR THE BENEFIT OF SECURITY CAPITAL U.S. REALTY THAT THIS
SECURITY AND THE SHARES ISSUABLE UPON ITS CONVERSION MAY NOT BE REOFFERED,
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHO THE
SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING
OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A
5
<PAGE>
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE
TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE
SECURITIES ACT OR (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT, INCLUDING THE EXEMPTION PROVIDED BY RULE 144 THEREUNDER (IF
APPLICABLE), AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE
STATES OF THE UNITED STATES.
THIS SECURITY MAY ONLY BE SOLD IN ACCORDANCE WITH THE INDENTURE, AS
AMENDED, COPIES OF WHICH ARE AVAILABLE FOR INSPECTION AT THE CORPORATE TRUST
OFFICE OF THE TRUSTEE IN BOSTON, MASSACHUSETTS OR LUXEMBOURG. NO REPRESENTATION
CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 FOR
RESALES OF THE SECURITIES.
THIS SECURITY AND SHARES ISSUABLE UPON ITS CONVERSION AND ANY RELATED
DOCUMENTATION MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME TO MODIFY THE
RESTRICTION ON ANY PROCEDURES FOR RESALES AND OTHER TRANSFERS OF THIS SECURITY
AND ANY SUCH SHARES TO REFLECT ANY CHANGE IN APPLICABLE LAW OR REGULATION (OR
THE INTERPRETATION THEREOF) OR IN PRACTICES RELATING TO THE RESALE OR TRANSFER
OF RESTRICTED SECURITIES GENERALLY. THE HOLDER OF THIS SECURITY AND ANY SUCH
SHARES SHALL BE DEEMED TO HAVE AGREED TO ANY SUCH AMENDMENT OR SUPPLEMENT.
CONVERSION OF THIS SECURITY IS SUBJECT TO CERTIFICATION AND OTHER
REQUIREMENTS AND ANY SHARES ISSUED ON SUCH CONVERSION WILL BE SUBJECT TO THE
TRANSFER RESTRICTIONS REFERRED TO ABOVE.
* * * * *
6
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: May 28, 1998
SECURITY CAPITAL U.S. REALTY
By:________________________
Name:
Title:
SECURITY CAPITAL U.S. REALTY
By:________________________
Name:
Title:
Attest:
By:_______________________
Name:
Title:
CERTIFICATE OF AUTHENTICATION
This is one of the Regulation S Global Notes issued
pursuant to the within-mentioned Indenture.
STATE STREET BANK AND TRUST COMPANY, as Trustee
By:_______________________
Authorized Signatory
7
<PAGE>
CERTIFICATE OF TRANSFER
To transfer or assign this Note, fill in the form below:
I or we transfer and assign this Note to
_________________________________________________________________
(Insert assignee's tax I.D. number)
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
(Print or Type assignee's name, address and zip code)
and irrevocably appoint _____________________________ agent to transfer this
Note on the books of the Company. The agent may substitute another to act for
him.
Date:_____________ Your signature:_________________________
8
<PAGE>
SCHEDULE A
----------
SCHEDULE OF EXCHANGES, CONVERSIONS AND REDEMPTIONS
--------------------------------------------------
The following exchanges, conversions and redemptions of Notes for Notes
represented by this Regulation S Global Note have been made:
<TABLE>
<CAPTION>
=================================================================================================================
Change in
principal Principal
amount of this amount of this
Regulation S Regulation S
Date Global Global
Principal Amount exchange, Note due to Note following
of this Regulation S conversion or exchange, such exchange, Notation made
Global Note as of redemption conversion or conversion or by or on behalf of the
May 22, 1998 made redemption redemption Company
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
$77,250,000
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
==================================================================================================================
</TABLE>
<PAGE>
CONVERSION NOTICE
To convert this Note into Shares of the Company, check the box: [ ]
To convert only part of this Note, state the aggregate principal amount at
maturity of the Notes to be converted: $
If you want the stock certificate made out in another person's name, fill in the
form below:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
Date:
Your signature:
(Sign exactly as your name appears on the other side of this Note)
(Sign exactly as your name appears on the other side of this Note)
*Signature guaranteed by:
By:
__________________
* The signature must be guaranteed by a bank, a trust company or a member
firm of the New York Stock Exchange.
<PAGE>
NOTICE OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant to
Section 14 of the First Supplemental Indenture, check the box: [_]
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 14 of the First Supplemental Indenture, state the
aggregate principal amount at maturity of the Notes to be purchased: $
Date:
Your signature:
(Sign exactly as your name appears on the other side of this Note)
(Sign exactly as your name appears on the other side of this Note)
*Signature guaranteed by:
By:
__________________
* The signature must be guaranteed by a bank, a trust company or a member
firm of the New York Stock Exchange.
<PAGE>
EXHIBIT 10.15
EXECUTION COPY
ADVISORY AGREEMENT
THIS ADVISORY AGREEMENT dated July 1, 1997 (herein as amended, modified or
supplemented from time to time in accordance with the terms hereof, this
"Agreement"), between SECURITY CAPITAL U.S. REALTY (the "Company"), a societe
- ---------- -------
d'investissement a capital fixe, whose registered office is at 69, route d'Esch,
L-1470, Luxembourg, SECURITY CAPITAL HOLDINGS S.A., a societe anonyme which is a
wholly-owned subsidiary of the Company incorporated in Luxembourg in the form of
a societe a participation financiere, whose registered office is also at 69,
route d'Esch, L-1470, Luxembourg, ("Holdings") and SECURITY CAPITAL (EU)
--------
MANAGEMENT S.A., a societe anonyme incorporated in Luxembourg, whose registered
office is also at 69, route d'Esch, L-1470 Luxembourg (the "Operating Advisor").
-----------------
W I T N E S S E T H:
-------------------
WHEREAS, the Company engages in real estate business, primarily by
acquiring, through Holdings, interests in real estate operating companies
established in the United States ("Real Estate Operating Companies"), including
-------------------------------
public real estate investment trusts established in the United States ("REITs");
-----
WHEREAS, Holdings is the wholly-owned subsidiary of the Company and owns,
monitors and arranges bank financing in respect of, the Company's investments;
WHEREAS, the Company has made and may in future make private placements and
public offerings of its shares;
WHEREAS, the Company and Holdings wish to retain the Operating Advisor to
provide strategic advice on the operations of the Company and Holdings,
respectively and to provide certain related services, as herein further provided
and subject to the limitations herein set out; and
WHEREAS, the Operating Advisor is ready and willing to provide such
services, subject to and in accordance with the provisions hereinafter set
forth.
NOW THEREFORE, in consideration of the premises and of the mutual covenants
and agreements hereinafter set forth, and for other good and valuable
consideration, the receipt and adequacy whereof is hereby acknowledged, the
parties hereto agree as follows:
SECTION 1. DEFINITIONS. The following terms (whether or not
underscored) when used in this Agreement, including its preamble and recitals,
shall have the following meanings (such definitions to be equally applicable to
the singular and plural forms thereof), unless the context otherwise requires:
-1-
<PAGE>
"Agreement" is defined in the preamble.
--------- --------
"Business Day" means any day which is not a Saturday, a Sunday or a legal
------------
holiday on which banks are authorised or required to be closed in Luxembourg or
(insofar as payment is to be made in U.S. Dollars) in New York City.
"Company" is defined in the preamble.
------- --------
"Holdings" is defined in the preamble.
-------- --------
"Net Asset Value" means the net value of the Company's assets calculated in
---------------
accordance with the Articles of Incorporation of the Company and the Offering
Materials.
"Offering Materials" means the Offering Circular dated July 1, 1997 and any
------------------
other offering circular in force from time to time and any other documents
incorporated by reference therein.
"Operating Advisor" is defined in the preamble.
----------------- --------
"Operating Advisor's Indemnitee" is defined in Section 9.
------------------------------ ---------
"Operating Guidelines" means any guidelines for carrying out the Company's
--------------------
operations which are communicated in writing from time to time by the Company to
the Operating Advisor.
"Real Estate Operating Companies" is defined in the first recital.
------------------------------- -------------
"REITs" is defined in the first recital.
----- -------------
"Security Capital Group" means Security Capital Group Incorporated, a
----------------------
Maryland corporation.
SECTION 2. APPOINTMENT. The Company and Holdings hereby jointly
appoint the Operating Advisor to provide services to the Company and Holdings,
respectively, pursuant to the terms and conditions of this Agreement. The
Operating Advisor accepts such appointment and agrees to render the services
herein set out as herein provided and subject to the limitations herein set out.
SECTION 3. DUTIES AND UNDERTAKINGS OF THE OPERATING ADVISOR.
(a) The Operating Advisor shall perform the following services for the
Company and Holdings:
(i) carry out research in relation to the operations of the
Company and Holdings, respectively;
(ii) formulate and recommend annual strategic plans;
-2-
<PAGE>
(iii) evaluate and recommend non-controlling and controlling
investments in Real Estate Operating Companies and negotiate
investment contracts for controlling investments;
(iv) recommend and, after obtaining the approval of the
directors of the Company and Holdings, cause the execution of capital
markets and borrowing transactions;
(v) if specifically requested by the Company or Holdings,
facilitate certain administrative services to be provided in
Luxembourg;
(vi) provide or arrange for the provision of material for
inclusion in reports to shareholders or in materials to be provided
to directors, as may be reasonably requested by the Company or
Holdings, as appropriate, or as may be required by applicable laws;
and
(vii) arrange for the preparation and forwarding to shareholders
all certificates, cheques, warrants and statements as may be required
from time to time
in each case subject to the terms and procedures set out in the Offering
Materials and the Operating Guidelines, to the Articles of Incorporation of
the Company or Holdings, as appropriate, and to Luxembourg and any other
applicable laws and regulations including, without limitation, any
Luxembourg laws and regulations requiring certain functionaries of the
Company or Holdings to be entities established in Luxembourg and requiring
certain operations of the Company or Holdings to be carried on in
Luxembourg.
(b) In addition, upon request by the Company or Holdings,
representatives of the Operating Advisor shall attend board meetings of the
Company or Holdings, as the case may be.
(c) The Operating Advisor undertakes that:
(i) it will at all times perform all of its activities pursuant
to its appointment hereunder outside the United States of America and
its territories and possessions;
(ii) it will not, unless previously authorised by the directors
of the Company and Holdings, enter or purport to enter into any
contractual obligation on behalf of the Company and Holdings,
respectively, pursuant to its appointment hereunder; and
(iii) it will at all times perform all of its activities pursuant
to its appointment hereunder so as to assist the Company in
qualifying and continuing to qualify as a venture capital operating
company within the meaning of a U.S. Department of Labor regulation
at 29 C.F.R.(S)2510.3-101.
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<PAGE>
SECTION 4. DELIVERY OF DOCUMENTS.
(a) The Company has delivered copies of each of the following
documents to the Operating Advisor, and will promptly notify and deliver to
the Operating Advisor all future amendments and supplements to any thereof,
if any:
(i) the Articles of Incorporation of the Company; and
(ii) the Offering Materials.
(b) Holdings has delivered copies of its Articles of Incorporation
to the Operating Advisor, and will promptly notify and deliver to the
Operating Advisor all future amendments and supplements thereto.
SECTION 5. DELEGATION AND RETAINER OF CONSULTANTS. The Operating
Advisor may, in its discretion in connection with the rendering of the services
required under Section 3, delegate the performance of any such services,
---------
including, without limitation, the provision of strategic advice and any related
services, and retain such consultants or other parties as it may deem
appropriate to furnish information and advice, clerical and other services and
assistance for the benefit of the Company and/or Holdings; provided that, any
-------- ----
parties retained by the Operating Advisor for the rendering of the services
required under Section 3 shall be explicitly retained as independent
---------
contractors, whether or not they are affiliated to the Operating Advisor, that
----
such consultants or other parties shall, under the terms of their retainer, be
explicitly precluded from entering into any contractual obligation on behalf of
the Company or Holdings unless directed to do so by the Company or Holdings,
respectively, that such consultants or other parties shall have substantial
----
clients other than the Company, Holdings and the Operating Advisor, and that,
----
notwithstanding any such delegation or retainer of such consultants or other
parties, the Operating Advisor shall remain responsible to the Company or
Holdings, as appropriate, for the performance of such services. Any such
delegation shall be subject to updating any memorandum forming part of the
Offering Materials accordingly.
SECTION 6. REMUNERATION AND REIMBURSEMENT OF EXPENSES.
(a) For the services it provides pursuant to this Agreement, the
Operating Advisor shall receive a fee of 1.25 per cent. per annum, payable
quarterly in arrears, of the average monthly value of funds, defined as the
average of the beginning of month and end of month values (other than funds
placed by the Company and/or Holdings in liquid, short-term investments,
pending further investment, and investments in securities of Security
Capital Group) invested by the Company and/or Holdings for the immediately
preceding month; such fee shall be payable as to 50% thereof by the Company
and as to 50% thereof by Holdings, and shall be calculated on the last
Business Day of each calendar quarter and shall be due and payable no later
than 15 days after such Business Day.
(b) The Company or Holdings (as appropriate) shall pay, or cause to
be paid out of the assets of the Company or Holdings (as appropriate), the
following operating and administrative expenses or investment and financing
costs (regardless of whether
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<PAGE>
such expenses or costs are capitalized or expensed under generally accepted
accounting principles) of the Company and Holdings and, if the Operating
Advisor advances money for any such expenses or costs, it shall be entitled
to reimbursement by the Company or Holdings (as appropriate) therefor:
(i) travel and other out-of-pocket expenses incurred by the
directors, officers and employees of the Operating Advisor or its
subcontractors in connection with securing financing (including debt
and equity) for the Company or Holdings or evaluating,
investigating, negotiating or closing the purchase, financing,
refinancing or sale of an investment of the Company or Holdings;
(ii) all other costs and expenses relating to the operations of
the Company and Holdings, including, without limitation, travel,
appraisal, reporting, audit and legal fees;
(iii) expenses connected with payments of interest or
distributions in cash or any other form made or caused to be made by
the board of directors of the Company and Holdings to or on account
of holders of securities of the Company and Holdings, respectively;
(iv) expenses connected with communications to holders of
securities of the Company and Holdings and the investment community
in general (including meetings between affiliates of the Operating
Advisor and investors or analysts) and other book-keeping and
clerical work necessary in maintaining relations with holders of
securities and in complying with the continuous reporting and other
requirements of governmental bodies or agencies, including the cost
of printing and mailing certificates for securities and proxy
solicitation materials and reports to holders of securities of the
Company and Holdings;
(v) custodian, transfer agent and registrar's fees and
charges; and
(vi) expenses relating to any office or office facilities
maintained for the Company and/or Holdings separate from the office
or offices of the Operating Advisor.
(c) The Company shall pay or reimburse the Operating Advisor, as
appropriate, the operating expenses or costs referred to in Section 6(b);
------------
provided that the Company shall not pay or reimburse the Operating Advisor
-------- ----
any such operating expenses in any calendar year (excluding for
clarification purposes costs relating to specific investment, financing or
share issuance transactions which are appropriatedly capitalized, expensed
as interest or other general debt costs or included in the investment cost
of an asset under generally accepted accounting principles) to the extent
such operating expenses exceed 0.25 per cent. per annum of the average
monthly value of funds, defined as the average of the beginning of month
and end of month values (other than funds placed by the Company or
Holdings in liquid, short-term
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<PAGE>
investments pending further investment and investments in securities of
Security Capital Group) invested by the Company and/or Holdings for such
calendar year (as calculated in respect of each calendar month of such
calendar year), and, to the extent that the Company and/or Holdings incur
or incurs operating expenses (excluding for clarification purposes costs
relating to specific investment, financing or share issuance transactions
which are appropriately capitalized, expensed as interest or other general
debt costs or included in the investment cost of an asset under generally
accepted accounting principles) in any calendar year in excess of the
aforementioned amount, the Operating Advisor shall reduce its fee under
Section 6(a) in relation to such calendar year, with respect to the
------------
Company and/or Holdings, as appropriate, in the amount of the excess
operating expenses. For the avoidance of doubt, the exclusions contained
in the proviso to the immediately preceding sentence shall extend to all
costs relating to specific investment, financing or share issuance
transactions.
SECTION 7. METHOD OF PAYMENT. All amounts payable to the Operating
Advisor shall be paid in U.S. Dollars in such manner as may be agreed between
the Operating Advisor and the Company or Holdings, as appropriate.
SECTION 8. DUTY OF CARE, ETC.
(a) The Operating Advisor may rely on information reasonably
believed by it to be accurate and reliable including, without limitation,
any and all documents delivered pursuant to Section 4.
---------
(b) The Operating Advisor shall not be required to take any action
which is in contravention of any applicable law.
(c) The Operating Advisor shall not be liable for any action taken
or omitted in reliance upon any notice, request, direction, instruction,
certificate or other instrument received from the Company or Holdings (or
any other party acting on their behalf) believed by the Operating Advisor
to be genuine.
(d) The Operating Advisor shall not be liable to the Company or
Holdings for any loss or damage to the Company or Holdings, resulting from
the performance by the Operating Advisor of the services it is agreeing to
provide hereunder, unless such loss or damage is proved by a court of
competent jurisdiction to have been caused by the gross negligence or
wilful misconduct of the Operating Advisor.
(e) In taking any action under this Agreement, the Operating
Advisor shall be entitled, at the expense of the Company (in respect of
matters relating to services it provides to the Company) or at the expense
of Holdings (in respect of matters relating to services it provides to
Holdings) or at the equal expense of the Company and Holdings (in respect
of matters relating to services it provides to the Company and Holdings
together), to receive and act upon advice of counsel selected by the
Operating Advisor with the agreement of the Company and/or Holdings, as
appropriate, which shall not be unreasonably withheld, and the Operating
Advisor shall have no liability for any action taken or omitted pursuant
to such advice.
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<PAGE>
SECTION 9. INDEMNITIES.
(a) The Company agrees to indemnify and hold harmless each of the
Operating Advisor and its nominees and their respective agents, directors,
employees, officers, advisers and affiliates (each a "Operating Advisor's
-------------------
Indemnitee") from and against all claims, losses, damages, expenses and
----------
liabilities (including, without limitation, legal fees and expenses)
incurred or assessed, directly or indirectly, against such Operating
Advisor's Indemnitee in connection with the performance of services it
provides to the Company pursuant to this Agreement, except in connection
with any such claim, etc. as is proved by a court of competent jurisdiction
to have been caused by such Operating Advisor's Indemnitee's gross
negligence or wilful misconduct.
(b) Holdings agrees to indemnify and hold harmless each Operating
Advisor's Indemnitee from and against all claims, losses, damages, expenses
and liabilities (including, without limitation, legal fees and expenses)
incurred or assessed, directly or indirectly, against such Operating
Advisor's Indemnitee in connection with the performance of services it
provides to Holdings pursuant to this Agreement, except in connection with
any such claim, etc. as is proved by a court of competent jurisdiction to
have been caused by such Operating Advisor's Indemnitee's gross negligence
or wilful misconduct.
(c) The Company and Holdings jointly agree to indemnify and hold
harmless each Operating Advisor's Indemnitee from and against all claims,
losses, damages, expenses and liabilities (including, without limitation,
legal fees and expenses) incurred or assessed, directly or indirectly,
against such Operating Advisor's Indemnitee in connection with the
performance of services it provides to the Company and Holdings together
pursuant to this Agreement, except in connection with any such claim, etc.
as is proved by a court of competent jurisdiction to have been caused by
such Operating Advisor's Indemnitee's gross negligence or wilful
misconduct.
SECTION 10. TERM AND TERMINATION.
(a) This Agreement is for a term of two years. On the second
anniversary date hereof, this Agreement will be automatically renewed on
the same terms for a further period of two years, and upon the expiry of
such further period of two years, the same principle will continuously
apply as to further renewals, unless in each case both the Company and
Holdings acting together otherwise notify the Operating Advisor in writing.
(b) At any time after the first anniversary date of this Agreement
(including, for the avoidance of doubt, at any time during a renewal of
this Agreement referred to in Section 10(a) above), both the Company and
-------------
Holdings acting together may terminate this Agreement upon giving 60 days'
written notice to the Operating Advisor.
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<PAGE>
(c) Any party hereto may terminate this Agreement early upon giving
written notice to the other parties hereto upon a material breach by either
of such other parties of the terms hereof.
(d) In the event of termination, the Operating Advisor shall be
entitled to receive all accrued fees and expenses due hereunder up to the
date of termination.
(e) Upon delivery or receipt of any notice of early termination, the
Company and Holdings shall promptly appoint a successor Operating Advisor
and any resignation or removal of the Operating Advisor shall become
effective upon acceptance of appointment by the successor Operating
Advisor; provided, however, that if the Company and Holdings shall fail to
-------- -------
make such appointment within a period of 60 days following delivery or
receipt of any notice of termination as aforesaid, then the Operating
Advisor shall be entitled to appoint a successor Operating Advisor.
(f) In the event of the appointment of a successor Operating Advisor,
the Operating Advisor agrees to co-operate with the Company and Holdings in
the execution of documents and performance of other actions necessary or
desirable in order to substitute the successor Operating Advisor for the
Operating Advisor under this Agreement.
SECTION 11. NON-EXCLUSIVITY. Nothing in this Agreement shall limit or
restrict the right of any director, officer or employee of the Operating Advisor
to engage in any other business or to devote his time and attention in part to
any other business. Nothing in this Agreement shall limit or restrict the right
of the Operating Advisor to engage in any other business or to render services
of any kind to any other corporation, firm, individual or association.
SECTION 12. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and supersedes any prior arrangements, written or oral, with
respect thereto.
SECTION 13. AMENDMENTS, ETC. No amendment to or waiver of any
provision of this Agreement, or consent to any departure by any party hereto
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the parties hereto, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
it is given.
In connection with the operation of this Agreement, the Company, Holdings
and the Operating Advisor may agree in writing from time to time on such
provisions interpretative of or in addition to the provisions of this Agreement
as may in their joint opinion be consistent with the general tenor of this
Agreement. No interpretative or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this Agreement.
SECTION 14. HEADINGS, ETC. The Section headings used in this Agreement
are for convenience of reference only and shall not affect the construction of
this Agreement.
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<PAGE>
SECTION 15. ADDRESS FOR NOTICES. All notices and other communications
provided for hereunder shall be in writing and mailed or sent by facsimile or
delivered to the relevant party at the address for such party set forth below
its signature hereto or at such other address, or sent to such facsimile number,
as shall be designated by such party in a written notice to the other parties
complying as to delivery with the terms of this Section. All such notices and
other communications shall, when mailed or facsimiled, be effective when
deposited in the mail addressed as aforesaid, or when the sending facsimile
machine shall have confirmed transmission, respectively.
SECTION 16. SEVERABILITY. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under such law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
SECTION 17. SUBMISSION TO JURISDICTION. Each of the Company, Holdings
and the Operating Advisor irrevocably submits, for the purposes of proceedings
relating to this Agreement, to the exclusive jurisdiction of the courts of the
Grand Duchy of Luxembourg.
SECTION 18. BINDING EFFECT. This Agreement shall be binding on, and
shall inure to the benefit of, the Company, Holdings and the Operating Advisor
and their respective successors and assigns, provided that neither party hereto
may assign this Agreement or any of its rights or obligations hereunder without
the prior written consent of the other parties.
SECTION 19. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the Grand Duchy of Luxembourg.
SECTION 20. COUNTERPARTS. This Agreement may be executed in three or
more counterparts, each of which shall be deemed an original, and all of which
shall together be deemed one and the same instrument. This Agreement shall
become effective when three or more counterparts have been signed and delivered
by each of the parties.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers or attorneys duly authorised
as of the date first above written.
SECURITY CAPITAL By:____________________________
U.S. REALTY Name:__________________________
Title:_________________________
Address:_______________________
Attention:_____________________
Telephone:_____________________
Facsimile:_____________________
SECURITY CAPITAL By:____________________________
HOLDINGS S.A. Name:__________________________
Title:_________________________
Address:
Attention:_____________________
Telephone:_____________________
Facsimile:_____________________
SECURITY CAPITAL By:____________________________
(EU) MANAGEMENT S.A. Name:__________________________
Title:_________________________
Address:_______________________
Attention:_____________________
Telephone:_____________________
Facsimile:_____________________
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<PAGE>
EXHIBIT 10.16
AMENDED AND RESTATED FACILITY AGREEMENT, dated as of December 8, 1998,
among SECURITY CAPITAL U.S. REALTY, a company incorporated in Luxembourg with a
registered office located at 69, route d' Esch, L-1470 Luxembourg (the
"Borrower"), SECURITY CAPITAL HOLDINGS S.A., a company incorporated in
Luxembourg with a registered office located at 69, route d' Esch, L-1470
Luxembourg (the "Company"), COMMERZBANK AKTIENGESELLSCHAFT New York branch, as
arranger (in this capacity, the "Arranger"), THE FINANCIAL INSTITUTIONS listed
in Parts I and II of Schedule 1 as revolving credit lenders and swingline
lenders, respectively, COMMERZBANK AKTIENGESELLSCHAFT New York Branch, as
administrative agent (in this capacity and together with its successors
appointed pursuant to Clause 18.5, the "Administrative Agent") and NATIONSBANK
OF TEXAS, N.A., as syndication agent (in this capacity, the "Syndication
Agent").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Borrower, the Company, the Administrative Agent and
certain of the Lenders (as defined below) have previously entered into a
Facility Agreement, dated June 12, 1996, as amended and restated by a
supplemental agreement dated July 24, 1996, as amended by a second supplemental
agreement dated October 10, 1996, as amended by a third supplemental agreement
dated December 9, 1996, as amended by a fourth supplemental agreement dated May
5, 1997, as amended by a fifth supplemental agreement dated May 28, 1997, as
amended and restated by a sixth supplemental agreement dated March 20, 1998 and
as amended and restated by a seventh supplemental agreement dated the date
hereof (such Facility Agreement, as amended and restated through the date hereof
and in effect immediately prior to the effectiveness hereof, the "Existing
Facility Agreement"); and
WHEREAS, the Borrower, the Company, the Administrative Agent and the
Lenders wish to amend and restate the Existing Facility Agreement upon the terms
and conditions set forth herein;
NOW, THEREFORE, IT IS AGREED THAT the Existing Facility Agreement
shall be amended and restated in its entirety to read as follows:
1. DEFINED TERMS; INTERPRETATION
1.1 Defined Terms.
-------------
As used in this Agreement, the following terms shall have the
following meanings (such meanings to be equally applicable to both the singular
and plural forms of the terms defined):
"Additional Conditions Precedent" means, in relation to any Additional
Guarantor, the documents set forth in Schedule 6 Part II.
"Additional Guarantor" means any entity which becomes party hereto
after the Effective Date as a guarantor pursuant to a Guarantor Joinder
Agreement.
<PAGE>
"Adjusted EBITDA" means, as to any Person and for any period, the
Consolidated net income of such Person and its Subsidiaries for such period,
before interest expense and provision for taxes and without giving effect to any
extraordinary gains and gains from sales of assets ("EBIT"), adjusted by (i)
adding thereto the amount of all amortization of intangibles and depreciation
that were deducted in arriving at such EBIT for such period and (ii) subtracting
therefrom the amount of all non-cash gains that were added in arriving at such
EBIT for such period.
"Administrative Agent" has the meaning set forth in the introductory
paragraph.
"Advance" means a Revolving Advance, a Term Advance or a Swingline
Advance.
"Advance Agreement" means the Amended and Restated Advance Agreement,
dated as of December 8, 1998, by and between the Borrower and the Company.
"Affected Lender" has the meaning set forth in Clause 2.3(c).
"Affiliate" in relation to a Person, means any other Person directly
or indirectly controlling , controlled by, or under direct or indirect common
control with, such Person. A Person shall be deemed to control another Person
if such Person possesses, directly or indirectly, the power to direct or cause
the direction of the management and policies of such other Person, whether
through the ownership of voting securities, by contract or otherwise.
"Affiliated Lender" in relation to a Lender, means any other bank or
financial institution which is an Affiliate of such Lender.
"Anniversary" means, in any year, the anniversary of August 15, 1999.
"Applicable Base Rate Margin" means, for any day, the rate per annum
set forth below opposite the Applicable Rating Level then in effect for such
day:
Applicable Rating Applicable Base
Level Rate Margin
----- -----------
Level I 0.000%
Level II 0.000%
Level III 0.125%
Level IV 0.250%
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Level V 0.375%
Level VI 0.625%.
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<PAGE>
"Applicable LIBOR Margin" means, for any day, the rate per annum set
forth below opposite the Applicable Rating Level then in effect for such day:
Applicable Rating Applicable
Level LIBOR Margin
----- ------------
Level I 0.850%
Level II 0.950%
Level III 1.125%
Level IV 1.250%
Level V 1.375%
Level VI 1.625%
"Applicable Outstandings" has the meaning set forth in Clause 2.3(b).
"Applicable Rating Level" means, for any day, the level set forth
below opposite the lowest of the two highest ratings (in effect for such day)
issued by the Rating Agencies, respectively, in respect of the senior unsecured
long-term debt of the Borrower (or the level set forth opposite the highest
ratings if the two highest ratings fall within the same level or the lowest
rating if only two of the three Rating Agencies are then rating such debt),
provided that, for determining whether the Applicable Rating Level falls within
any of Levels I through VI, the ratings set forth opposite Level I shall be
considered the highest and those set forth opposite Level VI shall be
considered the lowest:
Rating Level Moody's S&P D&P
- ------------ ------- ------ ------
Level I Greater than Greater than Greater than
or equal to A2 or equal to A or equal to A
Level II A3 A- A-
Level III Baa1 BBB+ BBB+
Level IV Baa2 BBB BBB
Level V Baa3 BBB- BBB-
Level VI Less than Baa3 Less than BBB- Less than BBB-
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<PAGE>
For purposes of the foregoing, (i) "" means a rating equal to or more favorable
than; (ii) "Less than" means a rating less favorable than; (iii) if ratings for
the senior unsecured long-term debt of the Borrower shall not be available from
at least two of the three Rating Agencies, Level VI shall be deemed applicable;
(iv) if determinative ratings shall change (other than as a result of a change
in the rating system used by any applicable Rating Agency) such that a change in
Applicable Rating Level would result, such change shall effect a change in
Applicable Rating Level as of the day on which it is first announced by the
applicable Rating Agency, and any change in the Applicable Base Rate Margin or
the Applicable LIBOR Margin hereunder shall apply commencing on the effective
date of such change and ending on the date immediately preceding the effective
date of the next such change; and (v) if the rating system of any of the Rating
Agencies shall change prior to the date all obligations hereunder have been paid
and the Revolving Credit Commitments and Swingline Commitments are canceled, the
Borrower, the Administrative Agent and the Lenders shall negotiate in good faith
to amend the references to specific ratings in this definition to reflect such
changed rating system, and pending such amendment, if no Applicable Rating Level
is otherwise determinable based upon the foregoing, the last-determined
Applicable Rating Level shall apply until such agreement is reached.
"Approved Issuer" means a Qualifying Issuer which the Super Majority
Lenders (which shall include, for the purposes of this definition of "Approved
Issuer", all Lenders whose respective Commitments equal or exceed $50,000,000)
have approved in writing as being eligible for inclusion in determinations of
the Borrower's compliance with the limitation of clause (b) of the definition of
Borrowing Base. As of the date hereof, the Principal Companies are the only
Approved Issuers.
"Approved Jurisdiction" means any State of the United States and such
other jurisdictions as the Borrower and the Administrative Agent with the
consent of the Majority Lenders may agree in writing.
"Arranger" has the meaning set forth in the introductory paragraph.
"Assets" has the meaning set forth in Clause 1.2(a).
"Assignment and Acceptance" has the meaning set forth in Clause
24.3(b).
"Authorized Representative" means, with respect to any Person, the
President, any Managing Director, any Senior Vice President, any Vice President,
the Treasurer, any controller or any other officer, employee or representative
of such Person duly authorized by such Person to act on behalf of such Person in
connection with this Agreement and the transactions contemplated hereby;
provided that evidence of such authority shall have been provided to the
Administrative Agent promptly following the Administrative Agent's request
therefor and such evidence shall be reasonably satisfactory in form and
substance to the
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<PAGE>
Administrative Agent.
"Base Rate" means, as of any date, the rate determined by the
Administrative Agent to be the higher of (a) the Prime Rate and (b) the
aggregate of the Federal Funds Rate on that date plus 0.50 percent per annum.
"Base Rate Advance" means an Advance in respect of which the Borrower
has elected interest to be calculated by reference to the Base Rate.
"Borrower" has the meaning set forth in the introductory paragraph.
"Borrower Fixed Charge Coverage Ratio" means, with respect to the
Borrower and for any period, the ratio of Cash Flow to Fixed Charges of the
Borrower for such period.
"Borrowing Base" means, at any time, the amount determined by the
Administrative Agent on the basis of the most recent Compliance Certificate
and/or the most recent Borrowing Base Certificate to be 40 percent of the Market
Value of all Qualifying Collateral, provided that, (a) Qualifying Securities
that are Traded Securities must comprise at least 40 percent of the aggregate
value of the Borrowing Base, (b) Qualifying Securities that are issued by
Approved Issuers and Special Opportunity Investments must collectively comprise
at least 60 percent of the aggregate value of the Borrowing Base, (c) if the
aggregate of the Market Value of Qualifying Collateral comprising SCG Securities
and any other Qualifying Security issued by any company in which SCG is directly
or indirectly (other than through the Borrower or its Subsidiaries) the
principal shareholder (collectively, the "SCG Qualifying Collateral") exceeds 10
percent of the Market Value of all Qualifying Collateral, for purposes of
calculating the Borrowing Base the Market Value of the SCG Qualifying Collateral
shall be limited to 10 percent of the Market Value of all Qualifying Collateral
and (d) if the aggregate of the Market Value of Qualifying Collateral comprising
Qualifying Securities that are not common stock exceeds 10 percent of the Market
Value of all Qualifying Collateral, for purposes of calculating the Borrowing
Base the Market Value of such Qualifying Collateral shall be limited to 10
percent of the Market Value of all Qualifying Collateral.
"Borrowing Base Certificate" means a certificate substantially in the
form set forth in Schedule 2 duly executed by a Managing Director, Senior Vice
President or Vice President of each of the Company and the Borrower.
"Borrowing Base Shortfall" has the meaning set forth in Clause 8.3.
"Business Day" means a day (other than a Saturday or a Sunday) on
which banks are open for business in each of London, New York City and
Luxembourg.
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<PAGE>
"CarrAmerica" means CarrAmerica Realty Corporation.
"Cash Equivalent Investment" means at any time cash and any evidence
of indebtedness issued or guaranteed by the Government of the United States.
"Cash Flow" means, with respect to the Borrower for the four fiscal
quarter period ending as of the date of determination, the Borrower's net income
for such period (excluding gains and losses for such period realized on any
disposition of Liquid Securities and excluding accrued interest income, in each
case to the extent included in net income), except that cash dividends and other
cash received from Investments in Consolidated Subsidiaries, other Subsidiaries
or any other Persons shall be substituted for net income of Consolidated
Subsidiaries and for equity in earnings of any such Subsidiaries or other
Persons, plus the sum of the following amounts (but only to the extent that any
of the following amounts were taken into account when determining such net
income): (a) income taxes accrued for such period, plus (b) interest expense
paid or accrued for such period (excluding interest accrued in respect of any
"zero-coupon" Indebtedness and other similar Indebtedness for which interest is
not due and payable in cash), plus (c) depreciation and amortization expenses
for such period, plus (d) the return of the capital component of dividends
received for such period (to the extent that such component is not reflected
already in net income).
"Commitment" means a Revolving Credit Commitment or a Swingline
Commitment.
"Commitment Fee Rate" means, for any day, the percentage set forth
below opposite the Undrawn Commitments for such day:
Commitment
Undrawn Commitments Fee Rate
------------------- ---------
$200,000,000 or less 0.15%
Greater than $200,000,000 0.20%
but less than or equal to
$400,000,000
Greater than $400,000,000 0.25%.
"Commitment Period" means, subject to Clause 2.5 (Extension of Final
Maturity Dates), the period commencing on the Effective Date and expiring on the
Final Maturity Date.
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<PAGE>
"Company" has the meaning set forth in the introductory paragraph.
"Compliance Certificate" means a compliance certificate, including all
attachments annexed thereto, substantially in the form of Schedule 3 duly
executed by a Managing Director or Senior Vice President or Vice President of
each of the Company and the Borrower, together with such changes therein as the
Administrative Agent may from time to time reasonably request.
"Consolidated" has the meaning set forth in Clause 1.2 (Construction).
"Consolidated Subsidiary" means, with respect to a Person at any date,
any Subsidiary or other entity the accounts of which would be Consolidated with
those of such Person in its Consolidated financial statements, if such
statements were prepared as of such date (other than any Strategic Investee).
"Contingent Obligation" means, for the Borrower, any commitment,
undertaking, Guarantee or other obligation of the Borrower or any of its
Consolidated Subsidiaries constituting a contingent liability that must be
accrued under GAAP.
"Contracting Party" means any of the Financial Institutions, the
Borrower and any of the Guarantors.
"Debt" of any Person means, without duplication, all indebtedness of
such Person for or in respect of (i) borrowed money; (ii) acceptances under any
acceptance credit facility; (iii) amounts raised under any note purchase
facility or the issue of bonds, notes, debentures or similar instruments; (iv)
amounts raised pursuant to any issue of shares which are expressed to be
redeemable at the option of the holder; (v) the amount of any liability in
respect of leases which would be treated in the audited financial statements of
such Person as finance or capital leases; (vi) the amount of any liability in
respect of any purchase price for Assets or service the payment of which is
deferred for a period in excess of one hundred and eighty days; (vii)
obligations for the purchase price of stock under stock purchase or similar
agreements in the ordinary course of business, (viii) the amount of any
liability in respect of swap, cap or collar arrangements for currency, interest
rate or dividends on preferred stock or any similar derivative instrument,
provided that if such swap, cap or collar arrangement or any similar derivative
instrument has been entered into in order to hedge the currency, interest rate
or dividend exposure of such Person in respect of indebtedness of the types
described in clauses (i) through (vii), (ix) and (x) of this definition or
preferred stock, the amount of any liability, in respect of such arrangement or
instrument shall not be taken into account, (ix) amounts raised under any other
transaction (including, without limitation, any forward sale or purchase
agreement) having the commercial effect of a borrowing; and (x) any guarantee or
other assumption of liability for the obligations of any third party in respect
of any of the foregoing.
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"Debt to Net Worth Ratio" means, with respect to any Person and for
any period, the ratio of Debt to Net Worth for such Person for such period.
"Default" means any Event of Default and any event or condition which,
with the giving of notice, lapse of time or fulfillment of any other applicable
condition (or any combination of the foregoing) would constitute an Event of
Default.
"Dollars" or "$" means the lawful currency for the time being of the
U.S.
"Effective Date" has the meaning provided in the Supplemental
Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974 of
the United States, as amended, and any successor statute of similar import,
together with the regulations thereunder, in each case as in effect from time to
time.
"ERISA Affiliate" means any corporation, trade or business that is a
member of a controlled group of corporations or a controlled group of trades or
businesses, as described in sections 414(b) and 414(c), respectively, of the
Internal Revenue Code or section 4001 of ERISA.
"Event of Default" means any of the events specified in Clause 16.1
(Events of Default).
"Facility" means, collectively, the facilities referred to in Clause
2.1 (Facilities).
"Facility Office" in relation to a Lender, means:
(a) the office(s) of such Lender designated as such by such Lender in
writing to the Administrative Agent prior to the Effective Date; or
(b) in the case of a Lender which becomes a Contracting Party after
the Effective Date, the office(s) of such Lender designated as such by such
Lender in writing to the Administrative Agent before or upon becoming a
Lender; or
(c) any other office(s) designated as such by such Lender in writing
to the Administrative Agent in accordance with Clause 24.6 (Change of
Facility Office),
in each case as the office(s) through which such Lender will perform all or
any of its obligations under the Finance Documents.
"Federal Funds Rate" means, on any day, the rate per annum (rounded
upward if necessary to the nearest one/one-hundredth of one percent) equal to
the weighted average of the rate on overnight Federal funds transactions with
members of the Federal Reserve System
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arranged by Federal funds brokers on such day, as published by the Federal
Reserve Bank of New York on the Business Day next succeeding such day, provided
that (a) if such day is not a Business Day, the Federal Funds Rate for such day
shall be such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day, and (b) if no such rate is
published on such next succeeding Business Day, the Federal Funds Rate for such
day shall be the average rate quoted to the Administrative Agent on such day on
such transactions as reasonably determined by the Administrative Agent. Each
change in the interest rate on a Base Rate Advance, Swingline Advance or Term
Advance which results from a change in the Federal Funds Rate shall become
effective on the day on which the change in the Federal Funds Rate becomes
effective.
"Fee Letter" means the letter dated December 8, 1998 from the Arranger
and the Administrative Agent to the Borrower detailing certain fees to be paid
by the Borrower in connection with the Facility.
"Final Maturity Date" means, subject to Clause 2.5 (Extension of Final
Maturity Dates), December 8, 2000.
"Final Repayment Date" means, subject to Clause 2.6 (Term-Out Option),
the date falling three years after the Final Maturity Date.
"Finance Document" means any of this Agreement, each of the Notes, the
Fee Letter, the Guarantor Joinder Agreements, the Assignment and Acceptances and
any other document designated as such by the Administrative Agent and the
Borrower.
"Financial Institution" means the Arranger, the Administrative Agent
or a Lender.
"Fiscal Year" means a fiscal year of the Company and the Borrower.
"Fixed Charges" means, with respect to any Person and for any period,
the sum of the Principal and Interest Expense, cash payments made in respect of
taxes or tax liabilities (net of cash tax refunds actually received) and
dividend payments made on preferred stock in each case by such Person for such
period on a Consolidated basis.
"GAAP" has the meaning given to it in Clause 1.2 (Construction).
"Group" means the Borrower and its Consolidated Subsidiaries for the
time being and from time to time.
"Guarantee" or "guarantee" of any person means any agreement or
undertaking pursuant to which such person guarantees, assumes or otherwise
becomes secondarily,
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contingently or otherwise liable for any obligation of any other person (other
than by virtue of endorsement of instruments in the ordinary course of deposit
or collection and obligations of such person to purchase stock under stock
purchase or similar agreements).
"Guarantor" means the Company and each Additional Guarantor
(collectively, the "Guarantors").
"Guarantor Joinder Agreement" means an agreement substantially in the
form of Part I of Schedule 6 made pursuant to Clause 28.1 (Additional
Guarantors) (collectively, the "Guarantor Joinder Agreements");
"Intangible Assets" means, with respect to the Borrower, the amount
(to the extent reflected in determining stockholders' equity of the Borrower) of
all items which in accordance with GAAP would be properly classified as
intangible Assets of the Borrower and its Consolidated Subsidiaries.
"Interest Coverage Ratio" means, with respect to any Person and for
any period, the ratio of Adjusted EBITDA to Interest Expense for such Person for
such period.
"Interest Expense" means, in respect of any Person and for any period,
the aggregate of its paid or accrued cash interest expense for such period on
such Person's Debt calculated on a Consolidated basis but excluding interest
properly capitalized under GAAP being interest attributable to construction
projects.
"Interest Period" means, in respect of a Term Advance which is a LIBOR
Advance, each period of interest selected by the Borrower in accordance with
Clause 7.5 (Interest Periods for Term Advances).
"Internal Revenue Code" means the Internal Revenue Code of 1986 of the
United States, as amended, and any successor statute of similar import, together
with the regulations thereunder, in each case as in effect from time to time.
Reference to sections of the Internal Revenue Code shall be construed to also
refer to any successor sections.
"Investment" means, with respect to a Person, the legal or beneficial
ownership by such Person of any capital stock or other equity interest in
another Person, whether or not such ownership constitutes a controlling interest
in such other Person, and shall include all Subsidiaries of such Person.
"Investment Adviser" means Security Capital U.S. Realty Management
S.A. or such other entity providing investment advice to the Group as may be
approved by the Administrative Agent (such approval not to be unreasonably
withheld and such decision not to be unreasonably delayed).
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"Lender" means a Revolving Credit Lender or a Swingline Lender.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other) or preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of any financing statement under
the Uniform Commercial Code or comparable law of any jurisdiction) having the
effect of security.
"LIBOR" means with respect to a LIBOR Advance:
(a) the rate per annum appearing on the Telerate page 3750 (or any
successor to that page) (the "Telerate Screen") at or about 11.00 a.m. on
the applicable Rate Fixing Day for the offering of deposits in Dollars for
a period comparable to its Term; or
(b) if: (i) no relevant rate appears on the Telerate Screen for the
purposes of paragraph (a) above; or (ii) the Administrative Agent
determines that no rate for a period of comparable duration to that Term
appears on the Telerate Screen at the relevant time, the arithmetic mean
(rounded upwards, if necessary, to two decimal places) of the respective
rates, as supplied to the Administrative Agent at its request, quoted by
the Reference Lenders to leading banks in the London Interbank Market at or
about 11.00 a.m. on the Rate Fixing Day for the offering of deposits in
Dollars in an amount comparable to its Term. If any of the Reference
Lenders is unable or otherwise fails to supply an offered rate by 11.30
a.m. on the Rate Fixing Day, LIBOR shall, subject to Clause 9(a)(i) (Market
Disruption), be determined on the basis of the quotations of the remaining
Reference Lenders.
"LIBOR Advance" means an Advance (other than a Swingline Advance) in
respect of which the Borrower has requested interest be calculated by reference
to LIBOR.
"Liquid Security" means a Traded Security of which the Borrower owns
in the aggregate less than five percent (5%).
"Majority Lenders" means, at any time, Lenders whose Commitments:
(a) then aggregate 51 percent or more of the Total Revolving Credit
Commitments; or
(b) if the Total Revolving Credit Commitments have been reduced to
zero and Advances are outstanding, then aggregate 51 percent or more of the
aggregate
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<PAGE>
amount of the Advances outstanding at that time; or
(c) if the Total Revolving Credit Commitments have been reduced to
zero and no Advance is outstanding, aggregated 51 percent or more of the
Total Revolving Credit Commitments immediately before the reduction.
"Mandatory Borrowing" has the meaning set forth in Clause 2.3(d).
"Margin Stock" has the meaning ascribed to such term in Regulation U
of the Board of Governors of the Federal Reserve System or any regulation
substituted therefor, as from time to time in effect.
"Market Net Worth" means, on a given date,
(a) the sum of:
(i) the Market Value on and as of such date of all Traded
Securities owned by the Borrower and its Consolidated Subsidiaries;
(ii) the amount of obligations for the purchase price of
stock under stock purchase agreements or similar agreements in the
ordinary course of business;
(iii) with respect to any Person (x) Securities of which
are owned by the Borrower or any of its Consolidated Subsidiaries and
(y) whose Securities are not listed on the New York Stock Exchange,
the American Stock Exchange or some other principal national
securities exchange in the United States of America, the product of:
(1) the difference obtained by subtracting:
(A) the sum of:
(I) the book value of all Assets of such
Person (excluding all Intangible Assets and operating
properties) on and as of such date; and
(II) an amount equal to the quotient obtained
by dividing (x) the annualized Adjusted EBITDA of such
Person (annualized on the basis of the three month
period ended immediately prior to the date on which
Market Net Worth is being determined) by (y) 9.25
percent per annum (based on the balance sheet of
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such Person on the last day of the three month period
ended immediately prior to the date on which Market Net
Worth is being determined);
from
----
(B) the Total Liabilities of such Person;
multipled by
------------
(2) the percentage of the Securities of such Person
owned by the Borrower and/or any of its Consolidated
Subsidiaries; and
(iv) all cash and Cash Equivalent Investments of the
Borrower and its Consolidated Subsidiaries on and as of such date,
minus
-----
(b) the Total Liabilities (excluding deferred taxes on unrealized
gains) of the Borrower and its Consolidated Subsidiaries as of such date.
"Market Value" means with respect to a Security and on the date of
determination thereof, (a) if such Security is listed on the New York Stock
Exchange, the American Stock Exchange, or some other principal national
securities exchange in the United States of America, the product of (i) the
reported last sale price of a unit of such 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, the American Stock Exchange Composite Tape or the
principal national securities exchange in the United States of America on which
the security is listed or admitted to trading, as applicable, or, if such
Security is not listed or admitted to trading on any national securities
exchange in the United States of America, the closing sales price, or if there
is no closing sales price, the average of the closing bid and asked prices, in
the over-the-counter market as reported by the National Association of
Securities Dealers Automated Quotation System and (ii) the number of shares held
by the Borrower or a Guarantor, or (b) if such Security is not listed on any
such national securities exchange or not so quoted or reported, an amount equal
to the quotient obtained by dividing (x) the annualized Adjusted EBITDA of the
issuer of such Security (annualized on the basis of the three month period ended
immediately prior to the date on which Market Value is being determined) by (y)
9.25 percent per annum (based on the balance sheet of such issuer on the last
day of the three month period ended immediately prior to the date on which
Market Value is being determined).
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<PAGE>
"Material Adverse Effect" means a materially adverse effect on (a) the
business, assets, liabilities, financial condition, or results of operations of
the Borrower and its Consolidated Subsidiaries taken as a whole, (b) the ability
of the Borrower or any Guarantor to perform its obligations under any Finance
Document to which it is a party, (c) the validity or enforceability of any of
such Finance Documents and (d) the rights and remedies of the Lenders and the
Administrative Agent under any of such Finance Documents.
"Maturity Date" means:
(a) in relation to a LIBOR Advance under the Revolving Credit Facility
or a Swingline Advance, the last day of its Term: and
(b) in relation to a Base Rate Advance under the Revolving Credit
Facility, the Final Maturity Date.
"Net Worth" means, with respect to any Person at any time, the amount
obtained by subtracting (i) the Total Liabilities of such Person and its
Subsidiaries determined on a Consolidated basis from (ii) the Assets of such
Person and its Subsidiaries determined on a Consolidated basis after appropriate
deduction for any minority interests in Subsidiaries.
"Non-Extending Lender" has the meaning set forth in Clause 2.5(b).
"Non-Recourse Debt" means Debt of any Person which is not a general
obligation and which is secured by a Lien, the liability for which is
effectively limited to the asset or property subject to such Lien with no
recourse, directly or indirectly to any other asset or property of such Person
(except to the extent that the documentation governing such Debt contains
provisions relating to customary indemnities from such Person for fraud, use of
proceeds and environmental matters or as are otherwise reasonably acceptable to
the Administrative Agent).
"Note" means either a Revolving Note, a Swingline Note or a Term Note.
"Overall Commitment" has the meaning set forth in Clause 2.3(b).
"Permitted Liens" means (a) Liens for taxes not yet due and payable
and (b) Liens for taxes, assessments and governmental charges or assessments
that are being contested in good faith by appropriate proceedings diligently
conducted, and for which reserves, if any, required under GAAP have been set
aside.
"Person" or "person" has the meaning set forth in Clause 1.2
(Construction).
"Pricing Service" means Bloomberg Financial Markets LLP.
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<PAGE>
"Prime Rate" means, on any day, the rate of interest from time to time
publicly announced by the Administrative Agent as its "base" or "prime" rate for
loans denominated in Dollars made in New York, which rate may not be the lowest
rate charged to its borrowers. Each change in the interest rate on an Advance
which results from a change in the Prime Rate shall become effective on the day
on which the change in the Prime Rate becomes effective.
"Principal and Interest Expense" means, in respect of any Person and
for any period, the aggregate (determined on a Consolidated basis) of (a) all
amounts of regularly scheduled principal paid during such period in respect of
Debt of such person (including, without limitation convertible debt) but
excluding bullet repayments on maturity of a loan, principal paid in respect of
revolving credits and principal paid in respect of revolving credits that
convert into term loans and (b) Interest Expense for such period, provided that
for the purposes of the calculation of the Borrower Fixed Charge Coverage Ratio
in Clause 15.10(b)(iii)(B) (Financial Condition), Principal and Interest Expense
shall exclude all repayments of principal under the Finance Documents (including
payments of principal on any Repayment Installment).
"Principal Companies" means SCG, Regency, PRT, Storage and
CarrAmerica.
"PRT" means Pacific Retail Trust.
"Qualifying Collateral" means cash and Qualifying Securities that are
free and clear of Security Interests other than Permitted Liens, provided that,
at any time, no more than 35 percent of such Qualifying Securities shall have
been issued by any one Qualifying Issuer.
"Qualifying Issuer" means, except as provided below,
(a) any Real Estate Operating Company and any REIT which has, on
a Consolidated basis, (i) at all times, a Debt to Net Worth ratio of
no greater than 1.0:1.0; and (ii) a Qualifying Issuer Fixed Charge
Coverage Ratio of not less than 1.5:1.0, calculated on a rolling basis
for the four most recent quarters ended or, if less, since the date of
active operations; or
(b) an issuer of a Liquid Security which has, on a Consolidated
basis, (i) at all times, a Debt to Net Worth ratio of no greater than
1.0:1.0; and (ii) an Interest Coverage Ratio of not less than 1.5:1.0,
calculated on a rolling basis for the four most recent quarters ended
or, if less, since the date of active operations;
provided, however, there shall be excluded from the term "Qualifying Issuer" (1)
any REIT whose distributions made are less than the minimum amounts required to
be made by the Internal Revenue Code in order for such REIT not to be taxed at
the corporate or entity level
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<PAGE>
or for it otherwise to maintain its status as a REIT; or (2) any Real Estate
Operating Company or any REIT for which (I) an event of default (howsoever
described) exists under any agreement constituting or evidencing Debt of such
Real Estate Operating Company or REIT, (II) an event, which with the sending of
notice, the passage of time (other than any applicable grace period granted for
curable defaults), any combination of the foregoing or the fulfillment of any
other condition could become an event of default (howsoever described) under any
agreement constituting or evidencing Debt of such Real Estate Operating Company
or REIT, (III) an event or condition exists under any agreement constituting or
evidencing Debt of such Real Estate Operating Company or REIT which permits any
holder or holders of such Debt, any trustee or agent acting on behalf of such
holder or holders or any other Person, to accelerate the maturity of any such
Debt or require that such Debt be prepaid other than by regularly scheduled
prepayments prior to the maturity or (IV) any Debt of such Real Estate Operating
Company or REIT shall have been declared (or shall become) due and payable; or
(3) any Real Estate Operating Company or any REIT which if it were included as a
Qualifying Issuer would result in the weighted average of the Qualifying Issuer
Fixed Charge Coverage Ratio of all Qualifying Issuers (including such Real
Estate Operating Company or REIT) being less than 1.75:1.0 (weighted according
to the proportion which the Market Value of the Qualifying Securities of a
particular Qualifying Issuer bears to the aggregate of the Market Value of all
Qualifying Securities of all Qualifying Issuers), calculated on a rolling basis
for the four most recent quarters ended or, if less, since the date of active
operations.
"Qualifying Issuer Fixed Charge Coverage Ratio" means, with respect to
any Real Estate Operating Company or REIT and for any period, the ratio of
Adjusted EBITDA to Fixed Charges of such Real Estate Operating Company or REIT
for such period.
"Qualifying Security" means each Security issued by a Qualifying
Issuer and owned solely by, and registered solely in the name of, the Borrower
or a Guarantor, other than a Security of a Qualifying Issuer which:
(a) contains transfer restrictions (other than transfer
restrictions (i) imposed to comply with applicable securities laws,
(ii) with respect to Traded Securities, imposed by any agreement
between the Borrower or a Guarantor and an underwriter entered into in
connection with an offering by such underwriter of Securities of the
issuer of such Security, in which agreement the Borrower or such
Guarantor agrees not to sell such Security for a period ending no
later than 180 days after such offering or (iii) which have been
approved by the Majority Lenders (such approval not to be unreasonably
withheld)) or preemption rights; or
(b) restricts the payment of dividends or distributions thereon
(other
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than (i) in the case of a Qualifying Issuer that is a REIT, customary
restrictions contained in documents evidencing indebtedness of a REIT
or (ii) restrictions which have been approved by the Majority Lenders
(such approval not to be unreasonably withheld)).
"Rate Fixing Day" means in relation to any LIBOR Advance, the second
Business Day before its Utilization Date.
"Rating Agencies" means any of Moody's Investors Service, Inc.,
Standard & Poor's Ratings Group, and Duff & Phelps Credit Rating Co.
"Real Estate Operating Company" means a company the primary object and
purpose of which is the acquisition, development, promotion, sale and lease of
real estate or interests in real estate and which is incorporated and doing
business in an Approved Jurisdiction.
"Regency" means Regency Realty Corporation.
"REIT" means a real estate investment trust in either corporate or
trust form and established under the laws of any State of the U.S. and
qualifying for treatment as a "real estate investment trust" under the Internal
Revenue Code.
"Reference Lenders" means, subject to Clause 24.4 (Reference Lenders),
the principal London offices of Commerzbank Aktiengesellschaft, and of two other
Lenders (or Affiliates of Lenders) to be appointed by the Administrative Agent
after the Effective Date after consultation with the Company and the Borrower.
"Repayment Date" means each date for the payment of principal on the
Term Advance in accordance with Clause 8.1 (Repayment of Advances).
"Repayment Installment" means each installment for repayment of the
Term Advances referred to in Clause 8 (Repayment and Prepayment of Advances).
"Request" means a request, substantially in the form of Schedule 4,
made by the Borrower in accordance with Clause 5.1(b) (Utilization of Revolving
Credit Facility) or 5.2(b) (Utilization of Swingline Facility), as the case may
be.
"Requested Amount" in relation to a Request, means the amount of the
Advance requested in the Request.
"Requirement(s) of Law" means as to any Person, the certificate of
incorporation and bylaws or other organizational or governing documents of such
Person, and
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<PAGE>
any law, treaty, rule or regulation, or determination of an arbitrator or a
court or other governmental authority, in each case applicable to or binding
upon such Person or any of its property or to which such Person or any of its
property is subject.
"Revolving Advance" means an advance made by a Lender under the
Revolving Credit Facility or the principal amount outstanding of that advance as
the context may require or allow.
"Revolving Credit Commitment" in relation to a Revolving Credit
Lender, means:
(a) in the case of a Revolving Credit Lender which is a Revolving
Credit Lender on the date hereof, the amount in Dollars set opposite its
name in Part I of Schedule 1, to the extent not canceled or reduced under
this Agreement; and
(b) in the case of a Revolving Credit Lender which becomes a Revolving
Credit Lender after the date hereof, the amount of any other Lender's
Revolving Credit Commitment acquired by it under Clause 24 (Alterations to
the Contracting Parties) to the extent not canceled or reduced under this
Agreement.
"Revolving Credit Facility" means the facility referred to in Clause
2.1(a) (Facilities).
"Revolving Credit Lender" means a bank or financial institution whose
name appears in Part I of Schedule 1 in its capacity as a participant in the
Facility (other than the Swingline Facility).
"Revolving Note" means a promissory note executed by the Borrower,
payable to the order of a Revolving Credit Lender, in a maximum principal amount
equal to such Revolving Credit Lender's Revolving Credit Commitment and
substantially in the form of Schedule 7.
"Same Day Funds" means Dollar funds settled through the New York
Clearing House Interbank Payments System or such other same day funds for
payment in Dollars as the Administrative Agent may specify to the Borrower as
being customary at the time for the settlement of international transactions in
New York City of the type contemplated by this Agreement.
"SCG" means Security Capital Group Incorporated.
"SCG Security" means any Security issued by SCG.
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"Security" means, with respect to any Person, the common stock,
preferred stock or readily convertible debentures of such Person or, if such
Person is a trust, the beneficial interests in such Person.
"Security Instrument" means any mortgage, deed of trust, security
agreement, amendment or supplement thereto, chattel mortgage, chattel mortgage
note assignment, pledge agreement, or other agreement providing for, evidencing
or perfecting any Security Interest in real or personal property.
"Security Interest" means any Lien, encumbrance or security interest
of any kind whatsoever, whether arising under a Security Instrument or as a
matter of law, judicial process or otherwise.
"Shareholders' Equity" means, at any date with respect to a Person,
the Tangible Net Worth of such Person less, to the extent not otherwise deducted
in the determination thereof, the aggregate amount of Contingent Obligations of
such Person, all determined as of such date.
"Special Opportunity Investment" means the Qualifying Securities of
any Real Estate Operating Company or REIT which the Borrower or any Guarantor
owns and which, in the aggregate, comprise no more than 10 percent of the
Qualifying Securities issued by such Real Estate Operating Company or REIT.
"Storage" means Storage USA, Inc.
"Strategic Investee" means, with respect to the Borrower, any Person
(other than a Guarantor) of which the Borrower owns, directly or indirectly,
more than 25% of the outstanding Securities or other ownership interests having
ordinary voting power to elect directors or other individuals performing similar
functions.
"Subordinated Debt" means any unsecured indebtedness for borrowed
money of any member of the Group which is subordinate to its obligations under
the Finance Documents.
"Subsidiary" means, as to any Person, (i) any corporation more than 50
percent of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person and/or one or
more Subsidiaries of such Person and (ii) any partnership, limited liability
company, association, joint venture or other entity in which such Person and/or
one or more Subsidiaries of such Person has more than a 50 percent equity
interest at the time.
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"Super Majority Lenders" means, at any time, Lenders whose
Commitments:
(a) then aggregate 66-2/3 percent or more of the Total Revolving
Credit Commitments; or
(b) if the Total Revolving Credit Commitments have been reduced to
zero and Advances are outstanding, then aggregate 66-2/3 percent or more of
the aggregate amount of the Advances outstanding at that time; or
(c) if the Total Revolving Credit Commitments have been reduced to
zero and no Advance is outstanding, aggregated 66-2/3 percent or more of
the Total Revolving Credit Commitments immediately before the reduction.
"Supplemental Agreement" means the Seventh Supplemental Agreement
dated the date hereof among the Company, the Borrower, the Arranger, the
Administrative Agent, Commerzbank Aktiengesellschaft, New York Branch, as
Collateral Agent, the Retiring Lenders (as defined therein) and the Lenders.
"Swingline Advance" means an advance by a Swingline Lender under the
Swingline Facility or the principal amount outstanding of that advance.
"Swingline Commitment" in relation to a Swingline Lender, means:
(a) in the case of a Swingline Lender which is a Swingline Lender on
the date of this Agreement, the amount in Dollars set opposite its name in Part
II of Schedule 1, to the extent not canceled or reduced under this Agreement;
and
(b) in the case of a Swingline Lender which becomes a Swingline Lender
after the date of this Agreement, the amount of any other Lender's Swingline
Commitment acquired by it under Clause 24 (Alterations to the Contracting
Parties) to the extent not canceled or reduced under this Agreement.
"Swingline Facility" means the facility referred to in Clause 2.1(c)
(Facilities).
"Swingline Lender" means a bank or financial institution whose name
appears in Part II of Schedule 1 in its capacity as a participant in the
Swingline Facility.
"Swingline Note" means a promissory note executed by the Borrower
payable to the order of a Swingline Lender in a principal amount equal to such
Swingline Lender's Swingline Commitment substantially in the form of Schedule 8.
"Syndication" means the primary syndication by the Arranger of the
Facility.
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"Tangible Net Worth" means, with respect to a Person at any date, the
Net Worth of such Person less its Intangible Assets, all determined as of such
date in accordance with GAAP.
"Taxes" includes all present and future income and other taxes,
levies, imposts, deductions, charges, duties and withholdings and any charges of
a similar nature, together with interest thereon and penalties with respect
thereto, if any, and any payments made on or in respect thereof; "Taxation" and
"Tax" shall be construed accordingly.
"Term" in relation to an Advance (other than a Term Advance), means
the period for which it is to be borrowed, as selected by the Borrower in the
relevant Request and in the case of a Term Advance, means the duration of each
Interest Period.
"Term Advance" means, in the case of each Lender, the term advance
made or deemed made by such Lender to the Borrower in accordance with Clause 2.6
(Term-Out Option).
"Term Note" means a promissory note executed by the Borrower payable
to the order of a Revolving Credit Lender in a maximum principal amount equal to
such Revolving Credit Lender's Revolving Credit Commitment and substantially in
the form of Schedule 9.
"Term-Out Date" means the date determined in accordance with Clause
2.6 (Term-Out Option).
"Term-Out Option" means the option granted to the Borrower in Clause
2.6 (Term-Out Option).
"Term-Out Period" means the period commencing on the Term-Out Date and
ending on the Final Repayment Date.
"Total Liabilities" means, as to any Person as of a given date, all
liabilities which would, in conformity with GAAP, be properly classified as a
liability on the Consolidated balance sheet of such Person, and shall in any
event include (without duplication) the following: (a) all Debt of such Person
and its Consolidated Subsidiaries, (b) all purchase obligations, repurchase
obligations, forward commitments and unfunded obligations, (c) all Securities of
such Person that are convertible into Debt of such Person, (d) all accounts
payable of such Person and its Consolidated Subsidiaries and (e) all Guarantees
by such Person and its Consolidated Subsidiaries of Total Liabilities of other
Persons.
"Total Revolving Credit Commitments" means the aggregate for the time
being of the Revolving Credit Commitments, being $400,000,000 at the date of
this Agreement.
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"Total Swingline Commitments" means the aggregate for the time being
of the Swingline Commitments, being $50,000,000 at the date of this Agreement.
"Total Outstandings" means, on any day, the aggregate of all Advances
outstanding on that day, together with all other amounts outstanding under or in
connection with the Finance Documents, including, without limitation, accrued
interest and fees.
"Traded Security" means a Security meeting all of the following
criteria: (a) such Security (i) is listed on the New York Stock Exchange,
American Stock Exchange or some other principal national securities exchange in
the United States of America or (ii) has price quotations in the over-the-
counter market reported by the National Association of Securities Dealers
Automated Quotation System; (b) such Security is not subject to any instrument,
document or agreement which in any way prohibits the sale of such Security for
any specified period of time or otherwise (other than (x) prohibitions imposed
to comply with applicable securities laws or (y) any agreement between the
Borrower or a Guarantor and an underwriter entered into in connection with an
offering by such underwriter of Securities of the issuer of such Security, in
which agreement the Borrower agrees not to sell such Security for a period
ending no later than 180 days after such offering); and (c) the offer and sale
of such Security by the Borrower would not be subject to any registration
requirements or other restrictions under the Securities Act or other Applicable
Law other than (i) volume limitations imposed under Rule 144(e) of the
Securities Act, (ii) restrictions on the manner of resale imposed under Rule
144(f) and (g) of the Securities Act, (iii) restrictions under Regulation 144A
or S of the Securities and Exchange Commission and (iv) other restrictions
related to the timing of offers and sales consented to by the Majority Lenders
in writing.
"Undrawn Commitments" means, for any day, the Total Revolving Credit
Commitments less the Total Outstandings plus the aggregate principal amount of
all outstanding Swingline Advances for such day after giving effect to all
reductions, advances, repayments and prepayments made on such day.
"United States" or "U.S." means the United States of America.
"Unsecured Liabilities" means, as to the Borrower as of a given date,
all liabilities of the Borrower and its Consolidated Subsidiaries which would,
in conformity with GAAP, be properly classified as a liability on the
Consolidated balance sheet of the Borrower that are not secured in any manner by
a Lien on any property of the Borrower or its Consolidated Subsidiaries, and
shall in any event include (without duplication) the following as each relates
to the Borrower and its Consolidated Subsidiaries: (a) all unsecured Debt, (b)
all purchase obligations, repurchase obligations, forward commitments and
unfunded obligations (excluding, for the avoidance of doubt, obligations for the
purchase price of stock under stock purchase or similar agreements), (c) all
Securities that are convertible into Debt, (d) all accounts payable, (e) all
Guarantees of Unsecured Liabilities of other Persons and (f)
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unsecured subordinated Debt.
"Utilization Date" means, in relation to any Advance, the date for the
making of the Advance as specified by the Borrower in the relevant Request.
"Wholly-Owned Consolidated Subsidiary" means, with respect to any
Person, any Consolidated Subsidiary of such Person all of the shares of capital
stock (and all rights and options to purchase such shares) of which (other than
directors' qualifying shares or minimum interests issued to other Persons solely
to satisfy legal requirements) are owned, beneficially and of record, by such
Person and/or one or more Wholly-Owned Consolidated Subsidiaries of such Person.
"Winding Up" has the meaning set forth in Clause 1.2 (Construction).
1.2 Construction.
------------
In this Agreement, unless the context otherwise requires:
(a) a reference to "Assets" includes property and rights of every kind,
present, future and contingent (including uncalled share capital), and
every kind of interest in an asset;
(b) a reference to a "person" or "Person" means an individual, a company,
a corporation, a partnership, a limited liability company, a joint
venture, a trust or unincorporated organization, joint stock company
or other similar organization, a government or any political
subdivision thereof, a court, or any other legal entity, whether
acting in an individual, fiduciary or other capacity;
(c) a reference to the "Winding Up" of a Person shall be construed so as
to include any equivalent or analogous proceedings under the law of
any jurisdiction in which such Person is incorporated or any
jurisdiction in which such Person carries on business;
(d) a reference to a Contracting Party or a Reference Lender is, where
relevant and subject to Clauses 18 (The Administrative Agent and the
Arranger) and 24 (Alterations to the Contracting Parties), a reference
to or to include, as appropriate, their respective successors and
permitted assigns;
(e) references to Clauses, Schedules, Exhibits and Attachments are
references to, respectively, clauses of and schedules, exhibits and
attachments to this Agreement;
(f) a reference to another agreement shall be construed as a reference to
that other
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agreement as it may have been, from time to time, amended, varied,
supplemented or assigned;
(g) references to "GAAP" shall mean:
(1) as to a particular Person other than the Borrower and each
Guarantor, such accounting practice as, in the opinion of the
independent accountants of recognized national standing regularly
retained by such Person and acceptable to the Administrative
Agent, those principles and practices (i) which are recognized as
such by the Financial Accounting Standards Board of the U.S.,
(ii) which are applied for all periods after the date hereof in a
manner consistent with the manner in which such principles and
practices were applied to the most recent audited financial
statements of the relevant Person furnished to the Lenders or
where a change therein has been concurred in by such Person's
independent auditors, and (iii) which are consistently applied
for all periods after the date hereof so as to reflect properly
the financial condition, and results of operations and changes in
financial position, of such Person; and
(2) with respect to the Borrower and each Guarantor, the generally
accepted accounting principles adopted by the Borrower and the
Company as set forth in the financial statements delivered by
such Person to the Financial Institutions in respect of the
fiscal year of the Borrower ending December 31, 1997. For the
avoidance of doubt, the Contracting Parties agree that, although
generally accepted accounting principles may require the
inclusion of Strategic Investees, for accounting purposes, in the
consolidated financial statements of the Borrower and the
Guarantors, in this Agreement references to GAAP (other than in
Clauses 14.1(d) and 15.1(c)) shall be made as if the Strategic
Investees do not exist. If there is a change in such accounting
practice as to the Borrower and the Company that could affect the
Borrower's or any Guarantor's ability to comply with the terms of
any Finance Document, the parties hereto agree to review and
discuss such changes in accounting practice and the terms of this
Agreement for a period of no more than thirty (30) days with a
view to amending this Agreement so that the financial measures of
the Borrower's or such Guarantor's (as the case may be) operating
performance and financial condition are substantially the same
after such change as they were immediately before such change.
Nothing contained in the preceding sentence shall be construed to
require a Contracting Party to consent to the terms of an
amendment to this Agreement. If the parties hereto are unable to
agree on such amendments to this Agreement after good faith
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negotiations for such 30-day period, the financial measures of
the Borrower's or such Guarantor's (as the case may be) operating
performance and financial condition shall remain the same after
such change as they were immediately before such change.
(h) a reference to "Consolidated" means the consolidation of accounts in
accordance with GAAP, provided that in the case of the Borrower or any
Guarantor, a reference to "Consolidated" means the consolidation, in
accordance with GAAP, of the accounts of the Borrower or such
Guarantor, as the case may be, and its Subsidiaries other than
Strategic Investees;
(i) a reference to a time of day is, unless otherwise stated, a reference
to New York City time;
(j) a period of a month or months is the period commencing on the first
day thereof and ending on the numerically corresponding day in the
relevant subsequent month or, if there is no such day, the last day of
the relevant subsequent month;
(k) the index to and the headings in this Agreement are for convenience
only and shall be ignored in construing this Agreement;
(l) in the computation of periods of time from a specified date to a later
specified date, the word "from" means "from and including", the words
"to" and "until" each mean "to but excluding", and the word "through"
means "to and including";
(m) a reference to a "law" shall be construed to mean any law, including
common or customary law and any constitution, decree judgment,
legislation, order, ordinance, regulation, rule, statute, treaty or
other legislative or regulatory measure, in each case of any
applicable jurisdiction whatever;
(n) a reference to a statute shall be construed as a reference to such
statute as amended or reenacted from time to time; and
(o) interpretation of the terms and conditions of the Facility prior to
the Effective Date shall be governed by the Existing Facility
Agreement and from and after the Effective Date shall be governed by
this Agreement.
This Agreement and the other Finance Documents are the result of
negotiations among and have been reviewed by counsel to the Contracting
Parties hereto. Accordingly, they shall not be construed against the
Administrative Agent or any Lender merely because of the Administrative
Agent's or such Lenders' involvement in their preparation.
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2. FACILITIES
2.1 Facilities.
----------
Subject to the terms of this Agreement, the Lenders severally grant to the
Borrower the following facilities:
(a) a committed revolving advance facility whereby the Lenders shall, when
requested by the Borrower, make Revolving Advances to the Borrower;
(b) a term advance facility whereby the Borrower may elect to convert
Revolving Advances outstanding into one borrowing of Term Advances in
accordance with Clause 2.6 (Term-Out Option); and
(c) a committed swingline advance facility under which the Swingline
Lenders shall, when requested by the Borrower, make Swingline Advances
to the Borrower.
2.2 Facility Limits.
---------------
(a) The Swingline Facility is not independent of the Revolving Credit
Facility. The aggregate principal amount of all outstanding Advances
(including Swingline Advances) at any time shall not exceed the Total
Revolving Credit Commitments at that time; and
(b) The aggregate amount of all outstanding Swingline Advances at any one
time shall not exceed the Total Swingline Commitments at that time.
2.3 A Lender's Individual Limit.
---------------------------
(a) Notwithstanding any other provisions of this Agreement, a Lender is
not obliged to make an Advance if it would cause its Applicable
Outstandings to exceed its Overall Commitment or its outstanding
Swingline Advances to exceed its Swingline Commitment.
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(b) For the purpose of this Clause 2.3:
(i) the "Applicable Outstandings" of a Lender on any Utilization
Date is the aggregate principal amount of all Advances made by
that Lender and its Affiliated Lender(s) which would be
outstanding on that Utilization Date, if:
(A) all outstanding Advances having Maturity Dates which fall
on or before that Utilization Date are repaid; and
(B) all Advances to be made on or before that Utilization Date
and in respect of which a Request has been received by the
Administrative Agent are made.
(ii) the "Overall Commitment" of a Lender means, in the case of a
Lender which is a Revolving Credit Lender, its Revolving Credit
Commitment or, in the case of a Swingline Lender which is not a
Revolving Credit Lender, the Revolving Credit Commitment of its
Affiliated Lender which is a Revolving Credit Lender.
(c) If the operation of Clause 5.1(c) (Utilization of Revolving Credit
Facility) or Clause 5.2(c) (Utilization of Swingline Facility) would
cause the Applicable Outstandings of a Lender (the "Affected Lender")
to exceed its Overall Commitment, then:
(i) the affected Lender will participate in the relevant Utilization
to the extent that its Applicable Outstandings do not exceed its
Overall Commitment;
(ii) the amount of the Advance to be made by each other Lender under
the relevant Clause will be recalculated in accordance with that
Clause, but for the purpose of the recalculation the affected
Lender Commitment will be deducted from the Total Revolving
Credit Commitments or the Total Swingline Commitments (as
appropriate) and the amount of the affected Lender Advance in
that Utilization (if any) will be deducted from the Requested
Amount; and
(iii) the calculation in sub-paragraph (ii) above will be applied to
each Lender in turn until the amount of its Advance by it under
that Clause is determined.
(d) If an Event of Default is outstanding, then the Swingline Lenders may
require the Swingline Facility to be canceled in accordance with its
terms. In this event,
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the Borrower shall borrow (a "Mandatory Borrowing"), and each of the
Lenders unconditionally and irrevocably agrees to fund in accordance
with paragraph (e) below, a LIBOR Advance with an Interest Period of
one month's duration to refinance the amount outstanding under the
Swingline Facility irrespective of whether any condition precedent to
that Advance or any other term of this Agreement has not been
satisfied or complied with.
(e) (i) The amount of each Lender's participation in a Mandatory
Borrowing shall be the proportion which the Lender's then
Revolving Credit Commitment bears to the aggregate Revolving
Credit Commitments of all the Revolving Credit Lenders on that
date.
(ii) Each Lender shall make its participation in a Mandatory Borrowing
available to the Administrative Agent, on the date falling 5 days
after receipt of notice thereof from the Administrative Agent, to
be applied in repayment of the amount outstanding under the
Swingline Facility.
2.4 Nature of the Lenders', Borrower's and Guarantors' Rights And Obligations
-------------------------------------------------------------------------
Under This Agreement.
--------------------
(a) (i) The obligations of each Financial Institution owed under the
Finance Documents are several, and failure of a Financial
Institution to carry out those obligations shall not relieve any
other party of its obligations under the Finance Documents. No
Financial Institution shall be responsible for the obligations of
any other Financial Institution under the Finance Documents.
(ii) The obligations of the Borrower and each Guarantor towards each
of the Financial Institutions under the Finance Documents are
given to each of them as separate and independent rights, and
each Financial Institution may, except as otherwise stated in
this Agreement, separately enforce those rights.
(b) (i) Any and each Guarantor by and upon its execution of this
Agreement or a Guarantor Joinder Agreement irrevocably appoints
the Borrower to act on its behalf as its agent in relation to the
Finance Documents and irrevocably authorizes the Borrower on its
behalf to give all notices and instructions to execute on its
behalf any Guarantor Joinder Agreement and to make such
agreements capable of being given or made by such Guarantor
notwithstanding that they may affect such Guarantor, without
further reference to or the consent of such Guarantor and such
Guarantor shall be bound thereby as though such Guarantor itself
had given such
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notices and instructions or executed or made such agreements.
(ii) Every act, omission, agreement, undertaking, settlement, waiver,
notice or other communication given or made by the Borrower under
this Agreement, or in connection with this Agreement (whether or
not known to any Guarantor and whether occurring before or after
such other Guarantor became a party under this Agreement) shall
be binding for all purposes on all the Guarantors as if the
Guarantors had expressly concurred with the same. In the event
of any conflict between any notices or other communications of
the Borrower and any Guarantor, those of the Borrower shall
prevail.
2.5 Extension of Final Maturity Dates.
---------------------------------
(a) Not later than the first Anniversary and each Anniversary thereafter
(which is one year prior to the applicable Final Maturity Date), the
Borrower may, by notice to the Administrative Agent (which shall
promptly notify the Lenders) request each Lender to extend the Final
Maturity Date for a further year.
(b) Each Lender so requested will notify the Administrative Agent in
writing no later than 30 days after the applicable Anniversary whether
or not it wishes the Final Maturity Date applicable to that Lender's
Commitment to be extended by a further year. If a Lender notifies the
Administrative Agent that it does not wish to extend the Final
Maturity Date for a further year (a "Non-Extending Lender") it shall
also in the same notice state either:
(i) that it wishes its Advances together with all other amounts
payable to such Lender under the Finance Documents to be prepaid
or assumed by another Lender or financial institution; or
(ii) that it wishes its Advances and all other amounts payable to such
Lender to be repaid on the then applicable Final Maturity Date.
If a Non-Extending Lender specifies the option in paragraph (i) of
this sub-clause, then provided its Advances and all other amounts
payable to it have been prepaid or assumed by another Lender or
financial institution in full it shall, on the Business Day following
such prepayment or assumption, notify the Administrative Agent to such
effect.
(c) If a Lender notifies the Administrative Agent that it agrees to extend
as requested, and Lenders with Commitments totaling not less than 80
percent of the Total Revolving Credit Commitments (including that of
the first mentioned Lender) also
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so agree, the Final Maturity Date applicable to that Lender's
Commitment shall be extended for a further year from the then current
Final Maturity Date and the Agent shall so notify that Lender and the
Borrower thereof. For the avoidance of doubt the Final Maturity Date
applicable to the Commitment of a Non-Extending Lender shall be the
Final Maturity Date prior to the request for an extension.
(d) Upon receipt of notification by the Administrative Agent that Lenders
with Commitments totaling at least 80 percent (but less than 100
percent of Total Revolving Credit Commitments) have agreed to extend
as requested the Borrower may, by notice to the Administrative Agent:
(i) request the other Lenders or any of them to indicate whether or
not they are prepared to increase their Commitments (in place of
the Lenders which have not agreed to extend as requested);
(ii) introduce another financial institution reasonably acceptable to
the Administrative Agent to cover all or part of the shortfall;
or
(iii) allow the Total Revolving Credit Commitments to reduce by an
amount equal to the Commitments of the Non-Extending Lenders.
Each Non-Extending Lender shall enter into such documentation as the
Borrower and the Administrative Agent may reasonably require to transfer
its Commitment to the existing Lenders or new financial institutions.
(e) No request to extend the Final Maturity Date may be made by the
Borrower nor shall any agreement to extend become effective if there
is a Default under the Facility on the date of such request.
(f) No extension of the Final Maturity Date shall be effective until (i)
the Administrative Agent (on behalf of those Lenders which have
agreed, to extend) has received the applicable Extension Fee payable
in accordance with Clause 19.5 (Extension Fee) and (ii) the
Administrative Agent has received confirmation from each of the Non-
Extending Lenders who has specified the option in paragraph (i) of
sub-clause (b) above that its Advances and all other amounts payable
to it under the Finance Documents have been prepaid or assumed in
full.
(g) No Lender is under any obligation to extend the Final Maturity Date
applicable to its Commitment or to increase its Commitment under
paragraph (d) above but upon having so agreed, it shall be obliged to
extend the Final Maturity Date in accordance with Clause 2.5(c) or,
subject to appropriate documentation being entered into by the
relevant parties, to increase its Commitment in accordance with
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paragraph (d) above.
(h) If any Lender does not give any notice in accordance with this Clause
2.5 following a request to extend from the Borrower that Lender shall
be deemed to have refused to extend the Final Maturity Date and to
have selected option (ii) in sub-clause (b) above (namely, for its
Advances and all other amounts to be repaid on the then applicable
Final Maturity Date).
(i) On each extension of the Final Maturity Date the Administrative Agent
shall as soon as practicable notify the Borrower and each Lender which
Lenders have agreed to extend the Final Maturity Date and their
individual Commitments.
(j) Where the Final Maturity Date is extended under this Clause 2.5 in
respect of less than all the Lenders, the Lenders in respect of which
such extension takes effect shall, on and from the Final Maturity Date
for the Non-Extending Lenders, be deemed to be all the Lenders for the
purposes of the definitions of "Commitment", and "Total Revolving
Credit Commitments", and the provisions of this Agreement shall be
construed accordingly provided that where a "Non-Extending Lender"
does not receive all amounts due and payable to it on the Final
Maturity Date applicable to that Non-Extending Lender's Commitment,
such Non-Extending Lender's Commitment shall be included within the
definitions of "Commitment" and "Total Revolving Credit Commitments"
for voting purposes under this Agreement.
2.6 Term-Out Option.
---------------
(a) Not later than the first Anniversary, and each Anniversary thereafter
which is one year prior to the applicable Final Maturity Date, the
Borrower may, by notice in the form set forth in Part II of Schedule 4
to the Administrative Agent (which shall promptly notify the Lenders)
request that all Revolving Advances of a Lender outstanding to the
Borrower on the date which is one year prior to the applicable Final
Maturity Date (the "Term-Out Date") be converted automatically into
one Term Advance in accordance with this clause.
(b) In any request given under paragraph (a) above, the Borrower shall
also specify:
(i) whether the Term Advance of each Lender is to be initially a
LIBOR Advance or a Base Rate Advance or a mixture of the two; and
(ii) if the Term Advance of a Lender is to be a LIBOR Advance, the
duration of its first Interest Period selected in accordance with
Clause 7.5 (Interest Periods for Term Advances).
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(c) No such request may be made by the Borrower if there is a Default.
(d) The Borrower shall execute and deliver to each Lender a Term Note upon
the exercise of the Term-Out Option.
(e) The Borrower agrees to pay to the Lenders a conversion fee upon the
exercise of the Term-Out Option. Such fee will be calculated and
payable in accordance with Clause 19.6 (Conversion Fee).
(f) If the Borrower notifies the Administrative Agent in accordance with
paragraph (a) above, all Advances of a Lender which are outstanding on
the Term-Out Date shall be automatically converted on the Term-Out
Date to a Term Advance repayable on the Final Repayment Date in
accordance with Clause 8 (Repayment and Prepayment of Advances),
provided that if any Swingline Advances are outstanding on the Term-
Out Date such Swingline Advances shall be deemed to have been
converted to Revolving Advances immediately prior to the incurrence of
the Term Advances.
(g) If the Term-Out Option is exercised, from and after the Term-Out Date
the Borrower may not borrow any further Revolving Advances or
Swingline Advances.
(h) A notice given by the Borrower under this Clause shall be irrevocable.
2.7 Notes.
-----
(a) The obligation of the Borrower to repay the Revolving Advances of each
Revolving Credit Lender shall, in addition to this Agreement, be
evidenced by the Revolving Notes.
(b) The obligation of the Borrower to repay the Swingline Advances of each
Swingline Lender shall, in addition to this Agreement, be evidenced by
the Swingline Notes.
(c) The obligation of the Borrower to repay the Term Advance of each
Lender shall, in addition to this Agreement, be evidenced by a Term
Note.
3. PURPOSE OF THE FACILITY
(a) The proceeds of each Advance shall be applied by the Borrower towards
its general corporate purposes.
(b) The proceeds of a Swingline Advance may not be applied towards the
repayment
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of an outstanding Swingline Advance.
(c) Without prejudice to paragraph (a) above and the remaining provisions
of this Agreement, none of the Financial Institutions shall be bound
to inquire as to, nor shall any of them be responsible for, the
application by the Borrower of the proceeds of any Advance.
4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to each Request and each Advance.
-----------------------------------------------------
The obligation of each Lender to make an Advance is subject to the
conditions precedent that:
(a) both on the date of the relevant Request and on the relevant
Utilization Date:
(i) the matters represented by the Borrower and the Guarantors and
set forth in Clause 14 (Representations and Warranties) are
correct in all material respects on and as at each of those
dates as if made on each date;
(ii) no Default has occurred and is continuing or would result from
the making of such Advance;
(iii) the Advance would not cause the Total Outstandings to exceed
the Borrowing Base or otherwise cause Clause 2.2 (Facility
Limits) to be contravened;
(iv) a Collateral Shortfall shall not have occurred and be
continuing; and
(v) no Event of Default specified in Clauses 16.6 (Insolvency),
16.7 (Insolvency Proceedings) or 16.8 (Appointment of Receivers
and Managers) shall have occurred in relation to the Investment
Adviser, such Clauses to be construed as if references therein
to the Borrower and the Guarantors were references to the
Investment Adviser;
provided that paragraphs (i) to (v) above shall not apply in respect of an
Advance to be applied solely in or towards repayment of an outstanding
Advance on the relevant Utilization Date or in connection with a Mandatory
Borrowing.
(b) No more than two Revolving Advances and no more than one Swingline
Advance may be made on the same day, no more than 12 Advances may be
outstanding at any one time and no more than one LIBOR Advance with a
Term of seven days may be outstanding at any one time.
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(c) the Administrative Agent shall have received Revolving Notes and/or
Swingline Notes, as the case may be, executed by the Borrower, payable
to each Lender and complying with the terms of Clause 2.7 (Notes).
The acceptance of the benefits of each Advance shall constitute a
representation and warranty by the Borrower and each Guarantor to each
Lender that all of the applicable conditions specified above exist as of
the relevant Utilization Date. All of the certificates and other documents
and papers referred to in this Clause 4.1, unless otherwise specified,
shall be delivered to the Administrative Agent at its address specified in
Clause 23.1 (Address) for the account of each Lender and in sufficient
counterparts or copies for each Lender and shall be in form and substance
as specified herein or otherwise satisfactory to the Administrative Agent.
4.2 Confirmation of Collateral.
--------------------------
No Advance (other than an Advance to be applied solely in or towards
repayment of an outstanding Advance or in connection with a Mandatory
Borrowing) may be disbursed to the Borrower unless on the proposed
Utilization Date the Administrative Agent is satisfied that the Borrowing
Base will equal or exceed the aggregate of the Total Outstandings after the
disbursement to the Borrower of such Advance and all other Advances to be
made on such Utilization Date, taking into account any prepayments or
repayments of Advances which are to be made by the Borrower on such
Utilization Date.
5. UTILIZATION OF THE FACILITY
5.1 Utilization of Revolving Credit Facility.
----------------------------------------
(a) Subject to the terms of this Agreement, the Borrower may utilize the
Revolving Credit Facility by delivering a duly completed Request to
the Administrative Agent, not later than 9:00 a.m. three Business Days
prior to the relevant Utilization Date in relation to a LIBOR Advance
and two Business Days prior to the relevant Utilization Date in
relation to a Base Rate Advance.
(b) Each Request for a Revolving Advance shall specify:
(i) that it is utilization of the Revolving Credit Facility;
(ii) the proposed Utilization Date, which shall be a Business Day
falling two days or more before the then latest Final Maturity
Date;
(iii) the Requested Amount, which shall be a minimum of $10,000,000
and integral multiples in excess thereof of $500,000;
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(iv) whether the Advances are to be LIBOR Advances or Base Rate
Advances;
(v) the Term of any requested LIBOR Advance, which shall be a
period of seven days or one, two, three or six months, or such
other period as may be agreed between the Borrower and the
Lenders, provided that (A) no such Term may end later than the
then current Final Maturity Date, (B) if any such monthly Term
begins on a day for which there is no numerically corresponding
day in the last calendar month of such Term, such monthly Term
shall end on the last Business Day of such last calendar month,
and (C) if any such Term would otherwise expire on a day which
is not a Business Day, such Term shall expire on the next
succeeding Business Day, provided that if any such Term would
otherwise expire on a day which is not a Business Day but is a
day of the month after which no further Business Day occurs in
such month, such Term shall expire on the next preceding
Business Day; and
(vi) the details of the bank and account to which the proceeds of
the Advances are to be made available to the Borrower in
accordance with Clause 10.1 (Funds and Place).
(c) The Administrative Agent shall, not later than 1:00 p.m. on the date
of receipt of the Request notify each Revolving Lender of the details
of the requested Revolving Advance and the amount of its participation
in the Revolving Advance.
(d) The amount of each Revolving Lender's Revolving Advance will be the
proportion of the Requested Amount which its Revolving Commitment
bears to the Total Revolving Credit Commitments on the date of receipt
of the relevant Request, adjusted, if necessary, to reflect the
operation of Clause 2.3 (A Lender's Individual Limit).
(e) Subject to the terms of this Agreement, each Revolving Lender shall
make its participation in the Revolving Advance available to the
Administrative Agent for the Borrower on the proposed Utilization
Date.
(f) If the Borrower fails to select a Term for a Revolving Advance in
accordance with paragraph (b) above, such Advance will be a LIBOR
Advance with a Term of one month.
5.2 Utilization of Swingline Facility.
---------------------------------
(a) Subject to the terms of this Agreement, the Borrower may utilize the
Swingline Facility by delivering a duly completed Request to the
Administrative Agent not
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later than 11:00 a.m. on the relevant Utilization Date in relation
to a Swingline Advance.
(b) Each Request for a Swingline Advance shall specify:
(i) that it is utilization of the Swingline Facility;
(ii) the proposed Utilization Date, which shall be a Business Day
falling two or more days before the then latest Final Maturity
Date;
(iii) the Requested Amount, which shall be:
(A) a minimum of $1,000,000 and integral multiples in excess
thereof of $500,000; or
(B) the balance of the undrawn Total Swingline Commitments; or
(C) such other amount as the Administrative Agent, the
Swingline Lenders and the Borrower may agree;
(iv) the Term, which shall:
(A) end on or before the then latest Final Maturity Date, and
(B) be a period not exceeding ten Business Days; and
(v) the details of the bank and account to which the proceeds of
the Swingline Advance are to be made available to the Borrower
in accordance with Clause 10.1 (Funds and Place).
(c) The Administrative Agent, shall not later than 1:00 p.m. on the date
of receipt of the Request, notify each Swingline Lender of the details
of the requested Swingline Advance and the amount of its participation
in the Swingline Advance.
(d) The amount of each Swingline Lender's Swingline Advance will be the
proportion of the Requested Amount which its Swingline Commitment
bears to the Total Swingline Commitments on the date of receipt of the
relevant Request, adjusted, if necessary, to reflect the operation of
Clause 2.3 (A Lender's Individual Limit).
(e) Subject to the terms of this Agreement, each Swingline Lender shall
make the Swingline Advance available to the Administrative Agent for
the Borrower on the relevant Utilization Date.
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6. REDUCTION AND CANCELLATION OF THE TOTAL COMMITMENTS
6.1 Automatic Reduction of each Lender's Commitment.
-----------------------------------------------
The amount of each Lender's Commitment shall (if not already so reduced or
canceled) be automatically reduced to zero at 5:00 p.m. on the Final
Maturity Date applicable to that Lender.
6.2 Voluntary Cancellation.
----------------------
(a) (i) Subject to sub-paragraph (ii) below, the Borrower may, on giving
not less than five days' prior written notice to the
Administrative Agent (which shall promptly give notice thereof to
the Revolving Lenders), cancel the Total Revolving Credit
Commitments in whole or in part (but, if in part, in a minimum
amount, and integral multiples, of $10,000,000).
(ii) Any cancellation may only take effect in respect of the
unutilized portion of the Facility.
(b) (i) Subject to sub-paragraph (ii) below, the Borrower may, on giving
not less than five days' prior written notice to the
Administrative Agent (which shall promptly give notice thereof to
the Swingline Lenders), cancel the Total Swingline Commitments in
whole or in part (but, if in part, in a minimum amount, and
integral multiples, of $5,000,000).
(ii) Any cancellation may only take effect in respect of the
unutilized portion of the Swingline Facility.
(c) Any cancellation in part under this Clause 6.2 shall be applied
against the Commitment of each Lender pro rata based upon the
proportion which such Lender's Revolving Credit Commitment or
Swingline Commitment, as the case may be, bears to the Total Revolving
Credit Commitment or Total Swingline Commitment, as the case may be,
on the date of cancellation.
6.3 Irrevocable.
-----------
(a) Any notice by the Borrower under this Clause 6 of cancellation shall
be irrevocable and shall specify the date upon which the cancellation
is to become effective and the amount of the Total Revolving Credit
Commitments or the Total Swingline Commitments to be canceled.
(b) No amount of the Total Revolving Credit Commitments or the Total
Swingline
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Commitments canceled under this Agreement may subsequently be
reinstated unless agreed by all the Lenders and the Administrative
Agent.
7. INTEREST
7.1 Rate.
----
The rate of interest applicable to each Advance for its Term shall be the
rate per annum determined by the Administrative Agent to be the aggregate
of:
(a) in the case of a LIBOR Advance, the Applicable LIBOR Margin plus LIBOR
relative to that Advance;
(b) in the case of a Base Rate Advance, the Applicable Base Rate Margin
plus the Base Rate relative to that Advance; or
(c) in the case of a Swingline Advance, the Applicable Base Rate Margin
plus the Base Rate relative to that Advance.
7.2 Due Dates.
---------
Save as otherwise provided in this Agreement, interest shall accrue on the
unpaid principal amount of each Advance from and including the Utilization
Date to and including repayment and:
(a) accrued interest on each LIBOR Advance is payable by the Borrower on
its Maturity Date or the last day of its Interest Period and, if the
Term of any LIBOR Advance is longer than three months, at three month
intervals from the Utilization Date of that Advance or the first day
of the relevant Interest Period, as the case may be;
(b) accrued interest on each Base Rate Advance is payable by the Borrower
in arrears in respect of the period in which such Base Rate Advance
was outstanding in the previous three month period on each March 31,
June 30, September 30 and December 31 and the Final Maturity Date and
the Final Repayment Date; and
(c) accrued interest on each Swingline Advance is payable by the Borrower
in arrears in respect of the period in which such Swingline Advance
was outstanding in the previous three month period on each March 31,
June 30, September 30 and December 31 and the Final Maturity Date.
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7.3 Default Interest.
----------------
(a) If the Borrower or any Guarantor fails to pay any amount payable by it
under this Agreement on the due date, it shall, on demand by the
Administrative Agent from time to time, pay interest on the overdue
amount from the due date up to the date of actual payment, as well
after as before judgment, at a rate, subject to paragraph (c) below,
determined by the Administrative Agent to be two percent (2%) per
annum above:
(i) if the overdue amount relates to a Swingline Advance, the
Applicable Base Rate Margin plus the Base Rate; or
(ii) the higher of:
(A) (in the case of an Advance which has become due and payable
prior to its Maturity Date or, if it is a Term Advance,
prior to the last day of the relevant Interest Period) the
rate applicable to the overdue amount under Clause 7.1(a)
(Rate) immediately before the due date (if of principal);
and
(B) (in all other cases) the rate which would have been payable
if the overdue amount had, during the period of non-payment,
constituted a LIBOR Advance in the currency of the overdue
amount made under this Agreement for successive Terms of up
to three months, as the Administrative Agent may determine
from time to time (each a "Designated Term").
(b) The rate of interest shall be determined:
(i) if calculated by reference to the Base Rate, on each day; or
(ii) if calculated by reference to LIBOR, two Business Days before the
first day of the relevant Designated Term.
(c) If the Administrative Agent (after consultation with the Reference
Lenders) determines that deposits in the currency of the overdue
amount are not or were not, as the case may be, being made available
by the Reference Lenders to leading banks in the London Interbank
Market in the ordinary course of business, the rate shall be
determined by reference to the cost of funds to the Reference Lenders
from such other sources as the Administrative Agent (after
consultation with the Reference Lenders) may from time to time
reasonably determine.
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(d) Interest shall be compounded monthly (if calculated by reference to
the Base Rate) or at the end of each Designated Term (if calculated by
reference to LIBOR).
7.4 Calculation of Interest.
-----------------------
Interest shall accrue from day to day, and be computed on the basis of:
(a) in the case of each LIBOR Advance, each Base Rate Advance and each
Swingline Advance in respect of which interest thereon is determined
by reference to the Federal Funds Rate, 360 days and for the actual
number of days elapsed; and
(b) in the case of a Base Rate Advance or a Swingline Advance in respect
of which interest thereon is determined by reference to the Prime
Rate, 365/366 days and for the actual number of days elapsed.
7.5 Interest Periods for Term Advances.
----------------------------------
(a) During the Term-Out Period the Borrower may designate that each
Lender's Term Advance (or portions thereof) be maintained as a LIBOR
Advance or a Base Rate Advance, provided that (i) no portion of the
Term Advance of a Lender shall be maintained as a LIBOR Advance if the
amount thereof is less than $10,000,000, (ii) there shall be no more
than six LIBOR Advances outstanding at any time and (iii) there shall
be no more than one LIBOR Advance with a seven day Interest Period
outstanding at any time. If the Borrower requests that the Term
Advance (or any portion thereof) of a Lender be maintained as a LIBOR
Advance, the Borrower shall select the Interest Periods therefor.
Such selection will be made by the Borrower in the Request given by it
upon exercise of the Term-Out Option and during the Term-Out Period,
by a notice received by the Administrative Agent not later than 9:00
a.m. three Business Days before the commencement of each Interest
Period.
(b) During the Term-Out Period, each Interest Period for the Term Advance
(or any portion thereof) of each Lender will commence on the Term-Out
Date or the expiry of the immediately preceding applicable Interest
Period.
(c) Each Interest Period will be of either seven days or one, two, three
or six months as so selected under paragraph (a) above subject as
provided below, provided that (i) a monthly Interest Period which
commences on the last Business Day of a month shall end on the last
Business Day of the corresponding month, (ii) if any monthly Interest
Period begins on a day for which there is no numerically corresponding
day in the last calendar month of such Interest Period, such Interest
Period shall end on the last Business Day of such last calendar month,
(iii) if any
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Interest Period would otherwise expire on a day which is
not a Business Day, such Interest Period shall expire on the next
succeeding Business Day, provided that if any Interest Period would
otherwise expire on a day which is not a Business Day but is a day of
the month after which no further Business Day occurs in such month,
such Interest Period shall expire on the next preceding Business Day
and (iv) no Interest Period shall extend beyond the Final Payment
Date.
(d) The Borrower shall have the option, upon delivery of irrevocable
written notice of not less than three Business Days before the last
day of an Interest Period of any LIBOR Advance in respect of a
Lender's Term Advance (or any portion thereof), (i) to convert such
LIBOR Advance to a Base Rate Advance or (ii) to continue such LIBOR
Advance as a LIBOR Advance. If the Borrower elects to continue such
Advance as a LIBOR Advance pursuant to clause (ii), the Borrower shall
select an Interest Period in accordance with paragraph (a) above.
(e) If the Borrower fails to select an Interest Period for an outstanding
Term Advance (or any portion thereof) that is a LIBOR Advance during
the Term-Out Period in accordance with paragraph (a) above, that
Interest Period will be one month.
(f) The Borrower will ensure that Interest Periods in respect of an
Advance or Advances equal to a Repayment Installment shall be selected
(and if necessary shortened) so as to expire on a Repayment Date.
(g) Subject to the foregoing, the Borrower may subdivide the Term Advance
of a Lender into no more than six portions and may consolidate and
further subdivide any such portions during the Term-Out Period,
provided that no more than six portions are outstanding on any date.
7.6 Notification.
------------
Each determination of a rate of interest by the Administrative Agent under
this Agreement shall promptly be notified to any Contracting Party upon the
request of such party.
8. REPAYMENT AND PREPAYMENT OF ADVANCES
8.1 Repayment of Advances.
---------------------
(a) The Borrower shall repay each Advance (other than a Term Advance) made
to it in full on its Maturity Date to the Administrative Agent for the
account of the Lenders.
(b) The Borrower shall repay the Term Advance of each Lender outstanding
to it (if
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made) in full in sixteen quarterly installments on the last day of
each March, June, September and December (each a "Term Payment Date").
Each of the first four installments shall have a principal amount
equal as nearly as possible to 5 percent of the aggregate principal
amount of the Term Advance of each Lender outstanding at the beginning
of the Term-Out Period and each of the remaining installments shall
have a principal amount equal as nearly as possible to 6.6675 percent
of the aggregate principal amount of the Term Advance of each Lender
outstanding at the beginning of the Term-Out Period. The Borrower's
first such repayment installment shall be paid on the Term Payment
Date immediately following the Term-Out Date. The Borrower's final
repayment installment shall be repaid on the Final Repayment Date and
shall be in an amount sufficient to repay in full all outstanding Term
Advance of each Lender.
8.2 Prepayment of Advances.
----------------------
(a) The Borrower may, by giving not later than 9:00 a.m. on the relevant
day not less than three Business Days' irrevocable written notice to
the Administrative Agent (which shall be irrevocable) and subject to
Clause 26(a)(iii) (Indemnities), prepay any Revolving Advance or Term
Advance made to it in a minimum amount of US $1,000,000 and integral
multiples of $500,000 in excess thereof.
(b) The Borrower may prepay at any time a Swingline Advance made to it in
a minimum amount of $1,000,000 and integral multiples of $500,000 in
excess thereof.
(c) The Borrower may not pre-pay any Advance except as expressly provided
in this Agreement. Any Advance prepaid prior to the Final Maturity
Date (or the Term-Out Date if the Term-Out Option has been exercised)
may be reborrowed in accordance with the provisions of this Agreement.
(d) Prepayments shall be made together with accrued interest and all other
amounts then due under this Agreement through the date of prepayment.
(e) Any partial prepayment of the Term Advance of a Lender shall be
applied against the Repayment Installments in chronological order.
8.3 Mandatory Prepayment/Borrowing Base Shortfall.
---------------------------------------------
If a Compliance Certificate or a Borrowing Base Certificate indicates that
Total Outstandings exceed the Borrowing Base as of the date referenced in
such certificate (a "Borrowing Base Shortfall"), then the Borrower shall,
before the close of business on the date that is ten days after such
certificate is delivered to the Administrative Agent, (a)
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eliminate the Borrowing Base Shortfall by prepaying Advances and/or
increasing the Borrowing Base and (b) deliver a new Borrowing Base
Certificate to the Administrative Agent demonstrating that the Borrowing
Base is equal to or greater than the Total Outstandings as of the date of
such certificate.
9. MARKET DISRUPTION
(a) If, in relation to any proposed LIBOR Advance:
(i) where LIBOR is to be determined by reference to the Reference
Lenders and no, or only one, Reference Lender is able to supply a
rate for the purposes of determining LIBOR or the Administrative
Agent otherwise determines (which determination shall be
conclusive and binding on all the Contracting Parties) that
adequate and fair means do not exist for ascertaining LIBOR
relative to the LIBOR Advance; or
(ii) the Administrative Agent receives notification:
(A) from Lenders participating in more than 50 percent by value
of the proposed LIBOR Advance that, in their opinion, Dollar
deposits of equal duration to the Term requested will not be
available to them in the London Interbank Market in the
ordinary course of business in sufficient amounts to fund
their LIBOR Advance for that Term; or
(B) from Lenders participating in more than 50 percent by value
of the proposed LIBOR Advance that, by reason of
circumstances affecting the London Interbank Market, the
cost to them of deposits obtained in the London Interbank
Market to fund their LIBOR Advances would be in excess of
the relevant LIBOR,
the Administrative Agent shall, promptly serve a notice (a "Suspension
Notice") on the Borrower and the Lenders stating that a suspension
event has occurred and that this Clause 9 is in operation.
(b) After a Suspension Notice has been served:
(i) notwithstanding any other provision of this Agreement, the LIBOR
Advance to which such Suspension Notice relates shall not be
made;
(ii) no further Requests for a LIBOR Advance or for interest to be
calculated on a LIBOR basis may be delivered by the Borrower
until the
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Administrative Agent notifies the Borrower that the
event specified in the Suspension Notice no longer prevails,
which the Administrative Agent shall do as soon as practicable
after so ascertaining;
(iii) if the Borrower so requires, within five Business Days of service
of a Suspension Notice, the Borrower, the Lenders and the
Administrative Agent shall enter into negotiations (which the
Administrative Agent on behalf of the Lenders shall not be
obliged to continue for a period of more than 30 days) in good
faith with view to agreeing a substitute basis for determining
the rate of interest and/or funding applicable to any future
LIBOR Advances; and
(iv) any substitute basis agreed under sub-paragraph above shall, with
the prior consent of all the Lenders, take effect in accordance
with its terms and be binding on all the Contracting Parties.
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10. PAYMENTS
10.1 Funds and place.
---------------
(a) Except as otherwise provided in this Agreement, all payments to be
made by the Borrower, any Guarantor or any Revolving Lender in
relation to a Revolving Advance or a Term Advance under this Agreement
or any Note shall be made to the Administrative Agent to the account
of the Administrative Agent at Commerzbank Aktiengesellschaft New York
Branch, 2 World Financial Center, New York, NY 10281-1050, U.S. for
value on the due date in Dollars and in either immediately available
Federal funds (payment to be made no later than 1:00 p.m.) for credit
to Account No. 123/2920759, Account name, Commerzbank
Aktiengesellschaft New York Branch or Same Day Funds for credit to
Account No. 123/2920759, Account name, Commerzbank Aktiengesellschaft
New York Branch or at such other office or bank in New York City as
the Administrative Agent by not less than five Business Days notice
shall have previously notified to the Borrower, the Guarantor or the
Lender, as the case may be.
(b) Except as otherwise provided in this Agreement, all payments to be
made by the Borrower, any Guarantor and any Swingline Lender in
relation to a Swingline Advance under this Agreement or any Note shall
be made to the account of the Administrative Agent at Commerzbank
Aktiengesellschaft New York Branch, 2 World Financial Center, New
York, NY 10281-1050, U.S. for value on the due date in Dollars and in
either immediately available Federal Funds (payment to be made no
later than 1.00 p.m.) for credit to Account No. 123/2920759 Account
name Commerzbank Aktiengesellschaft New York Branch or at such other
bank or office in New York as the Administrative Agent, by not less
than five Business Days' notice, shall have previously notified to the
Borrower, the Guarantor or the Swingline Lender, as the case may be.
(c) Subject to Clause 10.3 (Taxes), each payment received by the
Administrative Agent for the account of another Person under paragraph
(a) or (b) above shall:
(i) in the case of a payment received for the account of the
Borrower, be made available by the Administrative Agent to the
Borrower by application, first, in or towards payment (on the
date of receipt) of any amount due from the Borrower under this
Agreement or any Note and, second, in payment (on the date and in
the funds of receipt) to the account of the Borrower with such
office or bank as it shall have previously notified to the
Administrative Agent; and
(ii) in the case of any other payment, be made available by the
Administrative
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Agent to the Person for whose account the payment was received
(in the case of a Lender for the account of its Facility Office)
on the date of receipt for the account of such Person to such
account of the Person with such office or bank as it shall have
previously notified to the Administrative Agent.
(d) The Administrative Agent shall distribute, on the date of receipt,
payments received for the account of the Lenders among the Lenders pro
rata to their respective entitlements. If the Administrative Agent,
due to technical or administrative failure on its part, fails to
distribute payments to any Lender on the date of receipt by the
Administrative Agent, it shall pay each relevant Lender interest on
the amount at a rate determined by the Administrative Agent to reflect
its cost of funds.
10.2 Recovery of Payments.
--------------------
Unless the Administrative Agent has received notice from a Lender, the
Borrower or a Guarantor not less than two Business Days before the date
upon which the Lender, the Borrower or the Guarantor (the "party liable")
is to pay an amount to the Administrative Agent for transfer to the
Borrower or Lender respectively (the "payee") that the party liable does
not intend to make that amount available to the Administrative Agent, the
Administrative Agent may assume that the party liable has paid the amount
to it on the due date in accordance with this Agreement. In reliance upon
that assumption, the Administrative Agent may (but shall not be obliged to)
make available to the payee(s) a corresponding sum. If the amount is not
in fact made available to the Administrative Agent and the party liable
does not forthwith on demand pay the amount to the Administrative Agent
together with interest on the amount until its payment at a rate determined
by the Administrative Agent to reflect its cost of funds, the payee(s)
shall forthwith on demand repay the amount to the Administrative Agent
together with interest on the amount calculated as above. The provisions
of this Clause 10.2 are without prejudice to any rights which the
Administrative Agent and the payee may have against the party liable.
10.3 Taxes.
-----
(a) All payments to be made by the Borrower or any Guarantor under the
Finance Documents shall be made:
(i) without set-off or counterclaim or reductions or defense; and
(ii) free and clear of all Taxes, withholdings or other deductions
whatsoever (other than income taxes imposed by the jurisdiction
of the relevant
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Lender's lending office) except to the extent that the Borrower
or such Guarantor is compelled by law to make payment subject to
any Taxes.
For the purposes of this Clause 10, "Relevant Tax" means any Tax
imposed by or in the U.S. or the jurisdiction of incorporation of the
Borrower or the relevant Guarantor or any other jurisdiction from or
through which a payment is made by the Borrower or the relevant
Guarantor under any Finance Document (or any federation or
organization of which any of those jurisdictions is at the relevant
time a member) or any political sub-division or taxing authority of
any of the foregoing.
(b) All Taxes required to be deducted or withheld from any amounts paid or
payable under the Finance Documents shall be paid by the Borrower or
the relevant Guarantor (as the case may be) promptly and in any event
before penalties attach thereto. If any Relevant Taxes or amounts in
respect of Relevant Taxes must be deducted from any amounts payable or
paid by the Borrower or any Guarantor under the Finance Documents (or
payable or paid by, the Administrative Agent to a Financial
Institution under the Finance Documents), the Borrower or such
Guarantor (as the case may be) shall pay such additional amounts as
may be necessary to ensure that the relevant Financial Institution
receives a net amount equal to the full amount which it would have
received had payment not been made subject to Relevant Tax.
(c) Within thirty days of each payment by the Borrower or any Guarantor
under sub-paragraph (b) above of Tax or in respect of Taxes, it shall
deliver to the Administrative Agent for the relevant Financial
Institution a certified copy of the original receipt, if one is
available, or other appropriate evidence issued by the authority to
whom the payment was made that the Tax has been duly remitted to the
appropriate authority.
(d) (i) Subject to sub-paragraph (ii) below, if Relevant Taxes must be
withheld or deducted from any amounts payable or paid by the Borrower
or any Guarantor to a Lender under the Finance Documents, the Borrower
or such Guarantor (as the case may be) may by giving not less than ten
Business Days' notice to the Lender (through the Administrative
Agent):
(A) prepay in full all Advances made to it by the Lender
together with all other amounts payable to the Lender under
the Finance Documents, and
(B) cancel that Lender's Commitment;
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(ii) any notice by the Borrower or any Guarantor shall be irrevocable
and may only be given under sub-paragraph (i) above while the
duty to withhold or deduct continues and for so long as no
Default has occurred and is continuing; such Lender's Commitment
shall be canceled on the giving of the notice; and
(iii) the Borrower shall be entitled to introduce a new Lender
acceptable to the Administrative Agent or arrange for an
existing Lender to assume the Commitment and Advance(s) of the
Lender whose Commitment has been canceled and Advance(s) prepaid
in accordance with sub-paragraphs (i) and (ii) above.
10.4 Non-Business Days.
-----------------
Whenever any payment under the Finance Documents becomes due on a day which
is not a Business Day, then the due date shall instead be the next Business
Day in that calendar month (if there is one) or the preceding Business Day
(if there is not). During any extension of the due date for payment of any
principal under this Agreement interest shall be payable on the principal
at the rate payable on the original due date.
10.5 Certifications.
--------------
Any certification or determination of a rate or amount made by a Financial
Institution shall be prima facie evidence of the matters certified or
determined.
10.6 Appropriations.
--------------
(a) In the case of a partial payment by the Borrower or any Guarantor
received by the Administrative Agent, the Administrative Agent may
appropriate the payment towards the obligations of the Borrower or
such Guarantor under the Finance Documents in the following order:
(i) first, in or towards payment pro rata of any costs and expenses
of the Financial Institutions due and payable by the Borrower or
such Guarantor but unpaid under the Finance Documents;
(ii) secondly, in or towards payment pro rata of any accrued interest
due and payable by the Borrower or such Guarantor but unpaid
under the Finance Documents;
(iii) thirdly, in or towards payment pro rata of any principal due and
payable by the Borrower or such Guarantor but unpaid under the
Finance
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Documents; and
(iv) fourthly, in or towards payment pro rata of any other sum due and
payable by the Borrower or such Guarantor but unpaid under the
Finance Documents.
(b) Any appropriation as above shall override any appropriation made by
the Borrower or any Guarantor.
10.7 Mitigation.
----------
If, in respect of any Lender, circumstances arise which would, or would on
the giving of notice, result in:
(a) any additional amounts becoming payable under Clause 10.3(b) (Taxes);
or
(b) any amount becoming payable under Clause 11 (Increased Costs); or
(c) any prepayment or cancellation under Clause 12 (Illegality),
then, without limiting the obligations of the Borrower and any Guarantor
under this Agreement and without prejudice to the terms of Clauses 10
(Payments), 11 (Increased Costs) and 12 (Illegality), such Lender shall in
consultation with the Administrative Agent, the Borrower and the Company,
take such reasonable steps as may be open to it (including, without
limitation, changing the location of a Facility Office) to mitigate or
remove such circumstance, including (without limitation) the transfer of
its rights and obligations under this Agreement to another bank or
financial institution acceptable to the Borrower and the Company, unless to
do so might (in the opinion of such Lender) in any way be materially
prejudicial to it or would otherwise be contrary to its banking policy.
11. INCREASED COSTS
11.1 Increased Costs.
---------------
Subject to Clause 11.2 (Exceptions), if the result of the introduction of
or any change in any law, regulation, treaty or official directive or
request from any governmental or regulatory authority (whether or not
having the force of law but if not having the force of law, being of a type
with which a Lender is accustomed to comply) or any change in the
interpretation or application thereof including, without limitation, those
relating to Taxation, any reserve, special deposit, cash ratio, liquidity
or capital adequacy requirement or any other form of banking or monetary
controls, is that:
(i) a Financial Institution incurs an additional cost as a result of
having entered into,
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or performing, maintaining or funding its obligations under, any
Finance Document; or
(ii) a Lender incurs an additional cost in making, funding or maintaining
all or any advances comprised in a class of advances formed by or
including the Advances made or to be made by it under this Agreement;
or
(iii) any amount payable to a Financial Institution or the effective return
to a Financial Institution under this Agreement or on its capital is
reduced; or
(iv) a Financial Institution makes any payment or foregoes any interest or
other return on or calculated by reference to any amount received or
receivable by it from the Borrower, any Guarantor or the
Administrative Agent,
then and in each such case:
(A) the Financial Institution shall notify the Borrower through the
Administrative Agent of the relevant event promptly upon becoming
aware of the event and of the amount of any claim under this
Clause 11.1 promptly upon ascertaining that amount;
(B) within 14 days of any demand from time to time by the Financial
Institution through the Administrative Agent, the Borrower shall
pay to the Administrative Agent for the account of the Financial
Institution such amount as the Financial Institution shall
certify will compensate the Financial Institution for the
additional cost (or, in the case of paragraph (ii) above, the
proportion of the additional cost as is attributable to its
making, funding or maintaining Advance(s)), reduction, payment or
forgone interest or other return;
(C) (a) subject to sub-paragraph (b) below, the Borrower may by
giving not less than ten Business Days' notice to the Lender
(through the Administrative Agent):
(i) prepay in full all Advances made to it by the Lender
together with all other amounts payable to the Lender
under the Finance Documents; and
(ii) cancel that Lender's Commitment;
(b) any notice by the Borrower shall be irrevocable and may only
be given under sub-paragraph (a) above while the
circumstances giving
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rise to the notification under paragraph (A) above continue
and for so long as no Event of Default has occurred and is
continuing; such Lender's Commitment shall be canceled on
the giving of the notice; and
(c) the Borrower shall be entitled to introduce a new Lender
acceptable to the Administrative Agent or arrange for an
existing Lender to assume the Commitment and Advance(s) of
the Lender whose Commitment has been canceled and Advance(s)
prepaid in accordance with sub-paragraphs (C)(a)(i) and (ii)
above.
11.2 Exceptions.
----------
Clause 11.1 (Increased Costs) shall not apply to or in respect of:
(a) any change in the rate of Taxation on the overall net income of a
Lender (or the overall net income of a division or branch of a Lender)
imposed in the jurisdiction in which its principal office or Facility
Office for the time being is situate;
(b) any circumstances referred to in Clause 10.3 (Taxes) or to the extent
otherwise provided in Clause 24.8 (Increased Costs/Withholding Taxes);
(c) any increased cost which is incurred in consequence of the
implementation of matters set forth in the report of the Basle
Committee on Banking Regulations and Supervisory Practices dated July,
1988 and entitled "International Convergence and Capital Measurement
and Capital Standards", unless it results from a change in the
interpretation, administration or application of such matters by any
relevant agency after the date of this Agreement; and
(d) any increased cost attributable to the negligence or willful
misconduct of a Finance Party.
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<PAGE>
12. ILLEGALITY
If the introduction of or any change in any law, regulation, treaty or
official directive (whether or not having the force of law but, if not
having the force of law, being of a type with which a Lender is accustomed
to comply) shall make it unlawful or contrary to an official directive
("Supervening Illegality") in any jurisdiction for any Lender to make
available or fund or maintain any Advance or to give effect to its
obligations as contemplated by this Agreement, a Lender may give notice
thereof to the Borrower through the Administrative Agent, whereupon:
(a) the Borrower shall, within the time allowed by the relevant law,
regulation, treaty or official directive, prepay such Lender's
Advances to it together with all other amounts payable to such Lender
under the Finance Documents; and
(b) such Lender's Commitment shall forthwith be canceled,
to the extent required to remove the Supervening Illegality.
13. GUARANTEE
13.1 Guarantee.
---------
In order to induce the Lenders to make Advances to the Borrower hereunder
and in recognition of the direct benefits to be received by each Guarantor
from the making of such Advances, each Guarantor irrevocably and
unconditionally:
(a) guarantees to the Financial Institutions, as principal obligor and not
merely as surety, prompt and full performance by the Borrower and each
Guarantor of all its obligations under this Agreement and the other
Finance Documents and the payment in full of all sums payable now or
in the future to the Financial Institutions by the Borrower and each
Guarantor under this Agreement when and as they become due; and
(b) undertakes with the Financial Institutions that if and whenever the
Borrower or any Guarantor is in default in the payment of any amount
under this Agreement the Guarantor shall forthwith pay the amount as
if the Guarantor instead of the Borrower or such Guarantor were
expressed to be the principal obligor, together with interest on the
amount at the rate per annum from time to time payable by the Borrower
or such Guarantor on the amount from the date when it becomes payable
by the Borrower or such Guarantor until payment of it in full.
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13.2 Continuing Guarantee.
--------------------
This guarantee is a continuing guarantee and shall extend to the ultimate
balance of all sums payable by the Borrower and the Guarantors or any of
them under the Finance Documents.
13.3 Reinstatement.
-------------
Where any discharge (whether in respect of the obligations of the Borrower
or any Guarantor or any security for those obligations or otherwise) is
made in whole or in part or any arrangement is made on the faith of any
payment, security or other disposition which is avoided or must be repaid
on bankruptcy, liquidation or otherwise without limitation, the liability
of the Guarantor under this guarantee shall continue as if the discharge or
arrangement, as the case may be, had not occurred. Each of the Financial
Institutions is entitled to concede or compromise any claim that any
payment, security or other disposition is liable to avoidance or repayment.
13.4 Waiver of Defenses.
------------------
The obligations of each Guarantor under this Clause 13 shall not be
affected by, and each Guarantor waives to the fullest extent permitted by
law any right it may have as a result of, any, act, omission, matter or
thing which, but for this provision, might operate to release or otherwise
exonerate it from its obligations under this Clause 13 in whole or in part,
including without limitation and whether or not known to it or any
Financial Institution:
(a) any time or waiver granted to or composition with the Borrower, any
Guarantor or any other person;
(b) the taking, variation, compromise, renewal or release of, or refusal
or neglect to perfect or enforce, any rights, remedies or securities
against the Borrower, any Guarantor or any other person;
(c) any legal limitation, disability, incapacity or other circumstances
relating to the Borrower, any Guarantor or any other person;
(d) any variation of a Finance Document or any other document or security
so that references to the Finance Document in this Clause 13 shall
include each variation (including without limitation any substitute
basis agreed under Clause 9 (Market Disruption)); or
(e) any unenforceability, invalidity or frustration of any obligations of
the Borrower, any Guarantor or any other person under any Finance
Document or any other document or security, to the intent that each
Guarantor's obligations under this
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Clause 13 shall remain in full force and its guarantee be construed
accordingly, as if there were no unenforceability, invalidity or
frustration.
Each Guarantor waives all presentments, demands for performance, protests
and notices, including, without limitation, notices of non-performance,
notices of protest, notices of dishonor, notices of the acceptance of this
guarantee and notices of the existence, creation or incurring of Advances.
Each Guarantor assumes all responsibility for being and keeping itself
informed of the Borrower's and each other Guarantor's financial condition
and Assets, and all other circumstances bearing upon the risk of non-
payment and non-performance by the Borrower or any Guarantor. Each
Guarantor agrees that neither the Administrative Agent nor any other
Financial Institution has any duty to advise the Guarantor of information
known to them (or any one of them) regarding such circumstances or risks.
13.5 Immediate Recourse.
------------------
Each Guarantor waives any right it may have of first requiring any of the
Financial Institutions to proceed against or enforce any other rights or
security or claim payment from any other person before claiming from such
Guarantor under this Clause 13.
13.6 Preservation of Rights.
----------------------
Until all amounts which may be or become payable by the Borrower or any
Guarantor under or in connection with this Agreement and the other Finance
Documents have been irrevocably paid and discharged in full, each Financial
Institution may:
(a) refrain from applying or enforcing, as appropriate, any other moneys,
security or rights held or received by that Financial Institution in
respect of those amounts, or apply and enforce the same in such manner
and order as it sees fit (whether against those amounts or otherwise)
and no Guarantor shall be entitled to the benefit of the same; and
(b) hold in an interest bearing suspense account any moneys received from
any Guarantor or on account of any Guarantor's liability under this
Clause 13.
13.7 Non-competition.
---------------
(a) Until all amounts which may be or become payable by the Borrower under
this Agreement have been irrevocably paid in full, no Guarantor shall:
(i) be subrogated to any rights, security or moneys held, received or
receivable by any Financial Institution or be entitled to any
right of contribution in
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respect of any payment made or moneys received on account of any
Guarantor's liability under this Clause 13;
(ii) be entitled and claim to rank as a creditor against the estate
or in the bankruptcy or liquidation of the Borrower or any
Guarantor in competition with any Financial Institution; or
(iii) receive, claim or have the benefit of any payment, distribution
or security from or on account of the Borrower or any Guarantor,
or exercise any right of set-off as against the Borrower or any
Guarantor.
(b) Each Guarantor shall forthwith pay to the Administrative Agent for the
account of the Financial Institutions an amount equal to any set-off
(as referred to in (iii) above) in fact exercised by it and shall hold
in trust for and forthwith pay or transfer, as the case may be, to the
Administrative Agent for the Financial Institutions any payment or
distribution or benefit of security in fact received by it. Each
Guarantor shall, upon the written request of the Administrative Agent
during the continuance of an Event of Default, collect, enforce and
receive as trustee for the Financial Institutions and forthwith pay to
the Administrative Agent for the account of the Financial Institutions
all indebtedness of the Borrower or any other Guarantor to such
Guarantor.
13.8 Other Documents.
---------------
This guarantee shall be in addition to and shall not in any way be
prejudiced by any other guarantee or any security now or hereafter held by
any Financial Institution in respect of the obligations of the Borrower or
any Guarantor under this Agreement.
13.9 Certificate.
-----------
A certificate of the Administrative Agent as to any amount owing from the
Borrower or any Guarantor under this Agreement or any other Finance
Document shall be prima facie evidence of that amount.
14. REPRESENTATIONS AND WARRANTIES
14.1 Representations and Warranties.
------------------------------
The Borrower and each Guarantor (in each case in respect of itself and its
Consolidated Subsidiaries) represents and warrants to each of the Financial
Institutions that:
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<PAGE>
(a) Organization, etc.
-----------------
(i) Each member of the Group is a corporation validly organized and
existing and, if applicable, in good standing under the laws of
the State or jurisdiction of its incorporation, is duly
qualified to do business and, if applicable, in good standing as
a foreign corporation in each jurisdiction where the nature of
its business makes such qualification necessary and has full
power and authority to own its property and conduct its business
substantially as presently conducted and as presently proposed
to be conducted by it except where the failure to be so
qualified or authorized would not be reasonably expected to have
a Material Adverse Effect;
(ii) it has full power and authority to enter into and to perform its
obligations under the Finance Documents to which it is a party;
and
(iii) it is in compliance with all Requirements of Law, except to the
extent that the failure to comply therewith would not be
reasonably expected to have a Material Adverse Effect.
(b) Due Authorization.
-----------------
The execution and delivery, by the Borrower and each Guarantor of the
Finance Documents executed or to be executed by it, the performance by
the Borrower and each Guarantor of its respective obligations under
the Finance Documents and the transactions contemplated by the Finance
Documents:
(i) have been duly authorized by all necessary corporate action;
(ii) do not and will not require any approval or consent of any
governmental agency or authority the failure to possess which
would be reasonably expected to have a Material Adverse Effect;
(iii) do not and will not conflict with, result in any violation of,
or constitute a default under any provision of the charter
documents of the Borrower, any Guarantor or any of their
Consolidated Subsidiaries or any agreement, instrument or
document binding upon or applicable to the Borrower, any
Guarantor or any of their Consolidated Subsidiaries or any
present law or governmental regulation or court or
administrative decree or order applicable to the Borrower, any
Guarantor or any of their Consolidated Subsidiaries the
violation of which would be reasonably expected to have a
Material Adverse Effect;
(iv) will not result in or require the creation or imposition of any
Security Interest on any property of any member of the Group
pursuant to the
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<PAGE>
provisions of any agreement, indenture or other instrument or
document binding upon or applicable to any member of the Group.
(c) Validity of the Finance Documents.
---------------------------------
Each Finance Document will on the due execution and delivery thereof
be the legal, valid and binding obligation of the Borrower and each of
the Guarantors expressed to be a party to it, enforceable against the
Borrower and each such Guarantor in accordance with its terms, subject
only to such qualifications as may be contained in the legal opinions
delivered under Clause 7 (Conditions Precedent) of the Supplemental
Agreement.
(d) Financial Information.
---------------------
(i) All balance sheets, statements of income and shareholders'
equity, changes in financial position and other financial
information (other than projections and similar forward looking
information) which have been or will be furnished by the Borrower
or the Guarantors or any of them to the Administrative Agent for
any Financial Institution for the purposes of or in connection
with this Agreement or any transaction contemplated hereby have
been or will be prepared in accordance with GAAP consistently
applied throughout the periods involved (except as disclosed
therein) and, as far as each of the Borrower and each Guarantor
is aware, do or will fairly present the Consolidated or
consolidating, as appropriate, financial condition of the Group
or financial condition of the Borrower or each Guarantor, as the
case may be, as at the dates thereof and the results of their
operations for the periods then ended, including, without
limitation, the Consolidated balance sheet at December 31, 1997,
the statement of net Assets, the statement of operations, the
statement of changes in net Assets and the schedule of
investments for the Fiscal Year then ended, of the Group,
certified by Price Waterhouse S.A.; and
(ii) Except as disclosed to the Administrative Agent in writing, since
June 30, 1998 there has been no material adverse change in the
Consolidated financial condition of the Group taken as a whole
from that reflected in the unaudited Consolidated financial
statements of the Borrower for the quarter ended June 30, 1998, a
copy of which has previously been provided to the Administrative
Agent and each Lender.
(e) Absence of Default.
------------------
No member of the Group is in default in the payment of any Debt in an
aggregate
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amount of more than $10,000,000 (or its equivalent in any other
currency) or any other material obligation or under any law or
governmental regulation or court or administrative decree or order
materially affecting its property or business, or aware of facts or
circumstances which would give rise to any such default.
(f) Litigation, etc.
---------------
No litigation or arbitration or governmental investigation or
proceeding against any member of the Group or to which any of the
properties of any member thereof is subject is pending or, to the
knowledge of the Borrower and each Guarantor threatened which is
reasonably likely to be adversely determined and in such case might be
reasonably expected to have a Material Adverse Effect.
(g) No Burdensome Agreement.
-----------------------
No member of the Group is a party to any agreement or other instrument
or document, or is subject to any charter or other corporate
restriction, materially adversely affecting its business, properties,
Assets, operations or condition (financial or otherwise).
(h) Taxes.
-----
Each member of the Group has filed all tax returns and reports
required by law to have been filed by them and have paid all taxes and
governmental charges thereby shown to be owing, except for taxes being
contested in good faith by appropriate proceedings and for which
appropriate reserves have been established in accordance with GAAP.
(i) ERISA.
-----
No member of the Group has a pension benefit plan subject to Title IV
of ERISA. No unpaid or contingent liability to the Pension Benefit
Guaranty Corporation ("PBGC") has been or is expected to be incurred,
directly or indirectly, by any member of the Group (other than for
payment of PBGC premiums in the ordinary course). No event has
occurred and there exists no condition or set of circumstances which
presents a material risk of the termination or partial termination of
any plan which could result, directly or indirectly, in a liability on
the part of any member of the Group to the PBGC. The Group
constitutes a venture capital operating company for the purposes of
ERISA or is otherwise exempt from ERISA requirements.
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<PAGE>
(j) Pari Passu.
----------
The obligations of the Borrower and each Guarantor under the Finance
Documents are direct and unconditional obligations and rank in all
respects at least pari passu with all other present and future
unsecured and unsubordinated obligations of the Borrower and each
Guarantor.
(k) Not an Investment Company.
-------------------------
It is not an "investment company" within the meaning of the Investment
Company Act of 1940 of the U.S.
(l) Restrictions on Transfer.
------------------------
The Borrower and each Guarantor is in compliance with all restrictions
on transfer applicable to any Qualifying Securities.
(m) Millennium Compliance.
---------------------
Each of the Borrower and Guarantors has reviewed its business and
operations and has developed a plan to address on a timely basis the
risk that computer applications used by it in performing date
sensitive functions and involving dates prior to December 31, 1999 and
thereafter might fail to perform such functions properly which failure
would reasonably be expected to have a Material Adverse Effect.
14.2 Repetition.
----------
The representations and warranties set forth in Clause 14.1 shall:
(a) be made on the Effective Date; and
(b) (unless expressed to be given as at or in respect of a particular
date) be deemed to be repeated on the Effective Date and (other than
Clause 14.1(k)) on the date of delivery of each Request, on each
Utilization Date and on the first day of each Interest Period, with
reference to the facts and circumstances then subsisting, as if made
at such time.
15. COVENANTS
The covenants in this Clause 15 shall remain in force from the Effective
Date for so long as any of the Commitments is in force or any amount is
outstanding under the Finance Documents.
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15.1 Financial Information, etc.
--------------------------
The Borrower and the Company shall (and in the case of paragraph (c) below
the Borrower and/or the relevant Guarantor shall) furnish, or cause to be
furnished to the Administrative Agent for each Lender copies of the
following financial statements, reports and information (all of which shall
be computed in Dollars):
(a) together with the financial statements delivered pursuant to Clauses
15.1(c) and (d) hereof, a Compliance Certificate;
(b) within 10 days after the last day of each calendar month, a Borrowing
Base Certificate;
(c) within 65 days after the close of each of the first three quarters of
each Fiscal Year, Consolidated balance sheets of the Borrower, each
Guarantor and of the Group at the close of such quarter, and the
related Consolidated and consolidating statements of income and
retained earnings, stockholders' equity and statements of changes in
financial position of the Borrower and each Guarantor for the period
commencing at the end of the previous Fiscal Year and ending with the
close of such quarter, certified by a Managing Director or a Senior
Vice President or Vice President of the Borrower and each Guarantor
prepared in accordance with GAAP;
(d) within 135 days after the close of each Fiscal Year, Consolidated
balance sheets at the close of such Fiscal Year and the related
Consolidated statements of income and retained earnings, stockholders'
equity and changes in financial position for such Fiscal Year, of the
Borrower, each Guarantor and of the Group, certified without
qualification by Price Waterhouse SARL or other independent public
accountants of recognized standing selected by the Borrower and
acceptable to the Majority Lenders;
(e) promptly upon the mailing thereof to stockholders generally, any
annual report, proxy statement or other communication;
(f) promptly upon any filing thereof by the Borrower or any Guarantor with
the Banque Centrale du Luxembourg or the Securities and Exchange
Commission, any annual, periodic or special report or registration
statement (exclusive of exhibits thereto) or any prospectus generally
available to the public;
(g) promptly from time to time at the reasonable request of the
Administrative Agent, valuations (appraisals) from the Borrower's
independent valuers approved by the Administrative Agent (acting
reasonably) of land, properties under development and operating
properties held by the Borrower and the Guarantors (or any of them)
and the Qualifying Issuers which are Subsidiaries and in the case of
other Qualifying Issuers if the Borrower or any Guarantor or the
Investment Adviser has
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such valuations;
(h) if in the Administrative Agent's reasonable opinion the aggregate
Market Value of Qualifying Collateral has been adversely affected in a
material way for whatever reason, a Borrowing Base Certificate dated
and delivered within ten days of a request by the Administrative Agent
which Borrowing Base Certificate shall demonstrate compliance with the
Borrowing Base based upon the Market Value as defined in Clause 1.1
(Defined Terms) subject to the following modifications:
(i) the closing sale or bid price, as the case may be, of a
Qualifying Security quoted by the Pricing Service as of the
Business Day immediately preceding the date of the Borrowing Base
Certificate shall apply;
(ii) in all other cases the values or amounts used for the purposes of
the most recent Compliance Certificate delivered under Clause
15.1(a) shall apply for those items forming part of the
Qualifying Collateral at the date of the Borrowing Base
Certificate or if the relevant Qualifying Security has been
acquired since the date of the most recent Compliance Certificate
the value basis set forth in the definition of Market Value shall
be used for such items;
(i) if at any time the Borrower has reason to believe that the aggregate
Market Value of Qualifying Collateral quoted by the Pricing Service
has been adversely affected in a material way for whatever reason, the
Borrower shall immediately (and in any event within one Business Day
of such time) notify the Administrative Agent and deliver a Borrowing
Base Certificate within ten days of such notification which Borrowing
Base Certificate shall demonstrate compliance with the Borrowing Base
based upon the Market Value as defined in Clause 1.1 (Terms defined)
subject to the modification set forth in paragraph (i) of sub-
paragraph (h) above; and
(j) promptly from time to time such other information with respect to the
Qualifying Collateral or the financial condition and operations of the
Group or any member thereof as any Lender may, through the
Administrative Agent, from time to time reasonably request.
15.2 Maintenance of Corporate Existence.
----------------------------------
Except as permitted by Clause 15.12 (Consolidation, Merger, etc.), the
Borrower and each Guarantor will cause to be done at all times all things
necessary to maintain and preserve its corporate existence.
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15.3 Payment of Taxes, etc.
---------------------
The Borrower and each Guarantor will, and shall cause each of its
Consolidated Subsidiaries to, pay and discharge, as the same may become due
and payable, all taxes, governmental assessments and other governmental
charges or levies on it or on any of its property, as well as claims of any
kind which, if unpaid, might become a lien upon any of its properties;
provided, however, that the foregoing shall not require any member of the
Group to pay any such tax, assessment, charge, levy or lien so long as it
shall contest the validity thereof in good faith by appropriate proceedings
and shall set aside and maintain, in accordance with GAAP, adequate
reserves with respect thereto.
15.4 Insurance.
---------
The Borrower and each Guarantor will, and will cause each other member of
the Group to, maintain insurance coverage by financially, sound and
reputable insurers in such forms and amounts, with such deductibles and
against such risks as are customary for corporations engaged in the same or
a similar business and owning and operating similar properties.
15.5 Notice of Default or Litigation.
-------------------------------
The Borrower and each Guarantor will as soon as practicable after becoming
aware of the same (and in any event within one Business Day of becoming
aware of such occurrence) give notice to the Administrative Agent of:
(a) the occurrence of any Default;
(b) any litigation or arbitration or any governmental investigation or
proceeding previously not disclosed by it to the Lenders which has
been instituted or is threatened against any member of the Group or
to which any of the properties of any thereof is or may become
subject which, if adversely determined, might materially adversely
affect the Consolidated financial condition or operations of the
Group or impair the ability of the Borrower or any Guarantor to
perform its obligations under any Finance Document; and
(c) any material adverse development which shall occur in any litigation,
arbitration or governmental investigation or proceeding previously
disclosed by the Borrower or any Guarantor to the Lenders.
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15.6 Conduct of Business.
-------------------
The Borrower and each Guarantor will, and will cause each Consolidated
Subsidiary to do or cause to be done all things reasonably necessary, to
preserve and keep in full force and effect its existence and all
franchises, rights and privileges necessary for the proper conduct of its
business, except as otherwise permitted by Clause 15.12.
15.7 Books and Records.
-----------------
The Borrower and each Guarantor will, and will cause each other member of
the Group to, keep all material books and records reflecting all of its
business affairs and transactions in accordance with GAAP and permit any
Lender or any of its representatives (provided that such person is
accompanied by a representative of the Borrower or such Guarantor), at
reasonable times and intervals, to visit all of its offices, discuss its
financial matters with its officers and independent accountants (and hereby
authorizes such independent accountants to discuss its financial matters
with the Administrative Agent or any Lender or its representatives) and
examine any of its books and other corporate records.
15.8 Value of Assets.
---------------
The Borrower will ensure that the value of Consolidated gross Assets of the
Guarantors comprise no less than 90 percent of the value of Consolidated
gross Assets of the Borrower computed in accordance with GAAP.
15.9 Security Interests.
------------------
The Borrower and each Guarantor will not, and will not permit any
Consolidated Subsidiary to, create, incur, assume or suffer to exist any
Security Interest upon any of its property or Assets or revenues, whether
now owned or hereafter acquired except:
(a) liens for taxes, assessments or other governmental charges or levies,
and liens securing claims or demands incurred in the ordinary course
of business, provided in each case that:
(i) payment thereof is not at the time required by Clause 15.3
(Payment of Taxes, etc.); and
(ii) if required by GAAP, the applicable member of the Group shall
have set aside and maintained adequate reserves with respect
thereto;
(b) liens incurred in the ordinary course of business in connection with
workmen's compensation, unemployment insurance or other forms of
governmental insurance
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or benefits, or to secure performance of tenders, statutory
obligations, leases and contracts (other than for borrowed money)
entered into in the ordinary course of business or to secure
obligations on surety or appeal bonds;
(c) Security Interests over real property or interests therein in
existence at the date of acquisition of such property or interest by
a Consolidated Subsidiary which is a US person (and not created in
contemplation of such acquisition) and which secures a principal
amount no greater than that outstanding at the date of acquisition
together with any items capitalized in accordance with GAAP;
(d) any other Security Interest to which the Majority Lenders have
granted their prior written consent; and
(e) liens, other than liens on the stock of any Guarantor or any
Subsidiary thereof other than Strategic Investees, incurred to
secure any indebtedness permitted under Clause 15.10(b)(iv);
provided that in no event shall the aggregate principal amount of all
Debt of the Borrower and its Consolidated Subsidiaries that is secured by
such Security Interests exceed the level set forth in Clause 15.10(b)(iv)
(Financial Condition).
15.10 Financial Condition.
-------------------
(a) No Guarantor will incur any indebtedness other than:
(i) indebtedness under the Finance Documents;
(ii) indebtedness owed to the Borrower or any Guarantor,
provided that, any indebtedness owed to the Borrower by any
Guarantor may only be incurred pursuant to the Advance
Agreement; or
(iii) subject to the limitation set forth in Clause 15.10(b)(iv),
indebtedness secured by a Security Interest encumbering any
Asset of such Guarantor;
(b) The Borrower will:
(i) not permit its Unsecured Liabilities to exceed 40 percent
of the aggregate Market Value of all Qualifying Collateral
at any time;
(ii) ensure that its Shareholders' Equity at all times exceeds
the sum of (A) 75 percent of its Shareholders' Equity
calculated as of the Effective Date and (B) 75 percent of
the net proceeds, if any, received by the Borrower from the
public sale of any of its equity securities;
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(iii) procure that at all relevant times:
(A) the ratio of its Total Liabilities to Market Net Worth is
not greater than 1.0:1.0; provided that, solely for the
purposes of calculating such ratio, in circumstances where
any Strategic Investee or unconsolidated Subsidiary is not
or ceases to be a Qualifying Issuer because of its failure
to comply with clause (a)(i) of the definition of
"Qualifying Issuer", (x) "Total Liabilities" shall be deemed
to include such portion of the Total Liabilities of such
Strategic Investee or unconsolidated Subsidiary as
corresponds to the percentage equity interest held in such
Strategic Investee or unconsolidated Subsidiary by the
Borrower or any of its Consolidated Subsidiaries, and (y)
"Market Net Worth" shall be deemed to include (i) the Market
Value of all Securities of such Strategic Investee or
unconsolidated Subsidiary which are owned by the Borrower or
any of its Consolidated Subsidiaries and (ii) such portion
of the Assets (valued in accordance with clause
(a)(iii)(1)(A) of the definition of "Market Net Worth") of
such Strategic Investee or unconsolidated Subsidiary as
corresponds to the percentage equity interest held in such
Strategic Investee or unconsolidated Subsidiary by the
Borrower or any of its Consolidated Subsidiaries.
(B) the Borrower Fixed Charge Coverage Ratio is not less than
1.5:1.0;
(C) its Interest Coverage Ratio is not less than 2.0:1.0; and
(iv) ensure at all times that the aggregate principal amount of all
Debt of the Borrower and its Consolidated Subsidiaries that is
secured by a Security Interest encumbering any Asset of the
Borrower or any such Consolidated Subsidiary is equal to or less
than 10 percent of the Market Net Worth of the Borrower and its
Consolidated Subsidiaries.
15.11 Dividends, Stock Purchases.
--------------------------
(a) The Borrower will not declare or pay any dividends, or return
any capital, to its stockholders or authorize or make any other
distribution, payment or delivery of property or cash to its
stockholders as such, or redeem, buy back, retire, purchase or
otherwise acquire, directly or indirectly, for a consideration,
any shares of any class of its capital stock now or hereafter
outstanding (or any options or warrants issued by the Borrower
with respect to its capital stock), or set aside any funds for
any of the foregoing purposes, or permit any of its
Subsidiaries to purchase
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or otherwise acquire for a consideration any shares of any class of
the capital stock of the Borrower now or hereafter outstanding (or
any options or warrants issued by the Borrower with respect to its
capital stock) which, in the aggregate for any Fiscal Year, exceeds
50 percent of the Borrower's Consolidated net income plus
depreciation but after deduction of taxes for such Fiscal Year all as
computed in accordance with GAAP. Notwithstanding the preceding
sentence, the Borrower may pay any dividends if (i) such dividends
are declared no more than 60 days prior to the date of such payment
and (ii) at the time such dividends were declared, such dividends
would not have caused the Borrower to exceed the limitation set forth
in the preceding sentence.
(b) No Guarantor may declare or pay any dividends, or return any capital,
to its stockholders or authorize or make any other distribution,
payment or delivery of property or cash to its stockholders as such,
or redeem, retire, purchase or otherwise acquire, directly or
indirectly, for a consideration, any shares of any class of its
capital stock now or hereafter outstanding (or any options or
warrants issued by such Guarantor with respect to its capital stock),
or set aside any funds for any of the foregoing purposes, or permit
any of its Subsidiaries to purchase or otherwise acquire for a
consideration any shares of any class of the capital stock of such
Guarantor now or hereafter outstanding (or any options or warrants
issued by such Guarantor with respect to its capital stock), except
that any Guarantor may (i) pay dividends to the Borrower, any wholly-
owned Subsidiary of the Borrower or any other Guarantor, (ii) declare
or pay dividends on shares of its preferred stock, (iii) redeem any
shares of its preferred stock, (iv) purchase or otherwise acquire for
consideration any shares of its preferred stock or (v) purchase or
otherwise acquire for consideration any shares of its capital stock
held by the Borrower.
(c) The Borrower will not permit any Guarantor to, and no Guarantor will,
directly or indirectly, create or otherwise cause or suffer to exist
or become effective any encumbrance or restriction on the ability of
such Guarantor to (i) pay dividends or make other distributions on
its equity securities or any other interest or participation in its
profits owned by the Borrower or any other Guarantor, (ii) make loans
or advances to the Borrower or any other Guarantor, or (iii) transfer
any of its properties or Assets to the Borrower or any other
Guarantor, except in connection with a Security Interest permitted by
Clause 15.9.
15.12 Consolidation, Merger, etc.
--------------------------
None of the Borrower, any Guarantor or any of their respective
Consolidated Subsidiaries may (a) consolidate or merge with or into any
other Person, (b) subject to
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Clause 15.17 (Sales of Qualifying Securities of Principal Companies),
sell, lease or otherwise transfer, directly or indirectly, and whether
by one or a series of related transactions, a substantial portion of
its Assets to any other Person, or (c) purchase or otherwise acquire,
directly or indirectly, by one or a series of related transactions,
all or substantially all of the assets of, or outstanding capital
stock of or other equity interest in, another Person, except that (i)
any Guarantor may consolidate or merge with or into the Borrower or
another Guarantor, (ii) any Guarantor may sell, lease or otherwise
transfer, directly or indirectly, and whether by one or a series of
related transactions, all or a substantial portion of its Assets to
the Borrower or another Guarantor and (iii) the Borrower or any
Guarantor may purchase or otherwise acquire, all or substantially all
of the assets of, or outstanding capital stock of or other equity
interests in, or consolidate or merge with or into, another Person, so
long as (A) after giving effect thereto, no Default or Event of
Default shall have occurred and be continuing and (B) in the case of a
consolidation or merger, the Person surviving such consolidation or
merger will be the Borrower or such Guarantor, as the case may be,
after giving effect thereto.
15.13 Plans.
-----
Neither the Borrower nor any Guarantor will, or will permit any ERISA
Affiliate to, establish, or incur or suffer to exist any obligations
with respect to, any employee pension benefit plan maintained for the
employees of the Borrower or any Guarantor or any ERISA Affiliate and
covered by Title IV of ERISA.
15.14 Inconsistent Agreements.
-----------------------
Neither the Borrower nor any Guarantor will, or will permit any other
member of the Group to, enter into any agreement containing any
provision which would be violated or breached by any borrowing by the
Borrower made under this Agreement or by the performance by the
Borrower or any Guarantor of its obligations under the Finance
Documents.
15.15 ERISA and Compliance with Requirements of Law.
---------------------------------------------
The Borrower and each Guarantor will, and will cause each of their
Subsidiaries to, comply in all respects with all Requirements of Law,
the non-compliance with which would be reasonably expected to have a
Material Adverse Effect. Neither the Borrower nor any Guarantor will
permit any of their respective Assets to become or be deemed to be
"plan assets" within the meaning of ERISA, the Internal Revenue Code
and the respective regulations promulgated thereunder, of any ERISA
plan or any non-ERISA plan.
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15.16 Amendment of Advance Agreement.
------------------------------
Neither the Borrower nor the Company shall amend or modify the Advance
Agreement without the express written consent of the Administrative
Agent; provided that no such consent shall be required in connection
with the execution by any Guarantor of counterparts of the Advance
Agreement.
15.17 Sales of Qualifying Securities of Principal Companies
-----------------------------------------------------
The Borrower shall not, and shall not permit any Guarantor to, sell,
transfer, convey or otherwise dispose of more than 20% of the number
of Qualifying Securities of a Principal Company (other than SCG) held
by the Borrower or such Guarantor as of the date hereof (provided that
this Clause 15.17 shall not apply to changes in the number of
Qualifying Securities held by such Person caused by stock splits,
share dividends and other similar events if such changes do not affect
such Person's relative ownership position), unless the Borrower or
such Guarantor has obtained the prior written consent of the Super
Majority Lenders (which shall include, for the purposes of this Clause
15.17, all Lenders whose respective Commitments equal or exceed
$50,000,000) to such sale, transfer, conveyance or disposal; provided
that no such consent shall be required (a) if such sale, transfer,
conveyance or disposal would not create a Borrowing Base Shortfall or
(b) for the sale, transfer, conveyance or disposal of Qualifying
Securities of PRT in connection with the merger of PRT with and into
Regency. Notwithstanding any of the foregoing, the Borrower and
Guarantors may transfer Qualifying Securities of a Principal Company
and other Qualifying Securities to one another (including such
transfers by one Guarantor to another).
16. DEFAULT
16.1 Events of Default.
-----------------
Each of the events set forth in Clauses 16.2 (Non-Payment) to 16.14
(Investment Adviser) (inclusive) is an Event of Default (whether or
not caused by any reason whatsoever outside the control of the
Borrower, any or all of the Guarantors or any other Person).
16.2 Non-Payment.
-----------
The Borrower or any Guarantor fails to pay:
(a) any principal amount payable by it under the Finance Documents;
or
(b) interest or any fee or any other amount payable by it under the
Finance Documents within five days of the due date therefor,
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at the place at which, and in the currency in which, it is expressed to be
payable.
16.3 Breach of Other Obligations.
---------------------------
The Borrower or any Guarantor, as the case may be, does not comply with:
(a) any provision of Clause 8.3 (Mandatory Prepayment/Borrowing Base
Shortfall), Clause 15.5(a) (Notification of a Default), Clause 15.9
(Security Interests), Clause 15.10 (Financial Condition) or Clause
15.12 (Consolidation, Merger, etc.);
(b) any provision of Clause 15.1(a) (Compliance Certificates), Clause
15.(h) (Borrowing Base Certificate), Clause 15.1(i) (Borrowing Base
Certificate) or Clause 15.1(j) (Other Financial Information) within 10
days of the Administrative Agent providing written notice to the
Borrower and/or such Guarantor (as appropriate) of the failure;
(c) any provision of Clause 15.1(c) to (h) (Financial Statements and
Appraisals) or Clause 15.3 (Payment of Taxes etc.) within 60 days of
the Administrative Agent providing written notice to the Borrower
and/or such Guarantor (as appropriate) of the failure;
(d) any other provision of the Finance Documents and the failure to comply
(if it is capable of remedy) is not remedied within 30 days of the
Administrative Agent providing written notice to the Borrower and/or
such Guarantor (as appropriate) of the failure.
16.4 Misrepresentation.
-----------------
A representation, warranty or statement made or repeated in or in
connection with any Finance Document or in any document delivered by or on
behalf of the Borrower or any Guarantor under or in connection with any
Finance Document is incorrect in any material respect when made or deemed
to be made or repeated.
16.5 Cross-default.
-------------
(a) Any unsecured Debt of the Borrower or any Guarantor in an aggregate
amount of at least $10,000,000 or its equivalent in any other
currencies is not paid when due or within any applicable grace period;
or any Non-Recourse Debt of the Borrower, any Guarantor or any of
their respective Consolidated Subsidiaries in an aggregate amount of
at least $25,000,000 or its equivalent in any other currencies is not
paid when due or within any applicable grace period or
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(b) Any unsecured Debt of the Borrower or any Guarantor in an aggregate
amount of at least $10,000,000 or its equivalent in any other
currencies becomes, or becomes capable of being declared, prematurely
due and payable, in each case as a result of an event of default
(howsoever described) under the document relating to that
indebtedness; or any Non-Recourse Debt of the Borrower, any Guarantor
or any of their respective Consolidated Subsidiaries in an aggregate
amount of at least $25,000,000 or its equivalent in any other
currencies becomes, or becomes capable of being declared, prematurely
due and payable, in each case as a result of an event of default
(howsoever described) under the document relating to that
indebtedness.
16.6 Insolvency.
----------
(a) The Borrower or any Guarantor or any of their respective Consolidated
Subsidiaries is, or is deemed for the purposes of any law to be,
unable to pay its debts as they fall due or is, or is deemed to be,
insolvent, or admits inability to pay its debts as they, fall due; or
(b) The Borrower or any Guarantor or any of their respective Consolidated
Subsidiaries suspends making payments on all or any class of its debts
or announces an intention to do so, or a moratorium is declared in
respect of any of its indebtedness.
16.7 Insolvency Proceedings.
----------------------
Otherwise than in connection with a voluntary reorganization permitted
under Clause 15.12 (Consolidation, Merger, etc.):
(a) any step (including petition, proposal or convening a meeting) is
taken by the Borrower or any Guarantor or any of their respective
Consolidated Subsidiaries in any relevant jurisdiction with a view to
a composition, assignment or arrangement with its creditors generally
(or any class of them); or
(b) a members' or board meeting of the Borrower or any Guarantor or any of
their respective Consolidated Subsidiaries is convened for the purpose
of considering any resolution for (or to petition for) its winding-up
or its administration or any such resolution, is passed; or
(c) any person presents a petition for the Winding Up or for the
administration of the Borrower or any Guarantor or of their respective
Consolidated Subsidiaries in any relevant jurisdiction and the
relevant petition or action is not dismissed, withdrawn or otherwise
discontinued within 30 days; or
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(d) any order for the winding-up or administration of the Borrower or any
Guarantor or any of their respective Consolidated Subsidiaries is made
in any relevant jurisdiction and such order is not contested in good
faith within 10 days and remains undismissed and unstayed for a period
of 60 days;
(e) any other step (including petition, proposal or convening a meeting)
is taken in any relevant jurisdiction with a view to the
rehabilitation, administration, custodianship, liquidation, winding-up
or dissolution of the Borrower or any Guarantor or any of their
respective Consolidated Subsidiaries or any other proceedings
involving the Borrower or any Guarantor or any of their respective
Consolidated Subsidiaries and the relevant petition, action or
procedure is not dismissed, withdrawn or otherwise discontinued within
60 days; or
(f) the Borrower or any Guarantor or any of their respective Consolidated
Subsidiaries shall commence a voluntary case concerning itself under
Title 11 of the U.S. Code entitled "Bankruptcy", as now or hereafter
in effect, or any successor thereto (the "Bankruptcy Code") or, in the
case of a Consolidated Subsidiary, under any equivalent bankruptcy
law;
(g) an involuntary case is commenced against the Borrower or any Guarantor
or any of their respective Consolidated Subsidiaries or any of its
respective Consolidated Subsidiaries, and the petition is not
controverted within 20 days, or is not dismissed within 30 days, after
commencement of the case:
(h) a custodian (as defined in the Bankruptcy Code) is appointed for, or
takes charge of, all or substantially all of the Assets of the
Borrower, any Guarantor or any of their respective Consolidated
Subsidiaries, or the Borrower, any Guarantor or any of their
respective Consolidated Subsidiaries commences any other proceeding
under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the
Borrower, any Guarantor or any of their respective Consolidated
Subsidiaries, or there is commenced against the Borrower, any
Guarantor or any of their respective Consolidated Subsidiaries any
such proceeding which remains unstayed or undismissed for a period of
30 days, or the Borrower, any Guarantor or any of their respective
Consolidated Subsidiaries is adjudicated insolvent or bankrupt;
(i) any order of relief or other order approving any such case or
proceeding is entered;
(j) the Borrower, any Guarantor or any of their respective Consolidated
Subsidiaries suffers any appointment of any custodian or the like for
it or any substantial part
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of its property to continue undischarged or unstayed for a period of
30 days;
(k) the Borrower, any Guarantor or any of their respective Consolidated
Subsidiaries makes a general assignment for the benefit of creditors;
or
(l) any corporate action is taken by the Borrower, any Guarantor or any of
their respective Consolidated Subsidiaries for the purpose of
effecting any of the foregoing.
16.8 Appointment of Receivers and Managers.
-------------------------------------
(a) Any liquidator, trustee in bankruptcy, judicial custodian, compulsory
manager, receiver, administrative receiver, administrator or the like
is appointed in any place in respect of the Borrower or any Guarantor
or any of their respective Consolidated Subsidiaries or any material
part of the respective Assets of any of the foregoing; or
(b) the directors of the Borrower or any Guarantor or any of their
respective Consolidated Subsidiaries request the appointment of a
liquidator, trustee in bankruptcy, judicial custodian, compulsory
manager, receiver, administrative receiver, administrator or the like
in respect of the Borrower, such Guarantor or any of their respective
Consolidated Subsidiaries or any substantial part of its or their
Assets; or
(c) any person enforces any Security Interest over any material part of
the Assets of the Borrower or any Guarantor or any of their respective
Consolidated Subsidiaries and the relevant proceedings are not
dismissed, withdrawn or otherwise discontinued within 60 days.
16.9 Legal Process.
-------------
(a) Any judgment or order is made against any member of the Group (not
paid or fully covered by insurance) of $10,000,000 or more which is
not stayed or discharged or bonded pending appeal within 30 days or
(where payment may be lawfully withheld pending the outcome of such
proceedings) is not being contested in good faith by the relevant
party by appropriate proceedings within 30 days; or
(b) any attachment, sequestration, distress or execution or lien in favor
of any governmental or regulatory authority affects any material asset
of any Guarantor, the Borrower or any of their respective Consolidated
Subsidiaries and is not discharged within 30 days.
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16.10 Unlawfulness.
------------
It is or it becomes unlawful for any Guarantor or the Borrower to
perform any of its obligations under the Finance Documents.
16.11 Guarantee.
---------
The guarantee by any Guarantor hereunder is not effective or
enforceable or is alleged by such Guarantor to be ineffective or
unenforceable for any reason.
16.12 Change of Control.
-----------------
(a) The Investment Adviser ceases to be directly or indirectly a
Subsidiary of SCG;
(b) SCG fails to own beneficially directly or indirectly at least 20
percent of the voting share capital of the Borrower;
(c) The Borrower fails to own beneficially directly or indirectly at
least 95 percent of the voting share capital of each Guarantor.
(d) any Person or Persons acting in concert (other than SCG and its
wholly-owned Subsidiaries) owns more than 10 percent of shares of
the Borrower, and continues to do so for more than 30 days after
notice thereof has been given by the Administrative Agent to the
Borrower or such longer period as may be reasonably necessary for
the Borrower to exercise promptly and in good faith its rights
with respect to any excess shares under the Borrower's Articles
of Incorporation.
16.13 Pari Passu.
----------
The obligations of the Borrower and each Guarantor under the Finance
Documents shall not constitute direct and unconditional obligations or
shall not rank in all respects at least pari passu with all other
present and future unsecured and unsubordinated obligations of the
Borrower or such Guarantor as the case may be.
16.14 Investment Adviser.
------------------
Any Event of Default specified in Clause 16.6 (Insolvency), 16.7
(Insolvency Proceedings) or 16.8 (Appointment of Receivers and
Managers) shall occur in relation to the Investment Adviser and there
shall not be appointed within 15 days following such Event of Default
a substitute Investment Adviser reasonably acceptable to the Majority
Lenders.
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16.15 Acceleration.
------------
On and at any time after the occurrence of an Event of Default and
while such Event of Default is continuing the Administrative Agent
may, and shall if so directed by the Majority Lenders, by notice to
the Borrower:
(a) cancel all of the Commitments; and/or
(b) demand that all the Advances, together with accrued interest and
all other amounts accrued under this Agreement be immediately due
and payable, whereupon they shall become immediately due and
payable; and/or
(c) demand that all the Advances, together with accrued interest and
all other amounts accrued under this Agreement, be payable on
demand, whereupon they shall immediately become payable on demand
by the Administrative Agent;
provided that if an Event of Default specified in Clause 16.6
(Insolvency), 16.7 (Insolvency Proceedings) or 16.8 (Appointment of
Receivers and Managers) shall occur, each of the results under clauses
(a), (b) and (c) above shall occur automatically without the giving of
notice by the Administrative Agent to the Borrower as specified in
this Clause 16.15.
17. ACCOUNTS AS EVIDENCE
Accounts maintained by a Lender in connection with this Agreement
shall constitute prima facie evidence of sums owing to the Lender.
18. THE ADMINISTRATIVE AGENT, THE ARRANGER AND THE SYNDICATION AGENT
18.1 Appointment and Duties of the Administrative Agent.
--------------------------------------------------
(a) Each Financial Institution (other than the Administrative Agent)
irrevocably appoints the Administrative Agent to act as its agent
under and in connection with the Finance Documents.
(b) Each Contracting Party appointing the Administrative Agent
irrevocably authorizes the Administrative Agent on its behalf to
enter into any Guarantor Joinder Agreement (whereupon and by
which act such Contracting Party shall become bound thereby),
perform the duties and to exercise the rights, powers and
discretion that are specifically delegated to it under or in
connection with the Finance Documents, together with any other
incidental rights, powers and discretion. Each Financial
Institution irrevocably appoints the Administrative Agent to
enter into the Finance Documents on its behalf.
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(c) The Administrative Agent shall have only those duties which are
expressly specified in the relevant Finance Documents. Those duties
are solely of a mechanical and administrative nature.
18.2 Role of the Arranger and the Syndication Agent.
----------------------------------------------
Except as otherwise provided in this Agreement, the Arranger and the
Syndication Agent have no obligations of any kind to any other Contracting
Party under or in connection with any Finance Document.
18.3 Relationship.
------------
The relationship between the Administrative Agent and the Contracting
Parties which have appointed it as Administrative Agent is that of agent
and principal only. Nothing in this Agreement constitutes the
Administrative Agent as trustee or fiduciary for any other Contracting
Party or any other person and as between the Administrative Agent and the
other Financial Institutions, the Administrative Agent need not hold in
trust any moneys paid to it for a Contracting Party or be liable to account
for interest on those moneys.
18.4 Majority Lenders' Directions.
----------------------------
As against the Financial Institutions, the Administrative Agent will be
fully protected if it acts in accordance with the instructions of the
Majority Lenders in connection with the exercise of any right, power or
discretion or any matter not expressly provided for in the Finance
Documents. Any such instructions given by the Majority Lenders will be
binding on all the Lenders. In the absence of such instructions, the
Administrative Agent may, as between itself and the other Financial
Institutions, act as it reasonably considers to be in the best interests of
all the Lenders.
18.5 Delegation.
----------
The Administrative Agent may act under the Finance Documents through its
personnel and agents and except as specifically provided in the Finance
Documents, it is not responsible for the acts and omissions of such agents
(other than employees) who are selected by it with reasonable care.
18.6 Responsibility for Documentation.
--------------------------------
The Administrative Agent, the Arranger and the Syndication Agent are not
responsible to any other Contracting Party for:
(a) the execution, genuineness, validity, enforceability or sufficiency of
any Finance
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Document or any other document;
(b) any error or omission in any legal opinion;
(c) the collectability of amounts payable under any Finance Document; or
(d) the accuracy of any statements (whether written or oral) made in or in
connection with any Finance Document.
18.7 Default.
-------
(a) The Administrative Agent is not obliged to monitor or inquire as to
whether or not a Default has occurred. The Administrative Agent will
not be deemed to have knowledge of the occurrence of a Default.
However, if the Administrative Agent receives notice from a
Contracting Party referring to this Agreement, describing the Default
and stating that the event is a Default, or otherwise has actual
knowledge of an Event of Default, it shall promptly notify the Lenders
and the Borrower.
(b) The Administrative Agent may require the receipt of security
satisfactory to it whether by way of payment in advance or otherwise,
against any liability or loss which it will or may incur in taking any
proceedings or action arising out of or in connection with any Finance
Document on behalf of the Financial Institutions before it commences
those proceedings or takes that action.
18.8 Exoneration.
-----------
(a) Without limiting paragraph (b) below, the Administrative Agent will
not be liable to any other Contracting Party for any action taken or
not taken by it under or in connection with any Finance Document,
unless directly caused by the Administrative Agent's gross negligence
or willful misconduct.
(b) No Contracting Party may take any proceedings against any officer,
employee or agent of the Administrative Agent in respect of any claim
it might have against the Administrative Agent or in respect of any
act or omission of any kind (including gross negligence or willful
misconduct) by that officer, employee or agent in relation to any
Finance Document.
18.9 Reliance.
--------
The Administrative Agent may:
(a) rely on any notice or document reasonably believed by it to be genuine
and correct
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and to have been signed by, or with the authority of, the proper
person:
(b) rely on any statement made by, a director or employee of any person
regarding any matters which may reasonably be assumed to be within his
knowledge or within his power to verify; and
(c) engage and rely on legal or other professional advisers selected by it
(including those in the Administrative Agent's employment and those
representing a Contracting Party other than the Administrative Agent).
18.10 Credit Approval and Appraisal.
-----------------------------
Without affecting the responsibility of the Borrower and each Guarantor
for information supplied by it or on its behalf in connection with any
Finance Document, each Lender confirms that it:
(a) has made its own independent investigation and assessment of the
financial condition and affairs of the Borrower, each Guarantor and
their related entities in connection with its participation in this
Agreement and has not relied on any information provided to it by the
Administrative Agent, the Arranger or the Syndication Agent in
connection with any Finance Document; and
(b) will continue to make its own independent appraisal of the
creditworthiness of the Borrower, each Guarantor and their related
entities while any amount is or may be outstanding under the Finance
Documents or any Commitment is in force.
18.11 Information.
-----------
(a) The Administrative Agent shall promptly forward to the person
concerned the original or a copy of any document which is delivered to
the Administrative Agent by a Contracting Party for that person.
(b) The Administrative Agent shall promptly supply each Lender with a copy
of each document received by the Administrative Agent under Clauses 4
(Conditions Precedent) or 28.1(d) (Additional Guarantors) upon the
request of that Lender provided that the Borrower shall only be liable
for reasonable costs incurred in connection with the provision of such
copies to any Lender.
(c) Except where this Agreement specifically provides otherwise, the
Administrative Agent is not obliged to review or check the accuracy or
completeness of any document it forwards to another Contracting Party.
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(d) The Administrative Agent shall promptly notify each Lender of the
occurrence of any of the following:
(i) the receipt by it of a Request from the Borrower under
Clause 5.1 (a) (Utilization of Revolving Credit Facility) or
5.2(b) (Utilization of Swingline Facility);
(ii) the receipt by it of a notice from the Borrower under Clause
8.2(a) (Prepayment of Advances);
(iii) the receipt by it of a Compliance Certificate or a Borrowing
Certificate showing the occurrence of any of the matters
referred to in Clauses 8.4(a) to (d) (Borrowing Base
Violations) inclusive; and
(iv) subject to Clause 18.7 (Default), any Default.
(e) Except as provided above, the Administrative Agent has no duty:
(i) either initially or on a continuing basis to provide any
Lender with any credit or other information concerning the
financial condition or affairs of the Borrower, any
Guarantor or any related entity of the Borrower or any
Guarantor whether coming into the possession of the
Administrative Agent or that of any of its related entities
before, on or after the date of this Agreement, or
(ii) unless specifically requested to do so by a Lender in
accordance with this Agreement, to request any certificates
or other documents from the Borrower or any Guarantor.
18.12 The Administrative Agent and the Arranger Individually.
------------------------------------------------------
(a) If it is also a Lender, each of the Administrative Agent, the Arranger
and the Syndication Agent has the same rights and powers under this
Agreement as any other Lender and may exercise those rights and powers
as though it were not the Administrative Agent or an Arranger.
(b) Each of the Administrative Agent, the Arranger and the Syndication
Agent may:
(i) carry on any business with the Borrower, any Guarantor or
their related entities;
(ii) act as agent or trustee for, or in relation to any financing
involving, the Borrower, any Guarantor or their related
entities, and
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(iii) retain any profits or remuneration in connection with its
activities under the Finance Documents or in relation to any
of the foregoing.
(c) In acting as the Administrative Agent, the agency division of the
Administrative Agent will be treated as a separate entity from its
other divisions and departments. Any information acquired by the
Administrative Agent otherwise than in its capacity as Administrative
Agent may be treated as confidential by the Administrative Agent and
will not be deemed to be information possessed by the Administrative
Agent in its capacity as such.
18.13 Indemnities.
-----------
(a) Without limiting the liability of the Borrower or any Guarantor under
the Finance Documents, each Lender shall forthwith on demand indemnify
the Administrative Agent (to the extent not reimbursed by the Borrower
or the Guarantors or any of them), for that Lender's pro rata share of
any liability or loss incurred by the Administrative Agent in any way
relating to or arising out of its acting as the Administrative Agent,
except to the extent that the liability or loss arises directly from
the Administrative Agent's negligence or willful misconduct.
(b) The Borrower shall forthwith on demand reimburse each Lender for any
payment made by it under paragraph (a) above.
18.14 Compliance.
----------
(a) The Administrative Agent may refrain from doing anything which might,
in its opinion, constitute a breach of any law or regulation or be
otherwise actionable at the suit of any person, and may do anything
which, in its opinion, is necessary or desirable to comply with any
law or regulation of any jurisdiction.
(b) Without limiting paragraph (a) above, the Administrative Agent need
not disclose any information relating to the Borrower, any Guarantor
or any of their related entities if the disclosure would constitute a
breach of any law or regulation or any duty of secrecy or
confidentiality.
18.15 Resignation of Agent.
--------------------
(a) Notwithstanding its irrevocable appointment, the Administrative Agent
may resign by giving not less than 60 days' notice to the Lenders and
the Borrower, in which case the Administrative Agent may forthwith
appoint one of its Affiliates as successor Administrative Agent or,
failing that, the Majority Lenders may identify a proposed successor
Administrative Agent and notify the Borrower of the identity
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of such person. Notwithstanding its irrevocable appointment, the
Administrative Agent may be removed for good cause upon 60 days'
notice to the Administrative Agent by the Majority Lenders, in which
case the Majority Lenders may identify proposed successor
Administrative Agent and notify the Borrower of the identity of such
person. In addition, if Commerzbank A.G., shall at any time hold a
Commitment which is not the largest single individual Commitment of
all the Lenders' individual Commitments or which is not equal to the
largest individual Commitment held by any other Lender or Lenders, it
shall promptly notify the Borrower and the Lenders thereof and the
Administrative Agent shall offer to resign. If such offer is accepted
by the Majority Lenders (for this purpose only, Commerzbank A.G. shall
be deemed to have accepted its own offer to resign), the Majority
Lenders may identify a proposed successor Administrative Agent and
notify the Borrower of the identity of such person. Such person shall,
with the consent of the Borrower be appointed as the successor
Administrative Agent provided that such consent shall not be required
where the Administrative Agent has resigned and such Administrative
Agent has appointed one of its Affiliates to be its successor. If the
Borrower withholds its consent to the appointment of any successor
Administrative Agent it shall, within 30 days of receiving notice of
the identity of the proposed appointee of the Majority Lenders,
identify one or more other persons who are willing to act as the
Administrative Agent and whom the Majority Lenders shall (subject to
paragraph (ii) below) thereafter appoint as the relevant Agent,
provided that:
(i) if the Borrower does not during such 30 day period identify any
such persons, the person identified by the Majority Lenders shall
at the end of such period be appointed as the successor
Administrative Agent; and
(ii) if the Majority Lenders do not consent to the person (or any of
the persons) identified by the Borrower (such consent not to be
unreasonably withheld) the person initially identified by the
Majority Lenders shall be appointed as the Administrative Agent.
(b) In relation to the resignation of an Administrative Agent, if the
appointment of a successor Administrative Agent is to be made by the
Majority Lenders but they have not within 45 days after notice of
resignation, appointed a successor Administrative Agent which accepts
the appointment, the retiring Administrative Agent may appoint a
successor Administrative Agent.
(c) The resignation of the retiring Administrative Agent or the removal of
an Administrative Agent, as the case may be, and the appointment of
any successor Administrative Agent will both become effective only
upon the successor
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Administrative Agent notifying all the Parties that it accepts the
appointment. On giving the notification, the successor Administrative
Agent will succeed to the position of the retiring Administrative
Agent or the removed Administrative Agent, as the case may be, and the
term "Administrative Agent" will mean the successor Administrative
Agent.
(d) A retiring Administrative Agent or the removed Administrative Agent,
as the case may be, shall, at its own cost, make available to the
successor Administrative Agent such documents and records and provide
such assistance as the successor Administrative Agent may reasonably
request for the purposes of performing its functions as the
Administrative Agent under this Agreement.
(e) Upon its resignation or removal, as the case may be, becoming
effective, this Clause 18 (The Administrative Agent and the Arranger)
shall continue to benefit the retiring Administrative Agent in respect
of any action taken or not taken by it under or in connection with the
Finance Documents while it was an Administrative Agent, and, subject
to paragraph (d) above, it shall have no further obligation in its
capacity as such Administrative Agent under any Finance Document.
18.16 Lenders.
-------
The Administrative Agent may treat each Lender as a Lender, entitled to
payments under this Agreement and as acting through its Facility
Office(s), until it has received not less than 5 Business Days prior
notice from the Lender to the effect that it is no longer entitled to
payments and/or is no longer acting through its specified Facility Office.
19. FEES
19.1 Commitment Fee.
--------------
(a) The Borrower shall pay to the Administrative Agent for the account of
each Lender a commitment fee in Dollars on the Undrawn Commitment
during the period from Effective Date through the Final Maturity Date
for that Lender (or, if the Term-Out Option is exercised, the Term-Out
Date), which fee shall be calculated on a daily basis by multiplying
the following: (i) the Undrawn Commitment at the end of a day, by (ii)
the Commitment Fee Rate for such day, by (iii) 1/360, by (iv) a
fraction, the numerator of which is such Lender's Revolving Credit
Commitment at the end of such day and the denominator of which is the
Total Revolving Credit Commitment at the end of such day.
(b) Accrued commitment fee shall be payable quarterly in arrears from the
Effective
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Date and on the Final Maturity Date (or, if the Term-Out Option is
exercised, the Term-Out Date) and shall be calculated to and including
the last day of the immediately preceding month. Accrued commitment
fee shall also be payable to the Administrative Agent for the account
of the relevant Lender(s) on the canceled amount of any Commitment at
the time the cancellation comes into effect.
19.2 Arrangement Fee.
---------------
The Borrower shall pay to the Administrative Agent for the account of the
Arranger on the Effective Date an arrangement fee in Dollars in the amount
set forth in the Fee Letter.
19.3 Administrative Agent's Fee.
--------------------------
The Borrower shall pay to the Administrative Agent for its own account an
annual agency fee in Dollars in the amounts and at the times set forth in
the Fee Letter.
19.4 Amendment Fee.
-------------
The Borrower shall pay to the Administrative Agent on the Effective Date
for the account of each Lender an amendment fee in Dollars computed at the
rate of 0.15 percent on that Lender's Commitment as of the Effective Date.
19.5 Extension Fee.
-------------
If the Borrower requests and Lenders holding at least 80 percent of Total
Outstandings agree to extend the Final Maturity Date of the Facility in
accordance with Clause 2.5 (Extension of Final Maturity Dates), the
Borrower shall in respect of such extension pay to the Administrative Agent
for the account of each such Lender an extension fee in Dollars computed at
the rate of 0.10 percent of the amount of its Commitment as will be in
effect immediately following the then latest Final Maturity Date. Such
extension fee shall be payable within ten Business Days of the date of
notification by the Administrative Agent that the Final Maturity Date is
extended and no extension of the Final Maturity Date shall be effective
until such extension fee has been paid by the Borrower.
19.6 Conversion Fee.
--------------
If the Borrower exercises the Term-Out Option in accordance with Clause 2.6
(Term-Out Option), the Borrower shall pay to the Administrative Agent for
the account of the Lenders a conversion fee in Dollars computed at the rate
of (a) 0.20 percent of Total Outstandings on the Term-Out Date payable on
such day and (b) 0.10 percent of Total Outstandings on each anniversary of
the Term-Out Date payable on such day.
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20. EXPENSES
20.1 Facility Expenses.
-----------------
The Borrower shall reimburse the Administrative Agent and/or the Arranger,
as appropriate, on demand for the reasonable charges and expenses (together
with value added tax or any similar tax thereon and including, without
limitation, the reasonable fees and expenses of legal advisers) incurred by
the Administrative Agent or the Arranger, as the case may be, in connection
with:
(a) the Syndication;
(b) the negotiation, preparation, printing and execution of this Agreement
and any other documents referred to in this Facility Agreement;
(c) any other Finance Document; and
(d) all supplements, waivers and variations in relation to the Finance
Documents and any other documents referred to therein.
20.2 Enforcement Expenses.
--------------------
The Borrower shall reimburse the Administrative Agents on demand for the
charges and expenses (together with value added tax or any similar tax
thereon and including, without limitation, the fees and expenses of legal
advisers) properly incurred by them in connection with the enforcement of,
or the preservation of any rights under, any of the Finance Documents. In
addition, the Borrower will upon demand pay to the Lenders the amount of
their respective expenses, including the reasonable fees and expenses of
their counsel and of any experts and agents which expenses are incurred in
the exercise or enforcement of any of the rights of the Lenders hereunder
but only such expenses which are incurred after an Event of Default has
occurred and is continuing.
21. STAMP DUTIES
The Borrower shall pay, and on demand indemnify, each of the Agents against
any and all stamp, registration and similar Taxes which may be payable in
connection with the entry into or performance of any of the Finance
Documents (other than any Assignment and Acceptance or any other document
transferring an interest pursuant to Clause 24.3) or the enforcement of any
of the Finance Documents.
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22. AMENDMENTS, WAIVERS, REMEDIES CUMULATIVE
22.1 Amendments.
----------
(a) Subject to paragraphs (b) and (c) below, if authorized by the Majority
Lenders, the Administrative Agent shall, on behalf of the Lenders,
grant waivers or consents or (with the prior consent of the Borrower)
vary the terms of the provisions of any Finance Document, unless the
express provisions of the relevant Finance Document provide that the
same can only be granted or effected by another authority, provided
that the Administrative Agent may without the consent of the Lenders
modify Schedule 1 in connection with an assignment or transfer under
Clause 24.3.
(b) Nothing in paragraph (a) above shall authorize except with the prior
consent of the Super Majority Lenders:
(i) any variation of definition of "Event of Default" in Clause 16;
or
(ii) any variation of Clause 15.10(b) (Financial Condition) except
Clause 15.10(b)(iii)(A).
(c) Nothing in paragraph (a) or (b) above shall authorize except with the
prior consent of all the Lenders:
(i) subject to Clause 2.5 (Extension of the Final Maturity Dates),
the extension of any Commitment Period or Final Maturity Date or
Final Repayment Date; or
(ii) any variation of the definition of "Majority Lenders" in Clause
1.1 (Defined Terms); or
(iii) any change in any rate at which interest is payable under any of
the Finance Documents; or
(iv) any extension of the date for, or alteration in the amount or
currency of, any payment of principal, interest, fee, commission
or any other amount payable under any of the Finance Documents;
or
(v) any increase in any Lender's Commitment; or
(vi) any variation of Clause 27 (Pro Rata Sharing) or this Clause
22.1; or
(vii) any variation or amendment to any provision of the Finance
Documents
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requiring the unanimous consent of the Lenders which
would result in the removal of such requirement; or
(viii) the release of any Guarantor of its obligations under Clause
13 (Guarantee); or
(ix) any variation of definition of "Borrowing Base", "Debt",
"Market Net Worth", "Market Value", "Qualifying Collateral",
"Qualifying Issuer", "Qualifying Security", "Super Majority
Lenders", "Total Liabilities" or "Unsecured Liabilities" in
Clause 1.1 (Defined Terms); or
(x) any variation of Clause 15.10(b)(iii)(A).
22.2 Waivers.
-------
No failure to exercise and no delay in exercising, on the part of any
Contracting Party, any right, power or privilege under any Finance Document
shall operate as a waiver thereof, nor shall any single or partial exercise
of any right, power or privilege preclude any other or further exercise
thereof, or the exercise of any other right, power or privilege. No waiver
by any Contract Party shall be effective unless it is in writing and signed
by the waiving party.
22.3 Remedies Cumulative.
-------------------
The rights and remedies of each Contracting Party provided in the Finance
Documents are cumulative and not exclusive of any rights or remedies
provided by law.
23. NOTICES
23.1 Address.
-------
(a) Except as otherwise stated in this Agreement, all notices or other
communications under this Agreement to any Contracting Party shall be
made by letter or facsimile and shall be deemed to be duly given or
made when delivered (in the case of a letter) or when received (in the
case of facsimile) to or by the Contracting Party addressed to it at
its address, telex number or facsimile number:
(i) notified to the Administrative Agent prior to the Effective Date;
or
(ii) in the case of a Contracting Party which becomes a Contracting
Party after the Effective Date, notified to the Administrative
Agent before or at the time it becomes a Contracting Party;
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(iii) in the case of the Administrative Agent, at its address, telex
number or facsimile number set forth in paragraph (b) below; or
(iv) in the case of the Borrower, at its address, telex number or
facsimile number set forth in paragraph (c) below; or
(v) in the case of each Guarantor, at the Company's address, telex
number or facsimile number set forth in paragraph (d) below; or
(vi) as the Contracting Party may, after the Effective Date, specify
to the Administrative Agent for such purpose by not less than
five Business Days' notice; or
(vii) in the case of the Administrative Agent, as the Administrative
Agent may specify to the other Contracting Parties, for such
purpose by not less than five Business Days' notice.
(b) The Administrative Agent's address, telex number and facsimile number
for notices is:
Commerzbank Aktiengesellschaft
New York Branch
2 World Financial Center
New York, NY 10281-1050
USA
For the attention of the Real Estate Department
Telex No: 177338
Fax No.: 212 266-7565
(c) The Borrower's address, telex number and facsimile number for notices
as at the Effective Date is:
Security Capital U.S. Realty
69, Route D'Esch
L-1470 Luxembourg
Telex: 3636BIL
Fax: 352 4590 4243
(d) The Company's address, telex number and facsimile number for notices
is:
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Security Capital Holdings S.A.
69, Route D'Esch
L-1470 Luxembourg
Telex: 3636BIL
Fax: 352 4590 4243
For the attention of Managing Director
with a copy to
Security Capital (UK) Management Limited
7 Clifford Street
London SW1 X 2US
Fax: 0171 287 7636 or
0171 287 7637
23.2 Non-working Days.
----------------
A notice or other communication received on a non-working day or after
business hours in the place of receipt shall be deemed to be served on the
next following working day in that place.
24. ALTERATIONS TO THE CONTRACTING PARTIES
24.1 Successors.
----------
This Agreement shall be binding upon and inure to the benefit of each of
the Contracting Parties and their respective successors and permitted
assigns.
24.2 Assignments and Transfers by the Borrower or any Guarantor.
----------------------------------------------------------
Neither the Borrower nor any Guarantor may assign or otherwise transfer all
or any part of its rights or obligations under the Finance Documents
without the prior consent of all the Lenders, except to the extent
permitted under Clause 15.12.
24.3 Assignments and Transfers by Lenders.
------------------------------------
(a) Subject to paragraphs (b) through (f) below, any Lender (the
"Assignor") may at any time assign or otherwise transfer all or any
part of its rights or obligations under this Agreement and any Note
(subject in the case of an assignment or transfer of part only of its
rights or obligations, to a minimum amount of $10,000,000 being
assigned or transferred and to the Assignor retaining a
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minimum Commitment of $10,000,000) to another bank or financial
institution (the "Assignee") with, subject as provided below, the
prior consent of the Administrative Agent and the Borrower (in each
case not to be unreasonably withheld). The minimum Commitment of
$10,000,000 applicable to partial assignments or transfers shall be
reduced proportionately in accordance with the cancellation or
reduction of the Total Revolving Credit Commitments.
(b) A transfer of obligations shall not be effective until (i) written
notice of such assignment, together with payment instructions,
addresses and related information with respect to the Assignee, shall
have been given to the Borrower and the Administrative Agent by the
Assignor and the Assignee and (ii) the Assignor and the Assignee shall
have delivered to the Borrower and the Administrative Agent an
Assignment and Acceptance in the form of Schedule 5 ("Assignment and
Acceptance").
(c) From and after the date that the Administrative Agent notifies the
Assignor that it has received (and provided its consent with respect
to) an executed Assignment and Acceptance, the consent of the Borrower
thereto and payment of the fee provided in paragraph (g) below, (i)
the Assignee thereunder shall be a party hereto and, to the extent
that rights and obligations hereunder have been assigned to it
pursuant to such Assignment and Acceptance, shall have the rights and
obligations of a Lender under this Agreement, (ii) the Assignor shall,
to the extent that rights and obligations hereunder have been assigned
by it pursuant to such Assignment and Acceptance, relinquish its
rights and be released from its obligations under this Agreement and
(iii) the Assignor, the Administrative Agent and the Borrower shall
make appropriate arrangements so that new Notes are issued to the
Assignee and the Assignor, as appropriate. Immediately upon each
Assignee's making its fee payment under the Assignment and Acceptance,
this Agreement shall be deemed to be amended to the extent, but only
to the extent, necessary to reflect the addition of the Assignee and
the resulting adjustment of the Commitments arising therefrom.
(d) Nothing in this Agreement shall restrict the ability of any Lender to
(i) assign or otherwise transfer its rights and obligations to any
Affiliate of such Lender or (ii) assign or otherwise transfer its
rights or obligations if an Event of Default has occurred and is
continuing.
(e) Any Lender may at any time sell to one or more commercial banks or
other Persons not Affiliates of the Borrower (a "Participant")
participating interests in any Advances made by such Lender, the
Revolving Credit Commitment of such Lender and the other interests of
such Lender (the "Originator") hereunder and
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under any Note (including its rights, obligations or rights and
obligations); provided, however, that (i) the Originator's obligations
under this Agreement shall remain unchanged, (ii) the Originator shall
remain solely responsible for the performance of such obligations,
(iii) the Borrower and the Administrative Agent shall continue to deal
solely and directly with the Originator in connection with the
Originator's rights and obligations under this Agreement, and (iv) no
Lender shall transfer or grant any participating interest under which
the Participant has rights to approve any amendment to, or any consent
or waiver with respect to, this Agreement (except to the extent such
amendment, consent or waiver relates to any fees payable hereunder or
the amount of principal of or the rate at which interest is payable on
the Advances, or the dates fixed for payments of principal of or
interest on the Advances). In the case of any such participation, the
Participant shall be entitled to the benefit of Clauses 9, 11, 12 and
26 as though it were also a Lender hereunder, and if amounts
outstanding under this Agreement or any Note are due and unpaid, or
shall have been declared or shall have become due and payable upon the
occurrence of an Event of Default, each Participant shall be deemed to
have the right of set-off in respect of its participating interest in
amounts owing under this Agreement or such Note to the same extent as
if the amount of its participating interest were owing directly to it
as a Lender under this Agreement or such Note.
(f) Notwithstanding any other provision in this Agreement, any Lender may
at any time create a Security Interest in, or pledge, all or any
portion of its rights under and interest in this Agreement and any
Note in favor of any Federal Reserve Bank in accordance with
Regulation A of the Federal Reserve Board or U.S. Treasury Regulation
31 CFR (S)203.14, and such Federal Reserve Bank may enforce such
pledge or security interest in any manner permitted under applicable
law, provided that payment made by the Borrower or any Guarantor to or
for the account of any Lender in respect of an Advance made by such
Lender shall satisfy the Borrower's or the Guarantor's, as the case
may be, payment obligation in respect of such Advance to the extent of
such payment regardless of any encumbrance created pursuant to this
Clause 24.3(f).
(g) On each occasion an Assignor assigns or transfers its Commitment
rights and/or obligations under this Agreement or any Note, the
Assignee shall on the date of the assignment and/or transfer, pay to
the Administrative Agent for its own account a fee of $2,500.
(h) The Administrative Agent shall promptly (i) notify the other
Contracting Parties of the receipt and execution on their behalf by it
of any Assignment and Acceptance or any notice under paragraph (b)
above and (ii) modify Schedule 1
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to reflect the relevant assignment or transfer and distribute the
revised Schedule 1 to the other Contracting Parties.
24.4 Reference Lenders.
-----------------
If a Reference Lender (or, if a Reference Lender is not a Lender, the
Lender of which it is an Affiliate) ceases to be one of the Lenders, the
Administrative Agent will, in consultation with the Company and the
Borrower appoint another Lender or an Affiliate of a Lender as a Reference
Lender.
24.5 Disclosure.
----------
Each Lender may disclose to an Affiliate or a proposed assignee or
transferee or a New Lender or any sub-participant, risk participant or
other participant proposing to enter or having entered into a contract with
the Lender regarding any Finance Document any information in the possession
of the Lender received under this Agreement relating to the Borrower, any
Guarantor or any of its related entities as it sees fit provided always
that information which is confidential may only be disclosed to an
Affiliate or a person with whom such Lender is proposing to enter, or has
entered into, a transfer, participation or other agreement in relation to
this Agreement if the person has provided a written undertaking to keep the
information confidential and only to use it for the purposes of this
Agreement.
24.6 Change of Facility Office.
-------------------------
Each Lender shall participate in this Agreement through its Facility
Office(s), but may change any Facility Office from time to time by five
Business Days' prior notice to the Administrative Agent.
24.7 Increased Costs Withholding Taxes.
---------------------------------
If:
(a) any assignment or transfer of all or any part of the rights or
obligations of a Lender pursuant to Clause 24.3 (Assignment and
Transfers by Lenders); or
(b) any change in a Lender's Facility Office,
results at the time of any assignment, transfer or change in amounts
becoming due under Clause 10.3(b) (Taxes) or 11.1 (Increased Costs), then
the assignee, transferee, New Lender or Lender, as the case may be, shall
be entitled to receive those amounts only to the extent that the assignor,
transferor, Existing Lender or Lender, as the case may be,
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would have been so entitled had there been no assignment, transfer,
substitution or change in Facility Office.
25. SET-OFF
Each Financial Institution may (but shall not be obliged to) at any time
after a Default has occurred and is continuing set-off against any
obligation of the Borrower or any Guarantor due and payable but not paid
under any Finance Document any moneys held by the Lender for the account of
the Borrower or such Guarantor as the case may be at any office of the
Financial Institution anywhere and in any currency. The Financial
Institution may effect any appropriate currency exchanges to implement such
set-off and shall thereafter notify the Borrower.
26. INDEMNITIES
(a) The Borrower and each Guarantor shall indemnify each Financial
Institution against any loss or expense which that Financial
Institution may reasonably sustain or incur as a consequence of:
(i) the occurrence of any Default; or
(ii) the operation of Clause 16.2 (Non-Payment); or
(iii) any repayment or prepayment of a LIBOR Advance or payment of
an overdue amount being made otherwise than on a Maturity
Date relative thereto and, for the purpose of this Clause 26
(a)(iii), a Maturity Date relative to an overdue amount shall
be the last day of any Designated Term (as defined in Clause
7.3(a)(ii)(Default Interest)); or
(iv) (other than by reason of gross negligence or default by any
Lender or any Agent) any Advance not being made after a
Request has been served in respect thereof; or
(v) any prepayment not being made following notice thereof by the
Borrower; or
(vi) any liability of any Lender or the Administrative Agent in
respect of Taxes resulting from any amounts paid or payable
by the Borrower or any Guarantor under the Finance Documents.
(b) The Borrower's and each Guarantor's liability under paragraph (a)
above shall include, without limitation, any loss (but not loss of
margin) or expense on
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account of funds borrowed, contracted for or utilized to fund any
amount payable under any Finance Document, any amount repaid or
prepaid or any Advance.
27. PRO RATA SHARING
27.1 Redistribution.
--------------
(a) Subject to Clause 27.2 (Notification), if at any time the proportion
which any Lender (the "receiving Lender") has received or recovered
(whether by set-off or otherwise) in respect of its portion of any sum
due and owing from the Borrower or any Guarantor under any Finance
Document is greater (the amount of excess being referred to in this
Clause 27.1 as the "excess amount") than the proportion received or
recovered by the Lender receiving or recovering the smallest
proportion (which shall include a zero receipt), then:
(i) the receiving Lender shall promptly notify the Administrative
Agent;
(ii) the receiving Lender shall promptly and in any event within ten
days of receipt or recovery of the excess amount pay to the
Administrative Agent an amount equal to the excess amount;
(iii) the Administrative Agent shall treat the payment as if it were a
payment by the Borrower or relevant Guarantor (as the case may
be) on account of a sum owed to the Lenders and shall pay the
same to the Lenders (including the receiving Lender) pro rata to
their respective entitlements; and
(iv) as between the Borrower or the relevant Guarantor (as the case
may be) and the receiving Lender the excess amount shall be
treated as not having been paid, while as between the Borrower
or the relevant Guarantor (as the case may be) and each Lender
(including the receiving Lender), it shall be treated as having
been paid to the extent receivable by the Lender.
(b) If a receiving Lender is subsequently required to repay to the
Borrower or any Guarantor any amount received or recovered by it and
dealt with under paragraph (a) above, each Lender shall promptly repay
to the Administrative Agent for the account of the receiving Lender
the portion of the amount distributed to it, together with interest
thereon at a rate sufficient to reimburse the receiving Lender for any
interest which it has been required to pay to the Borrower or such
Guarantor in respect of the portion of such amount.
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27.2 Notification.
------------
(a) Each Lender shall promptly give notice to the Administrative Agent of
the receipt or recovery by the Lender of any amount received or
recovered by it in respect of this Agreement otherwise than through
the Administrative Agent.
(b) Each Lender shall give notice to the Administrative Agent before
instituting any legal action or proceedings under or in connection
with this Agreement.
(c) Upon receipt of any notice under paragraph (a) or (b) above, the
Administrative Agent will as soon as practicable notify all the other
Lenders.
28. ADDITIONAL GUARANTORS
28.1 Additional Guarantors.
---------------------
(a) In the event that the Borrower, any Guarantor or any of their
respective Wholly-Owned Consolidated Subsidiaries at any time after
the date hereof owns, forms, acquires or otherwise establishes any
Wholly-Owned Consolidated Subsidiary, the Borrower shall notify the
Administrative Agent (which shall in turn notify the other Financial
Institutions).
(b) The Borrower shall, within 30 days thereof, procure that such Wholly-
Owned Consolidated Subsidiary shall become, as soon as possible after
being required by the Administrative Agent to become, an Additional
Guarantor by entering into a Guarantor Joinder Agreement (in the
agreed form relevant to that jurisdiction).
(c) Upon receipt by the Administrative Agent of the Guarantor Joinder
Agreement signed on behalf of the Borrower for itself and the existing
Guarantors and by the proposed Additional Guarantor, the
Administrative Agent shall execute the same for itself and on behalf
of the Parties and shall as promptly as practicable give notice of
such execution to all of the parties to the Guarantor Joinder
Agreement.
(d) On each date that a Guarantor Joinder Agreement is entered into the
Borrower shall procure that certified copies of each of the Additional
Conditions Precedent are delivered in respect of the Additional
Guarantor and the Guarantor Joinder Agreement in form and substance
reasonably satisfactory to the Administrative Agent.
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28.2 Additional Conditions Precedent.
-------------------------------
(a) Each of the Additional Conditions Precedent to be delivered pursuant
to Clause 28.1(d) (Additional Guarantors) above shall be certified by
a Managing Director, Senior Vice President or Vice President of the
Additional Guarantor as being correct, complete and in full force and
effect as at a date no earlier than the date on which the relevant
Guarantor Joinder Agreement was executed.
(b) The Administrative Agent shall promptly notify the Borrower and the
Lenders whether or not the Additional Conditions Precedent relating to
any Additional Guarantor have been met or waived.
29. GOVERNING LAW
This Agreement and the other Finance Documents shall be construed in
accordance with, and governed by, the internal laws of the State of New
York.
30. JURISDICTION
(a) Each of the Contracting Parties irrevocably agrees for the benefit of
each of the other Contracting Parties that the State Courts or the
Federal District Courts sitting in New York City shall have
jurisdiction to hear and determine any suit, action or proceeding, and
to settle any disputes, which may arise out of or in connection with
the Finance Documents, and for such purposes irrevocably submits to
the Jurisdiction of such Courts.
(b) Each of the Contracting Parties irrevocably waives any objection which
it may have now or hereafter to such Courts as are referred to in
paragraph (a) above being nominated as the forum to hear and determine
any suit, action or proceeding, and to settle any disputes, which may
arise out of or in connection with the Finance Documents and any claim
that any such Court is not a convenient or appropriate forum.
(c) The Borrower and each Guarantor agrees that the process by which any
suit, action or proceeding in New York is begun may be served on it by
being delivered to CT Corporation System, 1633 Broadway, New York, New
York, 10019.
(d) The submission to the said jurisdiction shall not (and shall not be
construed so as to) limit the right of any of the Contracting Parties
to take proceedings against any other Contracting Party in any other
court of competent jurisdiction, nor shall the taking of proceedings
in any one or more jurisdictions preclude the taking of
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<PAGE>
proceedings in any other jurisdiction, whether concurrently or not.
(e) The Borrower and each Guarantor further irrevocably consents to the
service of process out of the aforesaid Courts in any such action or
proceedings by the mailing of copies thereof by registered or
certified airmail, postage prepaid to the
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<PAGE>
Borrower and/or the relevant Guarantor at its address applying for the time
being under Clause 23.1 (Notices).
(f) Nothing herein shall affect the right to serve process in any other
manner permitted by law.
-----
SECURITY CAPITAL U.S. REALTY SECURITY CAPITAL HOLDINGS S.A.
31. WAIVER OF JURY TRIAL
THE BORROWER AND EACH GUARANTOR HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
OTHER FINANCE DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY.
32. SEVERABILITY
If any provision of this Agreement is prohibited or unenforceable in any
jurisdiction, the prohibition or unenforceability, shall not invalidate the
remaining provisions of this Agreement or affect the validity or
enforceability of the provision in any other jurisdiction.
33. COUNTERPARTS
This Agreement may be executed in any number of counterparts and all of the
counterparts taken together shall be deemed to constitute one and the same
instrument.
<PAGE>
IN WITNESS whereof the parties hereto have caused this Agreement to be duly
executed on the date first written above.
SECURITY CAPITAL U.S. REALTY,
as Borrower
By: /s/ Ariel Amir
----------------------------------
Name: Ariel Amir
Title: Vice President
SECURITY CAPITAL HOLDINGS S.A.,
as Guarantor
By: /s/ Gerald R. Morgan, Jr.
----------------------------------
Name: Gerald R. Morgan, Jr.
Title: Senior Vice President
COMMERZBANK AKTIENGESELLSCHAFT,
New York Branch,
as Arranger and as
Administrative Agent
By: /s/ Marianne I. Medora
----------------------------------
Name: Marianne I. Medora
Title: Vice President
By: /s/ Claudia Rost
----------------------------------
Name: Claudia Rost
Title: Assistant Vice President
<PAGE>
NATIONSBANK OF TEXAS, N.A.,
as Syndication Agent and as a Lender
By: /s/ Patrick Townbridge
--------------------------------
Name: Patrick Townbridge
Title: Vice President
<PAGE>
COMMERZBANK AKTIENGESELLSCHAFT,
Los Angeles Branch,
as a Lender
By: /s/ David M. Schwarz
------------------------------
Name: David M. Schwarz
Title: Vice President
By: /s/ Marianne I. Medora
------------------------------
Name: Marianne I. Medora
Title: Vice President
<PAGE>
BANQUE INTERNATIONALE A LUXEMBOURG,
as a Lender
By: /s/ Simon Hauxwell
------------------------------------
Name: Simon Hauxwell
Title: Attache de Direction
By: /s/ Benoit Debroise
------------------------------------
Name: Benoit Debroise
Title: Fonde de Pouvoir Principal
<PAGE>
BANKBOSTON, N.A.,
as a Lender
By: /s/ Michael Brand
---------------------------------
Name: Michael Brand
Title: Vice President
<PAGE>
CHASE BANK TEXAS, N.A.,
as a Lender
By: /s/ Kent A. Kaiser
----------------------------------
Name: Kent A. Kaiser
Title: Senior Vice President
<PAGE>
WELLS FARGO BANK,
NATIONAL ASSOCIATION,
as a Lender
By: /s/ Robert W. Belson
-------------------------------
Name: Robert W. Belson
Title: Senior Vice President
<PAGE>
TRANSAMERICA LIFE INSURANCE
AND ANNUITY COMPANY,
as a Lender
By: /s/ John M. Casparian
----------------------------
Name: John M. Casparian
Title: Investment Officer
<PAGE>
BANK OF MONTREAL,
as a Lender
By: /s/ Leon H. Sinclair
----------------------------------
Name: Leon H. Sinclair
Title: Director
<PAGE>
[EXECUTION COPY]
AMENDED AND RESTATED
FACILITY AGREEMENT
DATED AS OF DECEMBER 8, 1998
$ 400,000,000
REVOLVING CREDIT AND SWINGLINE FACILITY
for
SECURITY CAPITAL U.S. REALTY
and
COMMERZBANK AKTIENGESELLSCHAFT
as Arranger
and
COMMERZBANK AKTIENGESELLSCHAFT
as Administrative Agent
and
NATIONSBANK OF TEXAS, N.A.
as Syndication Agent
<PAGE>
TABLE OF CONTENTS
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1. DEFINED TERMS; INTERPRETATION.................................................................................... 1
1.1 Defined Terms........................................................................................... 1
1.2 Construction............................................................................................ 20
2. FACILITIES....................................................................................................... 23
2.1 Facilities.............................................................................................. 23
2.2 Facility Limits......................................................................................... 23
2.3 A Lender's Individual Limit............................................................................. 23
2.4 Nature of the Lenders', Borrower's and Guarantors' Rights And Obligations Under This
Agreement............................................................................................... 25
2.5 Extension of Final Maturity Dates....................................................................... 26
2.6 Term-Out Option......................................................................................... 28
2.7 Notes................................................................................................... 29
3. PURPOSE OF THE FACILITY.......................................................................................... 29
4. CONDITIONS PRECEDENT............................................................................................. 29
4.1 Conditions Precedent to each Request and each Advance................................................... 29
4.2 Confirmation of Collateral.............................................................................. 30
5. UTILIZATION OF THE FACILITY...................................................................................... 31
5.1 Utilization of Revolving Credit Facility................................................................ 31
5.2 Utilization of Swingline Facility....................................................................... 32
6. REDUCTION AND CANCELLATION OF THE TOTAL COMMITMENTS.............................................................. 33
6.1 Automatic Reduction of each Lender's Commitment......................................................... 33
6.2 Voluntary Cancellation.................................................................................. 33
6.3 Irrevocable............................................................................................. 33
7. INTEREST......................................................................................................... 34
7.1 Rate.................................................................................................... 34
7.2 Due Dates............................................................................................... 34
7.3 Default Interest........................................................................................ 35
7.4 Calculation of Interest................................................................................. 36
7.5 Interest Periods for Term Advances...................................................................... 36
7.6 Notification............................................................................................ 37
8. REPAYMENT AND PREPAYMENT OF ADVANCES............................................................................. 37
8.1 Repayment of Advances................................................................................... 37
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8.2 Prepayment of Advances......................................................................... 38
8.3 Mandatory Prepayment/Borrowing Base Shortfall.................................................. 38
9. MARKET DISRUPTION....................................................................................... 38
10. PAYMENTS................................................................................................ 40
10.1 Funds and place................................................................................ 40
10.2 Recovery of Payments........................................................................... 41
10.3 Taxes 41
10.4 Non-Business Days.............................................................................. 43
10.5 Certifications................................................................................. 43
10.6 Appropriations................................................................................. 43
10.7 Mitigation..................................................................................... 43
11. INCREASED COSTS......................................................................................... 44
11.1 Increased Costs................................................................................ 44
11.2 Exceptions..................................................................................... 45
12. ILLEGALITY............................................................................................. 46
13. GUARANTEE............................................................................................... 46
13.1 Guarantee...................................................................................... 46
13.2 Continuing Guarantee........................................................................... 47
13.3 Reinstatement.................................................................................. 47
13.4 Waiver of Defenses............................................................................. 47
13.5 Immediate Recourse............................................................................. 48
13.6 Preservation of Rights......................................................................... 48
13.7 Non-competition................................................................................ 48
13.8 Other Documents................................................................................ 49
13.9 Certificate.................................................................................... 49
14. REPRESENTATIONS AND WARRANTIES.......................................................................... 49
14.1 Representations and Warranties................................................................. 49
14.2 Repetition..................................................................................... 53
15. COVENANTS............................................................................................... 53
15.1 Financial Information, etc..................................................................... 53
15.2 Maintenance of Corporate Existence............................................................. 55
15.3 Payment of Taxes, etc.......................................................................... 55
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15.4 Insurance..................................................................................... 55
15.5 Notice of Default or Litigation............................................................... 55
15.6 Conduct of Business........................................................................... 56
15.7 Books and Records............................................................................. 56
15.8 Value of Assets............................................................................... 56
15.9 Security Interests............................................................................ 56
15.10 Financial Condition........................................................................... 57
15.11 Dividends, Stock Purchases.................................................................... 58
15.12 Consolidation, Merger, etc.................................................................... 59
15.13 Plans......................................................................................... 60
15.14 Inconsistent Agreements....................................................................... 60
15.15 ERISA and Compliance with Requirements of Law................................................. 60
15.16 Amendment of Advance Agreement................................................................ 60
15.17 Sales of Qualifying Securities of Principal Companies......................................... 60
16. DEFAULT................................................................................................ 61
16.1 Events of Default............................................................................. 61
16.2 Non-Payment................................................................................... 61
16.3 Breach of Other Obligations................................................................... 61
16.4 Misrepresentation............................................................................. 62
16.5 Cross-default................................................................................. 62
16.6 Insolvency.................................................................................... 62
16.7 Insolvency Proceedings........................................................................ 63
16.8 Appointment of Receivers and Managers......................................................... 64
16.9 Legal Process................................................................................. 65
16.10 Unlawfulness.................................................................................. 65
16.11 Guarantee..................................................................................... 65
16.12 Change of Control............................................................................. 65
16.13 Pari Passu.................................................................................... 66
16.14 Investment Adviser............................................................................ 66
16.15 Acceleration.................................................................................. 66
17. ACCOUNTS AS EVIDENCE................................................................................... 66
18. THE ADMINISTRATIVE AGENT, THE ARRANGER AND THE SYNDICATION AGENT....................................... 67
18.1 Appointment and Duties of the Administrative Agent............................................ 67
18.2 Role of the Arranger and the Syndication Agent................................................ 67
18.3 Relationship.................................................................................. 67
18.4 Majority Lenders' Directions.................................................................. 68
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18.5 Delegation.................................................................................... 68
18.6 Responsibility for Documentation.............................................................. 68
18.7 Default....................................................................................... 68
18.8 Exoneration................................................................................... 69
18.9 Reliance...................................................................................... 69
18.10 Credit Approval and Appraisal................................................................. 69
18.11 Information................................................................................... 70
18.12 The Administrative Agent and the Arranger Individually........................................ 71
18.13 Indemnities................................................................................... 71
18.14 Compliance.................................................................................... 71
18.15 Resignation of Agent.......................................................................... 72
18.16 Lenders....................................................................................... 73
19. FEES................................................................................................... 73
19.1 Commitment Fee................................................................................ 73
19.2 Arrangement Fee............................................................................... 74
19.3 Administrative Agent's Fee.................................................................... 74
19.4 Amendment Fee................................................................................. 74
19.5 Extension Fee................................................................................. 74
19.6 Conversion Fee................................................................................ 74
20. EXPENSES............................................................................................... 75
20.1 Facility Expenses............................................................................. 75
20.2 Enforcement Expenses.......................................................................... 75
21. STAMP DUTIES........................................................................................... 75
22. AMENDMENTS, WAIVERS, REMEDIES CUMULATIVE............................................................... 75
22.1 Amendments.................................................................................... 75
22.2 Waivers....................................................................................... 77
22.3 Remedies Cumulative........................................................................... 77
23. NOTICES................................................................................................ 77
23.1 Address....................................................................................... 77
23.2 Non-working Days.............................................................................. 79
24. ALTERATIONS TO THE CONTRACTING PARTIES................................................................. 79
24.1 Successors.................................................................................... 79
24.2 Assignments and Transfers by the Borrower or any Guarantor.................................... 79
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24.3 Assignments and Transfers by Lenders.......................................................... 79
24.4 Reference Lenders............................................................................. 81
24.5 Disclosure.................................................................................... 81
24.6 Change of Facility Office..................................................................... 81
24.7 Increased Costs Withholding Taxes............................................................. 82
25. SET-OFF................................................................................................ 82
26. INDEMNITIES............................................................................................ 82
27. PRO RATA SHARING....................................................................................... 83
27.1 Redistribution................................................................................ 83
27.2 Notification.................................................................................. 84
28. ADDITIONAL GUARANTORS.................................................................................. 84
28.1 Additional Guarantors......................................................................... 84
28.2 Additional Conditions Precedent............................................................... 84
29. GOVERNING LAW.......................................................................................... 85
30. JURISDICTION........................................................................................... 85
31. WAIVER OF JURY TRIAL................................................................................... 86
32. SEVERABILITY........................................................................................... 86
33. COUNTERPARTS........................................................................................... 86
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