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As filed with the Securities and Exchange Commission on April 5, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM F-1
REGISTRATION STATEMENT UNDER SECURITIES ACT OF 1933
SECURITY CAPITAL U.S. REALTY
(See Attached List of Additional Registrants)
(Exact name of each registrant as specified in its charter)
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Grand Duchy of Luxembourg 6719 N/A
(State or other jurisdiction of incorporation (Primary Standard Industrial Classification (I.R.S. Employer Identification
or organisation of each registrant) Code Number of each registrant) No. of each registrant)
25b, boulevard Royal Mark P. Duke
L-2449 Luxembourg 25b, boulevard Royal
011-352-463-7561 L-2449 Luxembourg
(Address, including zip code, and 011-352-463-7561
telephone number, including area code, of (Name, address, including zip code, and telephone number,
each registrant's principal executive offices) including area code, of each registrant's agent for service)
Copies to:
Edward J. Schneidman
Michael L. Hermsen
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
(312) 782-0600
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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Title of each class of Amount to be Amount of
securities to be registered registered (1) registration fee(2)
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Guaranties....................................... $450,000,000 $ 0(3)
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2% Senior Unsecured Convertible Notes due 2003... $450,000,000 (4)
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Shares, par value $4.00 per share................ 11,875,928(5) (4)
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(1) Estimated solely for the purpose of determining the registration fee.
(2) Pursuant to Rule 429 under the Securities Act, the Prospectus filed as part
of this Registration Statement relates to the securities registered hereby
and the securities registered under its Registration Statement on Form F-1
(File No. 333-81919). Such registration statement is amended to reflect the
information contained herein.
(3) Pursuant to Rule 457(n), no additional fee is being paid in connection with
the guaranties.
(4) These securities were registered pursuant to Registration Statement No.
333-81919 and the registration fee of $125,100 with respect to such
securities was paid in connection with that registration statement.
(5) Represents the Shares into which the Convertible Notes may be converted for
which no additional filing fee is being paid.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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LIST OF ADDITIONAL REGISTRANTS
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Jurisdiction of IRS Employee
Name Organization Identification No. SIC Code
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Security Capital Holdings S.A. Luxembourg N/A 6719
Security Capital Storage Portfolio SARL Luxembourg N/A 6719
Security Capital Office Portfolio SARL Luxembourg N/A 6719
Alston Holdings SARL Luxembourg N/A 6719
Barcelona Holdings SARL Luxembourg N/A 6719
Coventry Holdings SARL Luxembourg N/A 6719
Dublin Holdings SARL Luxembourg N/A 6719
Edinburgh Holdings SARL Luxembourg N/A 6719
Frankfurt Holdings SARL Luxembourg N/A 6719
Geneva Holdings SARL Luxembourg N/A 6719
Helsinki Holdings SARL Luxembourg N/A 6719
Istanbul Holdings SARL Luxembourg N/A 6719
Johnstone Holdings SARL Luxembourg N/A 6719
Kirkwall Holdings SARL Luxembourg N/A 6719
Lisbon Holdings SARL Luxembourg N/A 6719
Madrid Holdings SARL Luxembourg N/A 6719
Sheffield Holdings SARL Luxembourg N/A 6719
Arden Square Holdings SARL Luxembourg N/A 6719
Blossom Valley Holdings SARL Luxembourg N/A 6719
Cooper Street Plaza Holdings SARL Luxembourg N/A 6719
Dallas Holdings SARL Luxembourg N/A 6719
El Camino Holdings SARL Luxembourg N/A 6719
Friars Mission Holdings SARL Luxembourg N/A 6719
Redondo Village Holdings SARL Luxembourg N/A 6719
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SUBJECT TO COMPLETION, DATED APRIL 5, 2000
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SECURITY CAPITAL U.S. REALTY
(Incorporated in Luxembourg as a Societe d'Investissement a Capital Fixe)
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2% Senior Unsecured Convertible Notes due 2003
Shares
The holders identified in this prospectus of certain securities of Security
Capital U.S. Realty may offer and sell the 2% Senior Unsecured Convertible
Notes due 2003 of Security Capital U.S. Realty owned by them, or the shares into
which they may be converted. You may exchange your shares for American
Depositary Shares at your option. The 2% Senior Unsecured Convertible Notes due
2003 were issued by the Company in May of 1998 in a private, unregistered
transaction. Each direct and indirect wholly owned subsidiary of SC-U.S. Realty
has fully and unconditionally guaranteed payment of the 2% Senior Unsecured
Convertible Notes due 2003.
Any selling holder may offer these securities through public or private
transactions, on or off the New York Stock Exchange or the AEX Stock Exchange,
at prevailing market prices, at privately negotiated prices in brokerage
transactions, in block transactions, pursuant to Rule 144 or otherwise.
The American Depositary Shares are listed on the New York Stock Exchange
under the symbol "RTY". On April 2000, the closing price of an American
Depositary Share was $ . Our shares are listed on the AEX Stock Exchange
in Amsterdam under ISIN-Code: LU0060100673. On __ April 2000, the closing price
of a share was $ . The Convertible Notes are not listed for trading on either
exchange.
You should carefully review "Risk Factors" beginning on page 6 of this
prospectus for a discussion of risks relating to the ownership of our
securities.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offence.
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The date of this Prospectus is _________ __, 2000.
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PRESENTATION OF CERTAIN INFORMATION
In this prospectus, references to "U.S. Dollars" or "$" are to United
States dollars and references to "Luxembourg francs" or "LUF" are to Luxembourg
francs, the legal currency of Luxembourg. Figures in this prospectus may not sum
due to rounding. Certain statements made in this prospectus are based upon the
law and practice currently in force in Luxembourg and there can be no assurance
that such law and practice will not change.
We completed a one-for-two reverse stock split effective on 18 June 1999.
We have restated all of our share volumes and per share amounts to take into
account this reverse stock split. Please read "Description of Shares--Recent
Events Concerning the Shares" for more information on the reverse stock split.
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ENFORCEABILITY OF CIVIL LIABILITIES
Security Capital U. S. Realty is incorporated under the laws of Luxembourg.
Certain of our directors and officers are non-residents of the United States and
substantially all of the assets of such persons may be located outside the
United States. As a result, it may not be possible for U.S. investors to effect
service of process upon such directors or officers within the United States, or
to enforce against them judgments of U.S. courts predicated upon the civil
liability provisions of the federal or state securities laws of the United
States. Although we have irrevocably designated CT Corporation System, New
York, New York, as our authorised agent for service for process with respect to
any legal suit, action or proceeding arising out of or based upon the indenture
under which the Convertible Notes were issued in any U.S. federal or state court
in the Borough of Manhattan, the City of New York, and have irrevocably
submitted to the non-exclusive jurisdiction of those courts in these matters, it
is unlikely that an action brought solely for violations of the federal or state
securities laws would be considered to be an action arising out of the indenture
relating to the Convertible Notes. Our Luxembourg counsel, Arendt & Medernach,
has advised us that as regards the enforcement in Luxembourg of a judgment
rendered by a foreign court, such as a U.S. court in civil matters, such
enforcement would make it necessary to commence recognition and enforcement
proceedings before the Luxembourg courts and the foreign judgment would be
evidence of liability, subject to satisfaction of the criteria set out in
Articles 546 et seq. of the Luxembourg Code of Civil Procedure and in
particular:
(1) the foreign court must properly have had jurisdiction to hear and
determine the matter;
(2) the decision of the foreign court must be final and enforceable in the
country in which it was rendered;
(3) the foreign court must have applied the proper law to the matter
submitted to it;
(4) the decision of the foreign court must not have been obtained by
fraud, but in compliance with the rights of the defendant; and
(5) the decision of the foreign court must not be contrary to Luxembourg
public policy or have been given in proceedings of a penal nature.
Criminal penalties imposed by the federal or state securities laws of the
United States would not be enforceable in Luxembourg and it is unclear if the
extradition treaty now in effect between the United States and Luxembourg would
subject these directors and officers to effective enforcement of the criminal
penalties of the federal and state securities laws of the United States. In
addition, we have been advised by our Luxembourg counsel that there is doubt as
to the enforceability in Luxembourg, in original actions, of civil liabilities
predicated solely upon the U.S. federal securities laws.
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FORWARD-LOOKING STATEMENTS
The statements contained in this prospectus that are not historical facts
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. These forward-looking statements relate to our future
performance, plans and objectives and our investment positions. Such forward-
looking statements involve known and unknown risks, uncertainties and other
factors, including the risks, uncertainties and other factors discussed in "Risk
Factors", which may cause our actual results, performance or achievements, our
investment positions, or the U.S. real estate industry's results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. You should be aware
that actual outcomes and results may differ materially from what is expressed or
forecasted in such forward-looking statements.
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TABLE OF CONTENTS
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SUMMARY.............................................................. 5
Strategy............................................................. 5
Strategic Investment Positions and Other Investments................. 5
Description of Securities............................................ 5
RISK FACTORS......................................................... 6
We rely on the dividends we receive from the companies
in which we invest................................................... 6
The Convertible Notes are unsecured obligations...................... 6
We have debt outstanding and will continue to have
debt outstanding..................................................... 6
We may experience additional risks in connection with
our borrowing of funds............................................... 6
We may be subject to conflicts of interest in
connection with operating our business............................... 7
We rely heavily on the advice of our Operating Advisor............... 7
Security Capital Group has a substantial influence over
our management and investment decisions.............................. 8
We depend significantly on the efforts and abilities of
our directors and officers........................................... 8
We have had a limited operating history.............................. 8
Through our investments we are affected by the following
real estate investment risks......................................... 8
Many of our businesses are in highly competitive segments............ 10
There is currently no public market for the Convertible
Notes nor any one form............................................... 10
Future changes in the tax laws may adversely affect our
returns.............................................................. 10
There is a limit on the amount of shares you may
beneficially own..................................................... 10
Strategic changes by our investees may not be
successfully implemented............................................. 11
We would be materially adversely affected if we were
required to register as an investment company in the
United States........................................................ 11
THE COMPANY.......................................................... 12
OPERATING ADVISOR.................................................... 12
RELATIONSHIP WITH SECURITY CAPITAL GROUP............................. 13
USE OF PROCEEDS...................................................... 14
SELECTED FINANCIAL DATA.............................................. 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................................. 16
Introduction......................................................... 16
Operating Results.................................................... 17
Liquidity and Capital Resources...................................... 24
Capital Deployment Activities........................................ 25
Recent Developments.................................................. 26
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.......................................................... 26
Sensitivity Analysis................................................. 27
BUSINESS............................................................. 29
Overview and Company Objective....................................... 29
Our Research-Based Capital Deployment Strategy....................... 29
Our Investment Criteria.............................................. 29
Our Operating Strategy............................................... 31
Real Estate Acquisitions............................................. 33
The Future........................................................... 33
Competition.......................................................... 34
Overview of Strategic Investment Positions........................... 34
Description of Property.............................................. 49
Legal Proceedings.................................................... 49
AGREEMENTS BETWEEN SC-U.S. REALTY AND ITS
STRATEGIC INVESTEES.................................................. 49
CarrAmerica.......................................................... 49
Storage USA.......................................................... 50
Regency.............................................................. 52
City Center Retail................................................... 53
CWS Communities...................................................... 53
Urban Growth Property................................................ 54
VALUATION AND INVESTMENT RESTRICTIONS................................ 55
Valuation............................................................ 55
Investment Restrictions.............................................. 55
PRINCIPAL SHAREHOLDERS............................................... 57
NATURE OF TRADING MARKET............................................. 58
Market Prices........................................................ 58
DIRECTORS AND MANAGERS............................................... 59
Security Capital U.S. Realty......................................... 60
Compensation of Directors and Officers............................... 63
Charges and Expenses................................................. 63
Interests of Directors in Certain Transactions....................... 65
Interests of the Operating Advisor in Certain
Transactions......................................................... 65
Operating Advisor Affiliates......................................... 66
DESCRIPTION OF CONVERTIBLE NOTES..................................... 68
General.............................................................. 68
Conversion of Notes.................................................. 68
Optional Redemption by SC-U.S. Realty................................ 71
Ranking of the Convertible Notes..................................... 72
Repurchase at Option of Holders upon Change in Control............... 72
Merger or Consolidation.............................................. 74
Events of Default and Remedies....................................... 74
Certain Limitations on Incurrence of Indebtedness.................... 75
Modifications of the Indenture....................................... 75
Book Entry, Delivery and Form........................................ 76
Defeasance........................................................... 79
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Listing on the NYSE; Registration of Notes and
Underlying Shares and American Depositary Share..................... 79
Guaranties.......................................................... 81
Provision of Financial Information to Holders of
Convertible Notes................................................... 81
Transfer and Exchange............................................... 81
Purchase and Cancellation........................................... 81
Title............................................................... 81
Notices............................................................. 81
Replacement of Convertible Notes.................................... 82
Payment of Stamp and Other Taxes.................................... 82
Governing Law....................................................... 82
Consent to Service.................................................. 82
Concerning the Trustee.............................................. 82
DESCRIPTION OF AMERICAN DEPOSITARY SHARES........................... 82
Deposited Securities................................................ 83
Record Dates........................................................ 84
Voting of the Underlying Deposited Securities....................... 85
Reports............................................................. 85
Amendment and Termination of the Deposit Agreement.................. 85
Charges of Depositary............................................... 86
Liability of Holder for Taxes....................................... 87
General............................................................. 87
DESCRIPTION OF SHARES............................................... 88
General............................................................. 88
Recent Events Concerning the Shares................................. 89
Future Share Issuances.............................................. 89
Trading through ASAS................................................ 90
Clearing and Settlement through Euroclear and
Clearstream, Luxembourg............................................. 90
Share Ownership Limitations......................................... 91
Redemption of Shares................................................ 91
Pro Rata Redemptions................................................ 91
Redemption Price.................................................... 91
Effect of Redemption................................................ 92
Distribution Policy................................................. 92
Meetings of and Reports to Shareholders............................. 92
TAXATION............................................................ 94
United States Federal Income Taxation of Noteholders................ 95
United States Federal Income Taxation of Securityholders............ 98
U.S. Federal Information Reporting and Withholding.................. 101
U.S. Federal Information Requirements............................... 102
U.S. Federal Income Taxation of SC-U.S. Realty...................... 102
Luxembourg Taxation of SC-U.S. Realty and its Subsidiaries.......... 106
United Kingdom Taxation of SC-U.S. Realty
and its Subsidiaries................................................ 107
General............................................................. 107
Taxation of Non-United States Holders............................... 107
SELLING HOLDERS..................................................... 109
PLAN OF DISTRIBUTION................................................ 111
EXPERTS............................................................. 111
LEGAL MATTERS....................................................... 111
WHERE YOU CAN FIND MORE INFORMATION................................. 111
INDEX TO FINANCIAL STATEMENTS....................................... F-1
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<PAGE>
SUMMARY
The following summary is qualified in its entirety by the detailed
information and Consolidated Financial Statements contained elsewhere in this
prospectus. You as a prospective investor should carefully consider the
information presented in this prospectus, particularly the matters set forth
under "Risk Factors" beginning on page 6.
SECURITY CAPITAL U.S. REALTY
We are 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 our
strategic investment positions, please read "Business--SC-U.S. Realty's
Operating Strategy--Strategic Investment Positions" and for a more detailed
description of our operating strategy, including how our operating strategy adds
value to real estate operating companies, you should read "Business--SC-U.S.
Realty's Operating Strategy". Our primary capital deployment objective is to
take a pro-active ownership role in businesses that we believe can potentially
generate above-average rates of return. We believe 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 real estate investment trusts or REITs whose
securities are traded on major stock exchanges. As of 31 December 1999 our
strategic investments had a combined market capitalisation of approximately $8.4
billion.
Our offices are located at 25b, boulevard Royal, L-2449 Luxembourg, and our
telephone number in Luxembourg is 011 (352) (4637561). Unless otherwise
indicated or the context in this prospectus otherwise requires, the terms "we",
"us", "our", or "SC-U.S. Realty" mean or refer to Security Capital U.S. Realty
and its subsidiaries.
Strategy
We seek to maximise our shareholders' returns primarily by acquiring and
managing significant strategic investment positions in real estate operating
companies based in the United States. We seek to identify potential strategic
investment positions by focusing rigorous fundamental research 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,
we seek to influence and oversee the development and implementation of a long-
term focused operating strategy and value-added operating system for each of our
strategic investment positions. While our objective is to have substantially
all of our assets invested in strategic investment positions, we also own non-
strategic investment positions in three non-publicly-traded U.S. real estate
operating companies where our research has identified attractive intermediate-
term investment opportunities.
Strategic Investment Positions and Other Investments
We currently hold 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.
Description of Securities
For a description of the securities, you should read "Description of
Convertible Notes" and "Description of Shares" later in this prospectus.
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RISK FACTORS
We rely on the dividends we receive from the companies in which we invest
We rely on dividends from the companies in which we invest to meet our
operating expense requirements and to pay debt service, including interest on
borrowings under the new Holdings line of credit and our outstanding Convertible
Notes. The ability of the companies in which we invest to pay dividends depends
on the economic performance of those companies, the prior claims of creditors or
holders of preferred stock of those companies and their compliance with United
States federal tax laws. Repayment of our entire indebtedness could require the
sale of a portion of our positions if other sources of funds were not available.
The Convertible Notes are unsecured obligations
The Convertible Notes rank equally in right of payment with all of our
existing and future unsecured indebtedness. In addition, the Convertible Notes
will be effectively subordinated to all of our future secured indebtedness, to
the extent of the value of the collateral securing such indebtedness, and are
and will be effectively subordinated to all of the existing and future
indebtedness and other liabilities of our wholly-owned subsidiaries and our
strategic investees. The indenture governing the Convertible Notes does not
limit the amount of additional indebtedness which our strategic investees can
create, incur, assume or guarantee. For more information concerning the ranking
of the Convertible Notes, please read "Description of Convertible Notes--Ranking
of the Convertible Notes".
We have debt outstanding and will continue to have debt outstanding
As of 30 June 1999, we had approximately $671.9 million of outstanding
long-term indebtedness on a consolidated basis. This indebtedness does not
include the indebtedness of any of the investees. Our total debt as a percentage
of our total assets at that date was approximately 23.1%. We do not guarantee
the debt of any of our strategic investees. In addition, at 30 June 1999 our
strategic investees had an aggregate of approximately $3.7 billion of
indebtedness outstanding and, in certain cases, have issued preferred stock to
third parties.
Based on our current level of operations and anticipated growth, we expect
that cash flow from operations and funds available under the new Holdings line
of credit will be sufficient to enable us to satisfy our anticipated cash
requirements for operating and investing activities for existing businesses for
the next 12 months. We intend to finance our long-term business activities,
including investments in new business initiatives, through line of credit
borrowings. In addition, we anticipate that our strategic investees will
separately finance their activities through cash flow from operations, sales of
equity and debt securities and the incurrence of mortgage debt or line of credit
borrowings. The degree to which we are leveraged and to which we are able to
meet our financial obligations could affect our ability to obtain additional
financing in the future for refinancing indebtedness, working capital, capital
expenditures, acquisitions, investments in new businesses, general corporate or
other purposes.
On a historical basis, the ratios of earnings to fixed charges for us and
our consolidated subsidiaries for the six months ended 30 June 1999, the years
ended 31 December 1998, 1997 and 1996 and for the period from 7 July 1995 to 31
December 1995 were 3.6:1, 4.5:1, 6.0:1, 3.6:1 and 1.5:1, respectively. For this
purpose, earnings consist of dividends and interest and other income decreased
by operating expenses. Fixed charges consist of interest expense and the
amortisation of debt issuance costs.
We may experience additional risks in connection with our borrowing of funds
To the extent we or one of our strategic investees or other companies in
which we invest incurs debt, that company will be subject to the risks
associated with debt financing. These risks include:
(1) that cash flow from operations will be insufficient to meet required
payments of principal and interest,
(2) that we or the company in which we invest will be unable to refinance
any lines of credit or any other current or future indebtedness,
(3) that the terms of any refinancing will not be as favourable as the
terms of existing indebtedness,
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(4) that we will be unable to make necessary investments in new business
initiatives due to lack of available funds, and
(5) that, due to a lack of funds, the companies in which we invest may be
unable to make necessary capital expenditures for purposes such as
renovations or re-leasing of properties. If, in the future, the
securities of the companies in which we invest are used to secure our
indebtedness and we are unable to make required payments on that
indebtedness, the securities could be transferred to the lender or
sold with the consequent loss of income and asset value to us.
Our Articles of Incorporation provide that the aggregate of all our borrowings
may not exceed on average 50% of the aggregate valuation of the sum of our debt
and equity interest in our real estate companies and direct properties and
property rights. Our long-term targeted maximum debt percentage is 30% to 40%.
If a property owned by one of our investees is mortgaged to secure indebtedness
and the investee is unable to make its required payments on that indebtedness,
the property could be transferred to the mortgagee with a consequent loss of
income and asset value to the investee. These events could adversely affect our
cash flow and the value of our investments.
Increases in interest rates could increase our interest expense
Increases in interest rates could increase our interest expense, which
would adversely affect our net earnings and cash available for payment of
obligations. At 31 December 1999, we had $239.0 million of variable interest
rate debt outstanding, all of which was under the new Holdings line of credit.
We have made a number of short-term borrowings under the line of credit. Each
borrowing currently bears interest based on the LIBOR rate at the time of
borrowing. Each borrowing is for a fixed time period and at a fixed interest
rate payable during that time period. If a borrowing is renewed, a new short-
term time period is established and a new interest rate is established for that
new period. Although we currently have no borrowings based on the prime rate, to
the extent our short-term borrowings are based on that rate, the interest rate
will be reset daily.
We may be subject to conflicts of interest in connection with operating our
business
Several of our directors and officers are directors or trustees of our
strategic investees and own our shares and shares of our strategic investees. As
of 31 December 1999, our directors and executive officers as a group
beneficially owned 24,643 of our shares, representing approximately 0.03% of our
shares.
William D. Sanders is our Non-Executive Chairman, and is also a director of
each of CarrAmerica and Storage USA and an advisory director of Regency.
Jeffrey A Cozad is our Managing Director and a director of Regency.
Each of Messrs. Sanders and Cozad hold their directorships or trusteeships
in certain of our strategic investees as our nominees under agreements between
us or our subsidiaries and the respective strategic investee.
From time to time, there may be transactions between us and our strategic
investees, or among our strategic investees. The interests of the persons named
in this section may differ from the interests of our shareholders as a result of
their positions in the strategic investees or their ownership of securities of
the strategic investees and, as a result, those persons may have an incentive to
place the interests of the strategic investees or themselves over those of our
shareholders. However, our Articles of Incorporation provide that if any of the
persons named in this section has an interest in any of these transactions which
is different from ours, that person is required to inform the Board of Directors
of such differing interest and is not to consider or vote on the proposed
transaction. In addition, the transaction and the person's differing interest
must be reported at the next general meeting of shareholders.
We rely heavily on the advice of our Operating Advisor
Security Capital U.S. Realty Management S.A., a Luxembourg corporation and
a wholly-owned subsidiary of Security Capital Group Incorporated acts as our
Operating Advisor. The Operating Advisor provides us with advice on all
investment and operating matters. The Operating Advisor is not under our control
and we cannot assure that this advice will continue to be provided on the same
terms as it is currently being provided. Although Security Capital Group's
current investment in us ($733.6 million, at cost, at 30 June 1999) is
substantial, we cannot assure that the Operating Advisor's and Security Capital
Group's economic interests will continue to be aligned with ours. The Operating
Advisor currently advises only us and does not provide services for any other
entity. There can be no assurance that this will continue in the future.
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Security Capital Group has a substantial influence over our management and
investment decisions
Security Capital Group is our largest shareholder and the sole shareholder
of the Operating Advisor. For more information on Security Capital Group, please
read "Relationship with Security Capital Group." We cannot assure that Security
Capital Group will continue to maintain a substantial ownership position in
either the Operating Advisor or us or that, if such position is maintained, that
it will exert its influence in a manner that is in the best interests of our
shareholders other than Security Capital Group.
Security Capital Group is also a strategic investor in other real estate
companies. In this regard, 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 investment position, generally will be
allocated to us, although there can be no assurance that Security Capital Group
will continue to maintain such policy in the future.
We depend significantly on the efforts and abilities of our directors and
officers
The loss of the services of our directors or officers could have a material
adverse effect on us. Certain of these persons also are officers and directors
of the Operating Advisor or other affiliates of Security Capital Group, which
may create competing demands with respect to the time of these persons. The
directors are appointed by the shareholders in a general meeting; however,
shareholders have no right to participate in our management and must rely on our
directors and officers, since we have no employees, together with the services
of the Operating Advisor, to accomplish our business objectives.
We have had a limited operating history
We have been operating for nearly four years. We cannot assure that our
existing investments will provide acceptable returns or that we will be able to
identify and acquire additional strategic investment positions. Security
Capital Group's past experience and our experience in acquiring strategic
investment positions in successful REITs is not necessarily indicative of our
prospects for the future.
Through our investments we are affected by the following real estate investment
risks
The return which we achieve from the companies in which we invest is
dependent on the performance of the real property investments held by those
companies, which are subject to varying degrees of risk
Although we own no real estate directly, the companies in which we invest
own real estate. A number of factors which affect real estate cash flows and
values include changes in the general economic climate, local, regional or
national conditions, such as an oversupply of properties or a reduction in
rental demand in a specific area, the quality and philosophy of management,
competition from other available properties and the ability to provide adequate
maintenance and insurance and to control operating costs. Real estate cash flows
and values are also affected by such factors as government regulations,
including zoning, usage and tax laws, interest rate levels, the availability of
financing, the possibility of bankruptcies of tenants and potential liability
under, and changes in, environmental and other laws. Since a significant portion
of the income from our investments is derived from rental income and other
payments from real property, our investee's respective income and distributable
cash flow, and our own respective income and distributable cash flow would be
adversely affected if a significant number of tenants were unable to meet their
obligations, or if those strategic investees were unable to lease properties on
economically favourable terms.
Real estate development by our investees involves significant risks in
addition to those risks involved in the ownership and operation of
developed properties whic h could adversely affect our investment in the
investee
Certain strategic investees and other companies in which we invest have
developed or have begun developing properties, such as neighbourhood infill
shopping centres, city centre retail facilities, parking facilities, corporate
office space, self-storage facilities and manufactured housing communities, and
expect to develop additional properties in the future. These risks include:
(1) that financing, if needed, may not be available on favourable terms for
development projects,
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<PAGE>
(2) that construction may not be completed on schedule, resulting in
increased debt service expense and construction costs,
(3) that estimates of the costs of construction may prove to be inaccurate,
and
(4) that properties may not be leased or rented on profitable terms and
therefore may fail to perform in accordance with expectations.
Timely construction may be affected by local weather conditions, local or
national strikes and by local or national shortages in materials, insulation,
building supplies and energy and fuel or equipment. These events could
adversely affect our cash flow and the value of our investments in those
companies.
Renewal of leases and re-leasing of space by our investees may, if
available, be less favourable than on current terms
Certain strategic investees and other companies in which we invest are subject
to the risks that leases may be not be renewed, space may not be re-leased or
the terms of the renewal or re-leasing may be less favourable than current lease
terms. If those companies were unable to promptly renew leases or re-lease
space or if the rental rates upon the renewal or re-lease were significantly
lower than expected, their cash flow, and accordingly our cash flow and our
investment in those companies, may be adversely affected.
Direct investment in real estate by our investees is relatively illiquid
Equity real estate investments are relatively illiquid and therefore may
tend to limit the ability of the strategic investees and other companies in
which we invest to react promptly to changes in economic or other conditions. In
addition, certain significant expenditures associated with equity investments,
such as mortgage payments, real estate taxes and operating and maintenance
costs, are generally not reduced when circumstances cause a reduction in income
from the investments. Further, the REITs in which we invest must comply with
various rules which enable a REIT to avoid corporate taxation. Thus, the ability
of the REITs to sell assets to change their asset base is restricted by U.S. tax
rules which impose holding periods for assets and potential disqualification as
a REIT upon certain asset sales.
Regulations may be issued which could have the effect of restricting or
curtailing certain uses of existing structures or requiring that the
structures be renovated or altered in some fashion
Governmental authorities at the federal, state and local levels are
actively involved in the issuance and enforcement of regulations relating to
land use, zoning and other restrictions. The issuance of any such regulations
could increase expenses and lower profitability of any property. These events
could adversely affect our cash flow and the value of our investments in
companies with such properties.
Changes in laws may adversely affect us
Increased costs resulting from increases in real estate, income or transfer
taxes or other governmental requirements generally may not be passed through
directly to residents, tenants or lessees, inhibiting the ability of our
strategic investees to recover those costs. Substantial increases in rents, as
a result of those increased costs, may affect the ability of a resident, tenant
or lessee to pay rent, causing increased vacancy. Changes in laws which
increase potential liability for environmental conditions or which increase the
restrictions on discharges or other conditions may result in significant
unanticipated expenditures. No assurance can be given that new legislation,
regulations, administrative interpretations or court decisions will not
significantly change the laws with respect to the qualification of certain of
our investees as REITs or the federal income tax consequences of that
qualification to those investees.
We may be subject to losses which are uninsured
The strategic investees carry comprehensive liability, fire, flood,
earthquake, extended coverage and rental loss insurance with respect to their
properties with policy specifications and insured limits customarily carried for
similar properties and which the strategic investees believe are appropriate
under the circumstances. There are, however, certain types of losses, such as
from wars, which may be uninsurable or not economically insurable. Should an
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<PAGE>
uninsured loss or a loss in excess of insured limits occur, the strategic
investee could lose both its capital invested in and anticipated profits from
one or more properties.
We face environmental regulations applicable to our businesses
Through our investees, we are subject to environmental and health and
safety laws and regulations related to the ownership, operation, development and
acquisition of real estate. Under those laws and regulations, we may be liable
for, among other things, the costs of removal or remediation of certain
hazardous substances, including asbestos-related liability. Those laws and
regulations often impose liability without regard to fault.
Although our strategic investees generally conduct Phase I environmental
assessments on their respective properties prior to their acquisition, there can
be no assurance that those assessments reveal all potential environmental
liabilities. We are not aware of any environmental condition on any of our
strategic investees' properties which is likely to have a material adverse
effect on our financial position or results of operations; however, there can be
no assurance that any such condition does not exist or may not arise in the
future.
Many of our businesses are in highly competitive segments
There are numerous commercial developers, real estate companies and other
owners of real estate, including those that operate in the regions in which the
properties of our investees are located, which compete with the companies in
which we invest in seeking land for development, properties for acquisition and
disposition and tenants for properties. The companies in which we invest
compete on a regional and national basis.
The properties of the strategic investees are located in developed areas
which include other similar properties. The number of competitive properties in
a particular area could have a material adverse effect on the strategic
investees' ability to lease properties and on the rents charged. In addition,
other forms of properties provide alternatives to tenants of the strategic
investees' properties.
There is currently no public market for the Convertible Notes nor may one form
There can be no assurance as to the development or liquidity of any market
that may develop for the Convertible Notes, the ability of the holders of the
Convertible Notes to sell their Convertible Notes or the price at which such
holders would be able to sell their Convertible Notes. If such a market were to
exist, the Convertible Notes could trade at prices that may be lower than the
initial offering price or accreted value of the Convertible Notes. This depends
on many factors, including prevailing interest rates and the market for similar
securities, general economic conditions and the financial condition and
performance of and prospects for us and the companies in which we invest. We do
not expect to apply for listing of the Convertible Notes on any securities
exchange or for quotation of the Convertible Notes on any automated dealer
quotation system.
Future changes in the tax laws may adversely affect our returns
The after-tax results of our operations and the after-tax returns to
holders of our securities depend, in part, on the application to us, to our
strategic investees and to holders of our securities of relevant tax laws and
regulations and tax treaties, as well as the qualification and continued
qualification of our strategic investees as "domestically-controlled" REITs
under the U.S. Internal Revenue Code of 1986, as amended. Such results of
operations and returns could be adversely affected by any future changes in such
tax laws and regulations and such tax treaties, as well as the failure of a
strategic investee to qualify as a "domestically-controlled" REIT.
There is a limit on the amount of shares you may beneficially own
Our Articles of Incorporation restrict beneficial ownership of more than
9.5% of the number or value of the outstanding shares by any single shareholder
except Security Capital Group. This provision is designed to help ensure that
our strategic investees that are REITs are able to meet the constructive
ownership limitations imposed by the Internal Revenue Code of 1986 and to
prevent us from being treated as a personal holding company, a foreign personal
holding company or a controlled foreign corporation. Our Board of Directors, in
its sole discretion, may waive this restriction. Without such a waiver, shares
owned in excess of this limitation become Excess Shares and are treated as
prescribed by the Articles of Incorporation.
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Strategic changes by our investees may not be successfully implemented
As described in detail in this prospectus, we expect to influence the
strategies of our strategic investees. For more information, please read the
detailed description under "Business." This will from time to time result in
new strategies being attempted by such strategic investees, including
significant geographic expansions of their target markets. No assurance can be
given that such strategic investees will successfully implement these
strategies.
We would be materially adversely affected if we were required to register as an
investment company in the United States
We are not registered as an investment company under the U.S. Investment
Company Act of 1940, as amended. We have relied on an exemption provided by
Rule 3a-1 promulgated under the Investment Company Act of 1940. We are not
required to register as an investment company because we are principally engaged
in the real estate business through companies that we primarily control through
our equity ownership, investor agreements, board representation or other control
rights, which allows us to exert significant influence over the operations of
each of our strategic investees. We currently intend to exert similar influence
over any other strategic investees through which we invest in the future.
However, to the extent we do not elect to participate in future equity offerings
by our strategic investees, our ownership interest in and control over such
companies could diminish and we could potentially be required to register as an
investment company under the Investment Company Act of 1940. We would be
materially adversely affected if we were required to register as an investment
company under the Investment Company Act of 1940.
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<PAGE>
THE COMPANY
SC-U.S. Realty was established on 7 July 1995 in Luxembourg. We are
constituted as a Societe d'Investissement a Capital Fixe or SICAF. Our main
object as stated in Article 4 of our Articles of Incorporation is to invest in
real estate directly, through one or several subsidiaries or 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. We are registered
with the Register de Commerce et des Societes du Tribunal d'Arrondissement de et
a Luxembourg under number B51654. We are closed-ended as to redemptions. We
are governed by Part II of the Luxembourg Law of 30 March 1988 on Undertakings
for Collective Investment.
We are subject to regulation in Luxembourg as a real estate investment
company. Our operational supervision is exercised in the first instance in
Luxembourg. The Dutch Central Bank (De Nederlandsche Bank NV) has granted us
authorisation under the Investment Institution Supervision Act (Wet toezicht
beleggingsinstellingenplain). Regulation by the Dutch Central Bank enables us to
offer our 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.
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.
We own our assets directly or indirectly through one or more wholly-owned
subsidiaries.
OPERATING ADVISOR
Our Operating Advisor, Security Capital U.S. Realty Management S.A., is a
Luxembourg corporation, headquartered in Europe, and is a wholly-owned
subsidiary of Security Capital Group. Our Operating Advisor advises us on
strategy, investments, finance and certain other administrative matters
affecting us. In order to achieve the optimal U.S.-based coverage of real
estate opportunities, our Operating Advisor sub-contracts for certain services
through its Sub-Advisor, Security Capital Investment Research Incorporated, a
wholly-owned subsidiary of Security Capital Group. The 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. We pay 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 is
calculated on the basis of 1.25% each year of the average monthly value of funds
invested by us in any calendar year, excluding funds placed by us in liquid,
short-term investments pending further investment or in investments in Security
Capital Group securities and is described in greater detail later in this
prospectus under the caption "Directors and Managers--Charges and Expenses". We
pay our own third-party operating and administrative expenses and transaction
costs, however, the fee we pay to the Operating Advisor is reduced by the amount
that such third-party operating and administrative expenses exceed 0.25% each
year of the average monthly value of funds invested by us in any calendar year.
For the year ended 31 December 1998 and the six months ended 30 June 1999 these
excess expenses were approximately 0.09% and 0.02 %, respectively, of the
average monthly value of funds invested by us excluding funds that we placed in
liquid, short-term investments pending further investment or in investments in
Security Capital Group securities.
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<PAGE>
<TABLE>
<S> <C>
--------------------
- ----------------------------- 38.9% Security Capital
Group
SECURITY CAPITAL U.S. REALTY Incorporated
--------------------
- -----------------------------
100% 100%
---------------------------
- --------------------------------------- Security Capital
Security Capital Holdings S.A. and its U.S. Realty Management S.A.
wholly-owned subsidiaries (Operating Advisor)
- --------------------------------------- ----------------------------
100%
- --------------- ------------------------
Strategic Special Opportunity
Investment Positions
Positions ------------------------ --------------------------
- --------------- Security Capital
Investment Research
Incorporated
(Sub-Advisor)
--------------------------
</TABLE>
Percentage interests are based on the number of shares outstanding
as of 30 June 1999.
RELATIONSHIP WITH SECURITY CAPITAL GROUP
Security Capital Group is a publicly traded U.S. real estate research,
investment and operating management company with fully converted shareholders'
equity, based on fair value, assuming conversion of all convertible securities
and common stock equivalents, of $3.3 billion as of 30 June 1999. At 30 June
1999 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 $25.4 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. We therefore have 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 our
Articles of Incorporation, 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 our assets, and
renewals of the advisory agreement with the Operating Advisor must be approved
by a majority of our independent directors as well as a majority of the
directors. Management believes that the total cash investment of Security
Capital Group in us, $733.6 million at cost as of 30 June 1999, substantially
aligns the Operating Advisor's and Security Capital Group's economic interests
with those of our 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, our strategic investees may
engage such Security Capital Group affiliates for specific projects. Any such
engagement would be subject to the
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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.
We have acquired shares of common stock and convertible debentures of
Security Capital Group at an aggregate cost of $165.0 million. On 31 December
1999, we wrote down this investment to its fair market value of approximately
$95.8 million. We made all of these acquisitions at arm's length prices and on
the same terms as other investors who subscribed for such securities. The
purpose of these investments in Security Capital Group was to provide us 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 us. In the first quarter of 2000 we sold all of the
securities of Security Capital Group we held, receiving net proceeds of $96.9
million, realising a loss on disposal of $53.0 million.
Security Capital Group purchases our shares from time to time, and may
purchase our indebtedness for investment purposes. Future purchases of our
shares by Security Capital Group will either be arm's-length purchases from
unaffiliated third parties, purchases in the open market or purchases in our
offerings 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 us, although there can
be no assurance that Security Capital Group will continue to maintain such
policy in the future.
USE OF PROCEEDS
All net proceeds from the sale of the securities will go to the selling
holders who offer and sell their securities. We will not receive any cash
proceeds from the sale of the securities sold pursuant to this prospectus.
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<PAGE>
SELECTED FINANCIAL DATA
The following consolidated financial data, insofar as it relates to each of
the years ended 31 December 1998, 1997 and 1996 and for the period from 7 July
1995, our date of incorporation, through 31 December 1995, set forth below have
been derived from our consolidated financial statements audited by Price
Waterhouse SARL, independent accountants, including the audited Consolidated
Financial Statements and notes included at the end of this prospectus. The
following consolidated financial data, insofar as it relates to each of the six
months ended 30 June 1999 and 1998 reflects all of the accounting principles and
adjustments used in preparing the audited consolidated financial statements.
The Consolidated Financial Statements are presented in accordance with
United States generally accepted accounting principles or GAAP. The financial
data reflect past operating results and are not necessarily indicative of future
results.
SECURITY CAPITAL U.S. REALTY
(in thousands $, except ratios)
<TABLE>
<CAPTION>
7 July
Six Months (date
Ended 30 June Year ended 31 December incorporated)
-------------------------- ----------------------------------------------- through
31 December
1999 1998 1998 1997 1996 1995
------------- ----------- ------------ ------------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total Revenues(1)........................ $ 72,300 $ 73,325 $ 156,825 $ 102,917 $ 34,836 $ 588
Total Expenses........................... (43,570) (32,218) (78,926) (42,608) (21,897) (512)
Net Realised Gains on
Special Opportunity Positions........... 1,620 30,562 32,878 41,073 3,480 --
Net (Decrease)/Increase in Appreciation
on Strategic Investment Positions
Special Opportunity Positions(2)........ 26,963 (212,905) (642,372) 264,974 252,294 126
--------- ---------- ---------- ---------- ---------- -------
(Decrease)/Increase in Net Assets
Resulting from Operations............... $ 57,313 $ (141,236) $ (531,595) $ 366,356 $ 268,713 $ 202
========== ========== ========== ========== ========== =======
Statement of Net Assets Data:
Total Assets(2)......................... $2,910,342 $3,179,173 $2,873,628 $2,901,820 $1,494,257 $63,400
Total Liabilities....................... (744,599) (563,070) (647,243) (143,400) (175,158) (252)
---------- ---------- ---------- ---------- ---------- -------
Total Net Assets
(Shareholders' Equity)................ $2,165,743 $2,616,103 $2,226,385 $2,758,420 $1,319,099 $63,148
========== ========== ========== ========== ========== =======
Net Asset Value per Share............. 26.89 30.22 25.72 31.87 27.34 20.06
Other Data:
Net operating income per share........ 0.59 0.47 0.90 0.74 0.24 0.01
Net change in movement in unrealised
appreciation and realised gain on
strategic investment and special
opportunity positions in the year.... 0.58 (2.12) (7.05) 3.79 7.04 0.02
Ratio of Earnings to Fixed Charges(3). 3.6x 5.1x 4.5x 6.0x 3.6x 1.5x
</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 at the end of this prospectus.
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(3) For this purpose, earnings consist of net earnings (loss) from operations
plus the amortisation of convertible notes deferred costs, the line of
credit arrangement and legal fees, the commitment fee, interest on the line
of credit, interest on the convertible notes, accreted interest on the
convertible notes and interest expense. Fixed charges consist of the
commitment fee, interest on the line of credit, interest on the convertible
notes, accreted interest on the convertible notes and interest expense.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read this section in conjunction with the information contained
in "Selected Financial Data" and the Consolidated Financial Statements.
Historical results and percentage relationships set forth below and in "Selected
Financial Data" and the Consolidated Financial Statements are not necessarily
indicative of our future operations.
Introduction
We are a research-driven, growth-oriented real estate management 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. Our primary capital deployment
objective is to take a proactive ownership role in businesses that we believe
can potentially generate above-average rates of return.
We were incorporated in July 1995 and completed a $509.5 million initial
private offering in October 1995. We have since funded the following strategic
investment positions:
<TABLE>
<CAPTION>
Initial Total cost as of Total value as
Initial Commitment 30 June 1999 of 30 June 1999
Company Funding Date (in millions)(1) (in millions) (in millions)
- ----------------------- ------------- ---------------- ----------------- -------------------
<S> <C> <C> <C> <C>
CarrAmerica............. April 1996 $250 $ 700 $ 715(2)
City Center Retail...... April 1997 $150 $ 304 $ 304(3)
CWS Communities......... December 1997 $300 $ 224 $ 224(3)
Regency................. July 1996 $332(4) $ 760 $ 752(2)
Storage USA............. March 1996 $220 $ 394 $ 375(2)
Urban Growth Property... April 1997 $150 $ 181 $ 181(3)
------ ------
Total................... $2,563 $2,551
====== ======
</TABLE>
_________________________
(1) Please read "--Capital Deployment Activities" below for additional
information regarding commitments.
(2) Based on the closing price on the New York Stock Exchange or NYSE of common
shares held on such date.
(3) Private REIT or real estate operating company. Please read Note 2A to the
Consolidated Financial Statements for the methodology utilised to assess the
value of investments in private entities.
(4) Includes the initial commitment of $200 million to Pacific Retail Trust
which merged with Regency on 28 February 1999.
In addition to our strategic investment positions, we also invest up to 15%
of our assets through special opportunity positions primarily in publicly traded
REITs and other publicly traded U.S. real estate companies. In January 2000, we
announced that we had disposed of our remaining special opportunity positions.
This will allow us to focus on our strategic investment positions.
Changes in the price of real estate company equity securities have impacted
and will impact our results of operations. As described in greater detail in
Note 2A to the Consolidated Financial Statements, we account for our investments
at market value or estimated fair value in accordance with GAAP, depending on
whether the investment is publicly traded, and reflect changes in such values in
our Consolidated Statements of Operations pursuant to fair value accounting
principles. During the last half of 1998, prices of real estate company equity
securities generally declined, which adversely affected our results of
operations. This trend continued during the first quarter of 1999 and, as a
result, our results of operations for the first quarter of 1999 continued to be
adversely affected by the continued decline in prices of real estate company
equity securities. However, this decline has begun to reverse
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itself during the second quarter of 1999. If this trend were to continue, our
results of operations for such periods could be positively impacted. At this
time, however, we are not able to predict whether this positive trend will
continue, and therefore, whether or not it will have any effect, positive or
negative, on our results of operations.
As of 30 June 1999, the approximate value of our special opportunity
positions of $192.0 million represented approximately 6.6% of our total assets.
We had also invested in the common shares and subordinated debentures of
Security Capital Group, which in aggregate accounted for approximately 4.1% of
our total assets as of 30 June 1999.
As of 30 June 1999, we had committed an aggregate of $3.1 billion to both
our strategic investment and special opportunity positions, of which $3.0
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. The decrease in
the aggregate commitment is the result of the decrease in special opportunity
positions held.
On 5 May 1999, we announced that our Board of Directors had authorised a
share repurchase programme of up to $100 million of our shares and on 29 June
1999 we announced that our board of directors authorised an increase in the
share repurchase programme to $200 million. We plan to repurchase shares from
time to time in open market and privately negotiated transactions, depending on
market prices and other conditions. As of 31 December 1999, we had repurchased
9,861,435 shares at an aggregate cost of approximately $184.2 million,
representing approximately 11.4% of the shares outstanding.
On 17 May 1999, our shareholders approved a one-for-two reverse stock
split. The effective date of the reverse stock split was 18 June 1999, when
every two of our shares were automatically converted into one share.
Operating Results
Six Months ended 30 June 1999 and 1998
Net operating income decreased by $12.4 million, or 30.1%, to $28.7 million
for the six months ended 30 June 1999 as compared to $41.1 million for the six
months ended 30 June 1998. The decrease is mainly attributable to an increase
in the interest expense on the Convertible Notes issued in May 1998. Interest
on the Convertible Notes increased $11.0 million, or 416.6%, to $13.6 million
for the six months ended 30 June 1999 as compared to $2.6 million for the six
months ended 30 June 1998.
Net Operating Income
Net operating income represents the difference between total revenues and
total expenses.
The following table sets forth information regarding our net operating
income during the six-month periods ended 30 June 1999 and 1998:
<TABLE>
<CAPTION>
Six months ended 30 June
--------------------------------
1999 1998
--------------------------------
Amount % Amount %
------- ------ ------- ------
(in thousands $, except %)
<S> <C> <C> <C> <C>
Total Revenues..................... $72,300 100.0% $73,325 100.0%
Total Expenses..................... 43,570 60.3 32,218 43.9
------- ----- ------- -----
Net Operating Income............... $28,730 39.7% $41,107 56.1%
======= ===== ======= =====
</TABLE>
The net operating income margin decreased to 39.7% in the first half of
1999 from 56.1% in the first half of 1998. This is primarily due to higher
interest expense on the Convertible Notes. These increases were partially
offset by a lower average interest rate on our old $400 million unsecured line
of credit which was guaranteed by Holdings.
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<PAGE>
Total Revenues. The following table sets forth information regarding our
total revenues during the six-month periods ended 30 June 1999 and 1998:
<TABLE>
<CAPTION>
Six months ended 30 June
----------------------------------
1999 1998
----------------------------------
Amount % Amount %
-------- ------ -------- ------
(in thousands $, except %)
<S> <C> <C> <C> <C>
Gross dividends from strategic investment
positions
CarrAmerica............................................... $26,458 36.6% $25,541 34.8%
CWS Communities........................................... 3,148 4.4 1,622 2.2
Regency(1)................................................ 26,320 36.4 28,019 38.2
Storage USA............................................... 15,766 21.8 14,874 20.3
Urban Growth Property..................................... 213 0.3 -- --
------- ----- ------- -----
Subtotal................................................ $71,905 99.5% $70,056 95.5%
Gross dividends from special opportunity......................... 6,311 8.7 9,602 13.1
positions..................................................... ------- ----- ------- -----
Total Gross Dividends................................... $78,216 108.2% $79,658 108.6%
Interest income from affiliate................................... 1,788 2.5 1,788 2.4
Interest income from non-affiliate and other
income......................................................... 1,566 2.2 579 0.8
------- ----- ------- -----
Total Gross Revenues.................................... $81,570 112.9% $82,025 111.8%
Withholding tax on dividends received............................ (9,270) (12.9) (8,700) (11.8)
------- ----- ------- -----
Total Revenues.......................................... $72,300 100.0% $73,325 100.0%
======= ===== ======= =====
</TABLE>
__________________________
(1) The merger between Pacific Retail and Regency was completed on 28 February
1999. In order to align the dividend record date of the former Pacific
Retail shareholders with the dividend record date of Regency, Pacific Retail
paid a pro-rated dividend to its shareholders in the first quarter of 1999.
As a result, Pacific Retail shareholders only received 42 days worth of
dividends in the first quarter of 1999.
As the table indicates, most of our total revenues during 1999 and 1998
were derived from dividends from its strategic investment positions.
"Interest income from affiliate" represents interest earned on our $55
million aggregate principal investment in 6.5% convertible subordinated
debentures due 2016 issued by Security Capital Group. We purchased the
debentures in April 1996 ($11 million aggregate principal amount) and in March
1997 ($44 million aggregate principal amount) and they are currently convertible
into shares of Class A common stock of Security Capital Group at our option.
"Interest income from non-affiliate and other income" consist of interest
earned on cash balances and convertible debt. The increase in this item between
the six months ended 30 June 1999 and the corresponding period in 1998 is
attributable to higher interest earned on the increased level of convertible
debt we held during 1999.
Total Expenses. For the six months ended 30 June 1999, total expenses
amounted to $43.6 million, of which $16.7 million, or 38.4%, represented fees
paid to our Operating Advisor and $22.4 million, or 51.3%, represented
. interest on the Convertible Notes,
. interest on our old line of credit, and
. related expenses.
-18-
<PAGE>
During the period, general and administrative expenses were approximately $1.6
million, or 3.7% of total expenses, taxes were $2.1 million, or 4.8% of total
expenses, and amortisation of Convertible Notes deferred costs was $0.8 million,
or 1.8% of total expenses.
For the six months ended 30 June 1998, total expenses amounted to $32.2
million, of which $17.7 million, or 54.8%, were accounted for by fees paid to
our Operating Advisor and $12.5 million, or 38.7%, were accounted for by
interest on the Holdings $700 million secured line of credit, which was replaced
by our old line of credit in December 1998, interest on the Convertible Notes
and related expenses. During the period, general and administrative expenses
were $0.6 million, or 2.1% of total expenses, taxes were $1.2 million, or 3.9%
of total expenses, and amortisation of Convertible Notes deferred costs was $0.2
million, or 0.5% of total expenses.
Interest expense increased as a result of new borrowings in the form of the
Convertible Notes, the proceeds of which were utilised to fund a portion of the
new investments. This increase in interest expense was partially offset by a
decline in the average interest rate on our old line of credit.
Net Realised Gains on Special Opportunity Positions
Special opportunity positions 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 realize attractive
total returns through dividends and share price appreciation and to provide us
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 six months ended 30 June 1999 and 1998, net realised gains on
special opportunity positions were $1.6 million and $30.6 million, respectively.
In both periods, these gains were derived exclusively from the disposition of
certain publicly traded special opportunity positions.
Decrease/Increase in Appreciation of Strategic Investment and Special
Opportunity Positions
During the six months ended 30 June 1999 and 1998, the principal factor
behind the movement in net assets resulting from operations was the change in
the unrealised appreciation of our strategic investment and special opportunity
positions.
During the six months ended 30 June 1999, the largest part of the increase
of $27.0 million in the unrealised appreciation was attributable to the increase
in the appreciation of our investment in CarrAmerica ($28.6 million, or 105.9%
of the total increase), followed by the special opportunity positions ($14.3
million, or 53.3%). This increase was partly offset by a decrease in the
appreciation of SC-U.S. Realty's investment in Regency ($10.7 million, or 39.8%)
and Storage USA ($5.2 million, or 19.4%).
During the six months ended 30 June 1998, the main factor behind the
decrease of $212.9 million in the unrealised appreciation of our strategic
investment and special opportunity positions was the decrease in value of our
investment in CarrAmerica ($90.2 million, or 42.4% of the total decrease),
followed by Storage USA ($57.0 million, or 26.8%), special opportunity positions
($37.9 million, or 17.8%) and Regency ($27.7 million, or 13.0%).
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. We attribute this increase mainly 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 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.
-19-
<PAGE>
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............................. $156,825 100.0% $102,917 100.0%
Total Expenses............................. 78,926 50.3% 42,608 41.4%
-------- ----- -------- -----
Net Operating Income....................... $ 77,899 49.7% $ 60,309 58.6%
======== ===== ======== =====
</TABLE>
The net operating income margin decreased to 49.7% in 1998 from 58.6% in
1997. This is due to a higher interest expense resulting from increased levels
of borrowing on old Holdings line of credit that we guaranteed and our line of
credit which Holdings guaranteed, which replaced the old line of credit in
December 1998, as well as interest expense on the Convertible Notes issued in
May 1998. These increases were partially offset by lower interest rates on the
old Holdings line of credit and our line of credit.
Total Revenues. The following table sets forth information regarding our
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>
As the table indicates, most of our total revenues during 1998 and 1997
were derived from dividends from our strategic investment positions. We
attribute the increase mainly 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 our $55
million aggregate principal investment in 6.5% convertible subordinated
debentures due 2016 issued by Security Capital Group. The debentures were
purchased by us in April 1996, $11 million aggregate principal amount, and in
March 1997, $44 million aggregate
-20-
<PAGE>
principal amount, and are currently convertible into shares of Class A common
stock of Security Capital Group, at the option of Holdings. Please read Note
3(b) to the Consolidated Financial Statements for more information.
"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 us during the second half
of 1997 and in 1998.
In assessing our performance 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. During the year ended
31 December 1997, total gross revenues totaled $161.3 million inclusive of net
realised gains of $41.1 million, as we discuss later in this section.
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:
. interest on the Convertible Notes,
. interest on the old Holdings line of credit,
. interest on our line of credit, and
. 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 the 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 old Holdings line of credit 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 old Holdings line of
credit and our 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 old Holdings
line of credit and our 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 we generally
hold for an intermediate term of 12 to 18 months. 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 us with an efficient method of
maintaining a portion of our assets in relatively liquid investments. These
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.
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 our strategic investment and special opportunity
positions.
During the year ended 31 December 1998, the largest part of the decrease of
$642.4 million in the unrealised appreciation was attributable to the decrease
in the appreciation of our investment in CarrAmerica ($215.3 million, or 33.5%
of the total decrease), followed by the special opportunity positions ($169.6
million, or 26.5%),
-21-
<PAGE>
Pacific Retail ($109.6 million, or 17.1%), Storage USA ($87.9 million, or 13.7%)
and Regency ($61.7 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 $265.0 million in the unrealised appreciation of our strategic investment and
special opportunity positions was the increase in the appreciation in our
investment in Pacific Retail ($88.6 million, or 33.4% of the total increase),
followed by CarrAmerica ($75.8 million, or 28.6%), Regency ($54.9, or 20.7%),
Storage USA ($24.0 million, or 9.1%) and the special opportunity positions
($24.0 million, or 9.1%).
Although the reduction in stock prices of our strategic investment and
special opportunity positions for the year ended 31 December 1998 does not
affect our net operating income, it does adversely impact our net assets
resulting from operations on our Consolidated Statement of Operations. We
cannot predict the future stock prices of our 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 our 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:
Year Ended 31 December
-----------------------------------------
1997 1996
-------------- ---------------------
Amount % Amount %
-------- ------ ------- ------
(in thousands $, except %)
Total Revenues......... $ 102,917 100.0% $34,836 100.0%
Total Expenses......... 42,608 41.4 21,897 62.9
-------- ----- ------- -----
Net Operating Income... $ 60,309 58.6% $12,939 37.1%
========= ===== ======= =====
As the table indicates, the net operating income margin rose to 58.6% for
the year ended 31 December 1997 from 37.1% for 1996 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 our
total revenues during the years ended 31 December 1997 and 1996:
<TABLE>
<CAPTION>
Year Ended 31 December
-------------------------------------------
1997 1996
----------------- --------------------
Amount % Amount %
--------- ------ ---------- ------
<S> <C> <C> <C> <C>
(in thousands $, except %)
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
</TABLE>
-22-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
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 our total revenues during the years
indicated were derived from dividends from our 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 our $55
million aggregate principal investment in 6.5% convertible subordinated
debentures due 2016 issued by Security Capital Group. The debentures were
purchased by us 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 our increased capital deployment.
In assessing our performance, 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 we discuss later in
this section. During the year ended 31 December 1996, total gross revenues
totaled $43.9 million inclusive of net realised gains of $3.5 million, as we
discuss later in this section.
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 old Holdings line of credit 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.
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 old Holdings line of credit 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 old Holdings line of credit, the proceeds of which were utilised
to fund a portion of the new investments, and an increase in average interest
rates on the old Holdings line of credit.
-23-
<PAGE>
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, we derived these gains by disposing of certain publicly traded
special opportunity positions. The lower gains realised during 1996 were due to
the fact that we had very few sales because we had only begun to accumulate our
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 our strategic investment and special opportunity
positions, contributing $265.0 million, or 72.3%, and $252.3 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 our investment in Pacific Retail ($88.6 million, or 33.4% of the total
increase), followed by CarrAmerica, $75.8 million, or 28.6%, Regency, $54.9
million, or 20.7%, Storage USA, $24.0 million, or 9.1% and special opportunity
positions, $24.0 million, or 9.1%.
During the year ended 31 December 1996, the main factor behind the increase
in the unrealised appreciation of our strategic investment and special
opportunity positions was the increase in the appreciation in our investment in
CarrAmerica, $126.2 million, or 50.0%, of the total increase. The balance of the
increase was attributable to Storage USA, $49.9 million, or 19.8%, special
opportunity positions, $45.6 million, or 18.1% and Regency, $31.9 million, or
12.6%.
Liquidity and Capital Resources
Our total indebtedness as of 30 June 1999 was approximately $671.9 million
and the value of our total assets was $2.9 billion. As of 30 June 1999, the
closing share price on the AEX was $19.00 and the closing price of the ADRs on
the NYSE was $18.56. We expect our principal sources of liquidity to be from the
receipt of dividends from strategic investment and special opportunity
positions, fundings from our lines of credit and proceeds from potential sales
of our special opportunity positions. We expect that these sources will enable
us to meet both our short-term and long-term cash requirements for our funding
commitments, working capital and debt repayment for the next twelve months.
On 8 December 1998 we converted the old Holdings line of credit into our
line of credit. We 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 our line of credit are Commerzbank Aktiengesellschaft and
a consortium of European and international banks. As of 30 June 1999, $294.0
million was drawn and outstanding under our line of credit. The earliest date on
which our line of credit will expire is 30 October 2000, but we have the right
on 15 August 1999 to convert the then outstanding borrowings into a term loan
with quarterly amortisation payments over a four-year period, which would
effectively extend the final loan payment to 30 October 2003. Borrowings under
our line of credit bear interest at:
. 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 our current senior unsecured long-term debt rating; or
. at our option, LIBOR plus a margin of 0.85% to 1.625% per annum, also
based on our 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 our line of
credit are subject to covenants that we must maintain at all times, including:
-24-
<PAGE>
. unsecured liabilities may not exceed 40% of the market value of a
borrowing base of owned securities,
. 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,
. a ratio of total liabilities to net worth of not more than 1:1,
. a fixed charge coverage ratio of not less than 1.5:1,
. an interest coverage ratio of not less than 2:1, and
. secured debt may not exceed 10% of consolidated market net worth.
As of 30 June 1999, we were in compliance with these covenants.
As of 30 December 1999, we replaced our line of credit with a new $350
million line of credit at the Holdings level. The lenders under the new
Holdings line of credit are Commerzbank Aktiengesellschaft and a consortium of
European and international banks. As of 31 December 1999, $239.0 million was
drawn and outstanding under the new Holdings line of credit. Borrowings under
the new Holdings line of credit bear interest at (a) the sum of (x) the greater
of the federal funds rate plus 0.5% per annum or the United States prime rate
and (y) a margin of 0% to 0.85% per annum, based on our current senior unsecured
long-term debt rating, or (b) at our option, LIBOR plus a margin of 1.00% to
1.85% per annum, also based on our current senior unsecured long-term debt
rating. Additionally, there is a commitment fee of 0.15% to 0.20% per annum,
based on the amount of the line which remains undrawn. All borrowings under the
new Holdings line of credit are subject to covenants that we 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 $1.5 billion 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 1999, we were in
compliance with these covenants.
Average daily borrowings under our line of credit for the six months ended
30 June 1999 were $255.3 million, at a weighted average interest rate of 6.37%
per annum.
Through offerings of our shares, we 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, we 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. We used the net proceeds of
approximately $352.7 million to repay borrowings under the old Holdings line of
credit 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, we are not permitted to incur senior indebtedness, as that
term is defined in the indenture dated as of 22 May 1998, between SC-U.S. Realty
and State Street Bank and Trust Company, as trustee, as amended or supplemented
(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 we may 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 30
June 1999, we were in compliance with these covenants. The Convertible Notes
are convertible into our shares at the option of the holder at any time prior to
maturity, unless previously redeemed, at a conversion rate equal to 26.39095
shares per $1,000 aggregate principal amount at maturity. The Convertible Notes
may be redeemed, in whole or in part, at our option on or after 23 May 2001 at
the accreted value thereof, together with accrued and unpaid interest. Upon a
change in control of each holder of the Convertible Notes has the right, at the
holder's option, to require us to repurchase their 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.
Capital Deployment Activities
During the six months ended 30 June 1999, we deployed an additional $95.2
million in strategic investment positions and disposed of $103.1 million of
special opportunity positions. As of 30 June 1999, we had outstanding
contractual obligations of $97.9 million ($46.1 million to City Center Retail
and $51.8 million to CWS Communities).
-25-
<PAGE>
Our existing and committed fundings at cost as of 30 June 1999 were as
follows:
<TABLE>
<CAPTION>
Total Total Cost
Amount (Amount
Committed Funded)(1) Amount to be Funded(1)
----------- -------------- -----------------------
(in thousands $)
<S> <C> <C> <C>
CarrAmerica (NYSE: CRE)............................ $ 699,902 $ 699,902 $ --
City Center Retail (Private)....................... 350,213 304,113 46,100(2)
CWS Communities (Private).......................... 300,329 248,488(3) 51,841(2)
Regency (NYSE: REG)(4)............................. 759,806 759,806 --
Storage USA (NYSE: SUS)............................ 394,360 394,360 --
Urban Growth Property (Private).................... 181,082 181,082 --
Special opportunity positions(5)................... 398,235 398,235 --
---------- ---------- -------
Total.............................................. $3,083,927 $2,985,986 $97,941
========== ========== =======
</TABLE>
(1) Included in Total Amount Committed.
(2) Represents a contractual obligation.
(3) The amount funded to CWS Communities includes an advance of $24 million in
the form of a promissory note that is to be repaid in September 1999.
(4) On 28 February 1999 Regency merged with Pacific Retail.
(5) Includes an aggregate of $165 million invested in shares of common stock
and convertible subordinated debentures of Security Capital Group.
We will generally initially fund capital deployed to additional strategic
investment positions, as well as further funding to existing strategic investees
by borrowing under our line of credit. These borrowings are expected to be
reduced by internally generated free cash flow, proceeds from the sale of
special opportunity positions and proceeds of future issuances of debt or equity
securities.
Recent Developments
On 8 February 2000 we announced results for the year ended 31 December
2000. For the year ended 31 December 2000, our total income was $265.2 million
and our total expenses, before special items, were $114.2 million. Net operating
income for the year was $12.8 million. Finally our NAV per share was $24.70.
On 13 January 2000, we announced the completion of the sale of our special
opportunity investment portfolio. On 15 March 2000, we announced the sale of
our entire investment in securities of Security Capital Group for $96.9 million
to two unaffiliated investors.
On 29 March 2000, we announced the completion of the second $100 million
share repurchase programme. In completing the program, we have repurchased
10,917,268 shares for a total of approximately $200 million, representing 12.6%
of the shares outstanding prior to implementing the initial programme on 5 May
1999. We also announced the authorisation of a new $50 million programme to
purchase our shares or Convertible Notes from time to time in open market or
privately negotiated transactions.
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 our operations, we are exposed to interest rate risk, equity price
risk and, to a limited extent, currency exchange risk, all as described below.
While we are not precluded from doing so, we have not had any involvement with
derivative financial instruments. To the extent we choose to do so in the
future, we would use derivative financial instruments to hedge specific risks or
exposures and not for speculative or trading purposes.
The following discussion only addresses the market risk we face. However,
we are 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 us. As a result, we could
indirectly be impacted by the market risk facing the strategic investment and
special opportunity positions in the future.
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<PAGE>
Sensitivity Analysis
Interest Rate Risk
We are exposed to interest rate changes primarily as a result of unsecured
credit facilities used to finance our investment activity and maintain financial
liquidity. Our 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 our objectives, we borrow primarily at variable
rates. In future transactions, we 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.
During 1998, we had weighted average outstanding borrowings of $274.4
million at an average interest rate of 6.67% on our line of credit and our
predecessor line of credit. If interest rates had been 10% higher on average
during 1998, interest expense on our line of credit, and our predecessor line of
credit, would have increased $1.8 million to $20.3 million which would have
resulted in a reduction in our Net Operating Income in our Consolidated
Statement of Operations for the year ended 31 December 1998 and in our Net Cash
Provided by Operating Activities in our Consolidated Statement of Cash Flows for
the year ended 31 December 1998 by an equivalent amount of $1.8 million. If
interest rates had been 10% lower on average during 1998, interest expense on
our line of credit, and our predecessor line of credit, would have decreased
$1.8 million to $16.6 million which would have resulted in an increase in our
Net Operating Income in our Consolidated Statement of Operations for the year
ended 31 December 1998 and in our Net Cash Provided by Operating Activities in
our Consolidated Statement of Cash Flows for the year ended 31 December 1998 by
an equivalent amount of $1.8 million. The amounts discussed above apply for each
10% change in the interest rate. There would have been no effect on the fair
value of our line of credit in our Consolidated Statement of Net Assets. Because
at any point in time, we have a number of short-term borrowings outstanding
under our line of credit with differing interest rates and maturities, we have
chosen a 10% change in the average interest rate for all borrowings during 1998
discussed as the best method to convey our exposure for an entire year to
interest rate changes. All borrowings under our line of credit at 31 December
1998 have been repriced in 1999 and bear interest based on the LIBOR rate at the
time of the borrowing. The preceding information is of limited predictive value.
As a result, our ultimate realised 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 Risk
We are exposed to equity price changes primarily as a result our strategic
investment positions for non-trading purposes and special opportunity positions
for intermediate term trading purposes. We account for our 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.
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 our Consolidated Statement of Net Assets by an equivalent
amount as well as our Consolidated Statement of Operations and the Consolidated
Statement of Cash Flows by the amounts of the change plus its increasing or
decreasing effect on the operating advisor fees. At 31 December 1998, the fair
market value of our strategic investment positions was $2.5 billion. A
hypothetical 10% reduction in equity prices would amount to a reduction in the
recorded fair value of these investments as of 31 December 1998 of $246.8
million and would result in a reduction in the amount of our (Decrease) Increase
in Net Assets Resulting from Operations in our Consolidated Statement of
Operations for the year ended 31 December 1998 of $243.7 million. Furthermore,
it would also result in a reduction by the equivalent amount of $243.7 million
in our Net Cash Provided by Operating Activities in our Consolidated Statement
of Cash Flows for the year ended 31 December 1998. The $243.7 million amount
results from the reduction in the fair market value of the assets, $246.8
million, partially offset by the reduction in operating advisor fees payable by
us as a result of owning a lower value of assets on 31 December 1998, $3.1
million. A hypothetical 10% increase in equity prices would amount to an
increase in the recorded fair value of these investments as of 31 December 1998
of $246.8 million and would result in an increase in the amount of our
(Decrease) Increase in Net Assets Resulting From Operations in its Consolidated
Statement of Operations for the year ended 31 December 1998 of $243.7 million.
Furthermore, it would also result in an increase by the equivalent amount of
$243.7 million in our Net Cash Provided by Operating Activities in our
Consolidated Statement of Cash Flows for the year ended 31 December 1998. The
$243.7 million amount results from the increase in the fair market value of the
assets, $246.8 million, partially offset by the increase in operating advisor
fees payable by us as a result
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<PAGE>
of owning a higher value of assets on 31 December 1998, $3.1 million. Because
our strategic investments are already recorded at their fair market value on 31
December 1998, we have chosen a 10% average change in the equity prices on that
reporting date as the best method to convey the exposure of our strategic
investments to equity price changes.
At 31 December 1998, the fair market value of our special opportunity
positions was $378.7 million. A hypothetical 10% reduction in equity prices
would amount to a reduction in the recorded value of these investments as of 31
December 1998 of $37.9 million and would result in a reduction in the amount of
our (Decrease) Increase in Net Assets Resulting from Operations in our
Consolidated Statement of Operations of for the year ended 31 December 1998 of
$37.4 million. Furthermore, it would also result in a reduction by the
equivalent amount of $37.4 million in our Net Cash Provided by Operating
Activities in our Consolidated Statement of Cash Flows for the year ended 31
December 1998. The $37.4 million amount results from the reduction in the fair
market value of the assets, $37.9 million, partially offset by the reduction in
operating advisor fees payable by us as a result of owning a lower value of
assets on 31 December 1998, $473,406. A hypothetical 10% increase in equity
prices would amount to an increase in the recorded fair value of these
investments as of 31 December 1998 of $37.9 million and would result in an
increase in the amount of our (Decrease) Increase in Net Assets Resulting From
Operations in its Consolidated Statement of Operations for the year ended 31
December 1998 of $37.4 million. Furthermore, it would also result in an increase
by the equivalent amount of $37.4 million in our Net Cash Provided by Operating
Activities in our Consolidated Statement of Cash Flows for the year ended 31
December 1998. The $37.4 million amount results from the increase in the fair
market value of the assets, $37.9 million, partially offset by the increase in
operating advisor fees payable by us as a result of owning a higher value of
assets on 31 December 1998, $473,406. Because our special opportunity
investments are already recorded at their fair market value on 31 December 1998,
we have chosen a 10% average change in the equity prices on that reporting date
as the best method to convey the exposure of our special opportunity investments
to equity price changes.
The amounts discussed above apply for each 10% change in equity prices. The
preceding information is of limited predictive value. As a result, the impact on
us of equity price changes is dependent upon equity prices of our investments
and upon our quoted equity price in effect during future periods.
Currency Exchange Risk
We are exposed to currency exchange changes primarily as a result of
certain administrative expenses and tax liabilities payable in our country of
organisation, Luxembourg, since our functional currency is the U.S. Dollar. To
date, the amount of administrative expenses and taxes paid in Luxembourg have
not been material and, as a result, we have not taken steps to minimise our
exposure to currency exchange fluctuations. In the future, our 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.
-28-
<PAGE>
BUSINESS
Overview and Company Objective
We are a research-driven growth orientated real estate company focused on
the U.S. real estate industry as it continues to move towards greater
securitisation. Our 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. We were established as a Luxembourg real estate company on 7
July 1995.
Our Research-Based Capital Deployment Strategy
Security Capital Group 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 Group 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.
Our Investment Criteria
Our performance is directly related to the ability of the companies in
which we invest to increase cash flow per share and maximise returns to
shareholders. We use the following criteria to identify opportunities to
implement our strategy.
Superior Management Teams
We believe 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. We seek to identify companies which are, or have the
potential to be, managed in accordance with effective business disciplines
designed to create shareholder value.
Strategic Focus
We seek 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, we seek to
identify investments to which we can add value by
(1) applying our capital,
(2) achieving 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
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<PAGE>
(3) 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 the management 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
organisational 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, we seek 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
We do not deploy capital into a real estate operating company unless we
believe 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.
We believe 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.
We seek 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 important, we seek to
influence each such strategic investee to incorporate value-added service and
marketing strategies to maximise cash flow.
We believe 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
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<PAGE>
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 groups, such as
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.
Our Operating Strategy
We deploy our capital in two principal ways: strategic investment positions
and special opportunity positions. Our primary operating strategy is to acquire
and manage strategic investment positions, which we believe is superior to
passive real estate ownership and passive stock ownership.
Strategic Investment Positions
We define strategic investment position as an investment which results in
us being the largest shareholder of a particular REIT, or a real estate
operating company which is expected in due course to become a REIT, achieving
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, we aim to have substantially all of our assets deployed in
strategic investment positions in REITs. As of 30 June 1999 we had
approximately 88.5% of our assets deployed in strategic investment positions. We
intend these to be long-term investments.
Our 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 the common equity. We seek to influence each strategic
investee to generate sustainable increases in cash flow per share in order to
achieve an increase in shareholder value. We expect to benefit from market
appreciation when we take private real estate companies public, depending on
overall equity market conditions, and to create short-term and long-term market
appreciation when we align ourselves with existing public real estate companies
that will benefit from our influence and oversight regarding areas of management
expertise, strategic direction and/or access to capital. To the extent that we
would determine that a strategic investee could not be expected to generate
attractive returns over the long term, we would consider selling any such
investment and redeploying capital in an existing or new strategic investment
position.
We will seek to maximise our 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. We will not take a strategic
investment position in a company unless we believe that our involvement has the
potential ultimately to result in the company being a leader in its business
niche.
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<PAGE>
Our strategic investment positions generally fall into two categories:
. Start-Up/Private Company Value Creation: We identify and assist in
assembling management teams which will pursue highly focused business
strategies in privately formed companies which are capitalised
initially by us. As these companies grow, and ultimately become
publicly-traded depending on overall equity market conditions, we
expect 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, we have 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, please read "--Overview of
Strategic Investment Positions--Grocery-Anchored Neighbourhood Infill
Shopping Centres: Regency Retail Corporation" below.
. Public Company Value Creation: We believe we 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. We focus on influencing these companies
strategically.
In the long term, the substantial majority of our 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 we believe is an inherently more
accurate and up-to-date valuation basis than the real estate appraisals
traditionally used by passive real estate investors. Furthermore, our strategic
investment positions should benefit from increased liquidity and expected
broader access to capital in the public markets.
We intend to influence each company in which we strategically invest 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.
. 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.
We intend that, each strategic investee will seek to be a leader in the
markets in which it operates, through application of these business principles,
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. We seek
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.
We primarily take 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 our rights, obligations and restrictions
with respect to our strategic investees, you should read the descriptions of our
agreements with each of our strategic investees in "--Agreements Between SC-U.S.
Realty and its Strategic Investees" below.
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<PAGE>
Special Opportunity Positions
As a result of Security Capital Group's ongoing research, we had previously
identified a number of publicly traded companies which provided attractive
investment opportunities and which we refer to as special opportunity positions.
We acquired up to 10%, but generally less than 5%, of the shares of such
companies. Our intention was to generally hold such positions for an
intermediate term of 12 to 18 months as "publicly traded positions", although
sale of such a position could occur sooner or later, depending on market or
business conditions and on whether the return objectives had been realised. Our
objective has been to realise attractive total returns through dividends and
share price appreciation and to provide an efficient method of maintaining a
portion of our assets in liquid investments, which assets may be redeployed on
short notice. As of 30 June 1999 we had $192.0 million in approximate market
value of special opportunity positions, excluding our investment in Security
Capital Group, which represented approximately 6.6% of our total assets. From
time to time, if we deem appropriate according to our criteria, we may seek to
turn a publicly traded special opportunity position into a strategic investment
position. In exceptional circumstances, and to a very limited extent, we may
take special opportunity positions in companies which are not publicly traded.
Typically, 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 we may take a strategic investment position in the future.
In 1999, we revised our strategy and determined to eliminate a significant
portion of our special opportunity positions. As of 31 December 1999, our
special opportunity positions represented investments in no publicly traded
companies and in six non-publicly traded companies. None of such investments, on
an individual basis, is material to us.
In 1996 we 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 we invested an additional $55 million in Security
Capital Group's initial public offering of common stock, bringing our total
investment in Security Capital Group to $165 million at cost, with a fair value
of approximately $120.3 million as of 30 June 1999, representing 4.1% of our
total assets at fair value as of such date. Our Board of Directors has
established a policy not to invest more than 10% of our assets in securities of
Security Capital Group and it expects that, in the long term, less than 5% of
our assets will be invested in securities of Security Capital Group. Our
purpose behind investing in Security Capital Group is to provide us 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 us. In January 2000, we announced an intention to sell the
securities of Security Capital Group we held. As part of this decision, we
wrote down the value these securities to approximately $95.8 million. In the
first quarter of 2000, we sold all the securities we held of Security Capital
Group, receiving net proceeds of $96.9 million and realising a loss on disposal
of $53.0 million.
We have acquired Security Capital Group's securities at arm's-length
prices. We currently have no intention to acquire additional securities of
Security Capital Group. The advisory fee which we pay to the Operating Advisor,
which is calculated on the basis of the net asset value of our investments, does
not reflect any assets invested in Security Capital Group.
Real Estate Acquisitions
We may from time to time acquire direct interests in U.S. real estate
although we do not have a current intention to acquire any real estate directly.
We would acquire any such interests 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. We intend not to hold direct interests in
real estate in the long term.
The Future
Our primary focus will be on achieving growth for our existing strategic
investment positions and identifying other real estate operating companies in
well-researched business niches which would be suitable strategic investment
positions for us. Security Capital Group continues to research and evaluate
other business niches which it believes may provide opportunities to form start-
up REITs.
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<PAGE>
Competition
There are numerous developers, operators, real estate companies and other
owners of real estate that compete with our strategic investees. Our strategic
investees compete on a regional and national basis with no individual market
being material to us as a whole. All of the properties of our 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 our strategic investees and therefore on the rents
charged by them. Our 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 our strategic investees.
Overview of Strategic Investment Positions
In accordance with our investment strategy, as of 30 June 1999 we have
funded a total of $3.0 billion at cost of equity capital to six U.S. real estate
operating companies, representing approximately 96.8% of the total amount we
committed to strategic investment positions. This capital has been, or we expect
it to be, deployed by these companies primarily in the acquisition of assets
consistent with their highly focused operating strategies. The following table
reflects our funded investments in each of our strategic investment positions:
As of 30 June 1999
(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................................... $ 699,902 $ 715,085(3) 24.6% 42.8%
City Center Retail............................ 304,113 304,113(4) 10.5 99.9
CWS Communities............................... 224,488 224,488(4) 7.7 96.4
Advance--CWS Communities...................... 24,000 24,000 0.8
Regency....................................... 759,806 751,869(3) 25.8 57.5
Storage USA................................... 394,360 375,030(3) 12.9 42.0
Urban Growth Property......................... 181,082 181,082(4) 6.2 98.7
---------- ---------- ----
Total strategic investment positions.......... $2,587,751 $2,575,667 88.5%
========== ========== ====
</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 35.6%, 99.9%, 81.1%, 53.1%, 37.3% and 98.7%,
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
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 our Board of Directors. All of
our private company investments have been reflected at cost as an
approximation of fair value for these recent investments.
The business niches and operating companies in which we have 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. CarrAmerica's
office properties are located primarily in 14 suburban markets across the
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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 Group'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.
On the supply side, Security Capital Group'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 Group'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 Group 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, we committed $250 million to
CarrAmerica, then called Carr Realty Corporation.
From our initial commitment in November 1995 to invest $250 million at
$21.47 per share of common stock, our investment at cost in CarrAmerica as of 30
June 1999 had increased to $700 million, at an average price per share of
$24.47, as a result of additional investments. As of 30 June 1999 we owned 42.8%
of CarrAmerica's outstanding common stock. On April 2000 CarrAmerica's common
stock closed at $ on the NYSE.
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The following table shows the high and low closing prices of CarrAmerica's
common stock on the NYSE during each quarter, or portion of a quarter, since the
quarter preceding our initial commitment:
High Low
Closing Price Closing Price
------------- -------------
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.............................. 26.50 20.94
Third Quarter............................... 24.63 21.50
Fourth Quarter.............................. 22.69 17.94
2000
First Quarter
Second Quarter (through April 2000).........
- -----------------------------
(1) Our initial commitment to invest in CarrAmerica was announced on 6 November
1995.
At the time of our 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. We 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 our proactive ownership role, we have 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 National Services Group, the
Market Officer Group and the National Development Group. The National 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 National Services Group in
identifying customers with new build-to-suit and multi-market requirements. The
National
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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", we believe 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.
We have helped CarrAmerica's Board of Directors and Investment Committee 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 $600 million of
office assets in 1998. We believe 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 June 1999 CarrAmerica
acquired 302 operating properties containing approximately 20.3 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:
(1) acquiring, developing, owning and operating office properties primarily
in markets throughout the United States that exhibit strong, long-term
growth characteristics and
(2) 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.
As of 30 June 1999, reflecting recent sales of non-strategic properties,
CarrAmerica owned interests in 258 operating properties containing approximately
21.6 million square feet of office space located in 14 markets, 35 properties
under construction that can contain approximately 2.9 million square feet of
office space at an expected cost at completion of approximately $437 million,
and land and options to acquire land that can support the development of up to
5.3 million square feet of office space. As of 30 June 1999 the operating
properties owned by CarrAmerica were 96.8% leased and the average rent per
leased square foot was $21.58. None of such properties, on an individual basis,
is materially important to CarrAmerica or to us. CarrAmerica serves over 2,500
different customers.
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The following table provides an overview of CarrAmerica's portfolio by
market as of 30 June 1999:
Market Number Square % Of Total
- ------ Of Footage Of Portfolio
Operating Operating Square
Properties Properties Footage(1)
---------- ---------- ----------
Washington, D.C.
Downtown........................ 7 2,134,000 9.9%
Suburban........................ 4 857,000 4.0%
Atlanta........................... 13 1,657,000 7.7%
Boca Raton, Florida............... 3 542,000 2.5%
Orange County/Los Angeles......... 12 1,647,000 7.6%
San Diego......................... 6 630,000 2.8%
San Francisco Bay................. 26 5,297,000 24.6%
Portland, Oregon.................. 2 126,000 0.6%
Seattle, Washington............... 7 1,353,000 6.3%
Austin, Texas..................... 8 1,212,000 5.6%
Chicago........................... 7 1,661,000 7.7%
Dallas............................ 9 1,500,000 7.0%
Denver............................ 7 1,138,000 5.3%
Phoenix........................... 7 1,311,000 6.1%
Salt Lake City.................... 3 494,000 2.3%
--- ---------- ------
Total........................... 121 21,559,000 100.0%
=== ========== ======
In August 1997 OmniOffices, Inc., 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 April of 1999,
OmniOffices changed its name to HQ Global Workplaces, Inc. As of 30 June 1999 HQ
Global Workplaces operated over 224 executive office suite centres located in 80
major U.S. and European markets. As of that date, HQ Global Workplaces also had
41 executive office suite centres under development. In conformance with
limitations under the tax laws relating to REITs, HQ Global Workplaces 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.
On 21 January 2000, CarrAmerica announced that HQ Global Workplaces
had entered into a merger agreement with VANTAS, a company majority owned by
Frontline Capital Group. The combined company, which will retain the name HQ
Global Workplaces, is expected to have 463 owned, managed or franchised centers
in 17 countries. As part of the transaction, CarrAmerica will receive $380
million in cash and approximately 19% of the equity in the new company. The
transaction is expected to be completed by the end of April 2000.
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 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 & Poor's 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 42.1% as of 30 June 1999. As of 30 June
1999 CarrAmerica had outstanding four series of preferred stock with an
aggregate liquidation preference of $417.0 million. As of 30
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June 1999 CarrAmerica's total indebtedness was $1.7 billion. CarrAmerica has
achieved a significant increase in per share cash flow and we believe that it is
continuing to build a solid foundation for future growth.
CarrAmerica's experienced staff of over 1,800 employees, including
approximately 500 on-site building and approximately 1,000 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 Securities and Exchange Commission at the
following address: Public Reference Room, 450 Fifth Street, N.W., Washington,
D.C. 20549. For information concerning certain agreements between CarrAmerica
and us which relate to, among other things, our rights to nominate directors of
CarrAmerica, participate in future equity issuances by CarrAmerica and consult
with CarrAmerica about certain significant matters, please read "--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.
Based on Security Capital Group's strategic research, we believe 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 27,500 self-storage facilities in the United States. We
believe that self-storage facilities are generally not professionally or
efficiently managed and customers are underserved because owners generally lack
a critical mass of ownership.
Demand from both consumers and commercial users, for self-storage continues
to grow and we believe that self-storage continues to present an attractive
capital deployment opportunity. There has been a recent increase in consumer
demand in the self-storage market. The U.S. is an extremely mobile society. This
creates a 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. We expect that demand from
consumers will continue to grow as market awareness increases.
There has also been a recent increase in 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 entrepreneurs depend on self-storage facilities to
house their inventories and equipment in a flexible and cost-effective manner.
In 1996 we decided to invest in Storage USA because we 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, we believed that Storage USA had the potential to
become the "brand leader" of the self-storage industry.
From our initial commitment in February 1996 to invest $220 million at
$31.30 per share of common stock, our investment at cost in Storage USA as of 30
June 1999 had increased to $394 million, at an average price per share of
$33.52, as a result of additional investments. As of 30 June 1999 we owned 42.0%
of Storage USA's outstanding common stock. On April 2000, Storage USA's common
stock closed at $ on the NYSE.
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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 our initial commitment:
High Low
Closing Price Closing Price
------------- -------------
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............................. 35.06 28.50
Third Quarter................................ 31.81 26.44
Fourth Quarter............................... 30.25 26.88
2000
First Quarter................................
Second Quarter (through April 2000)........
- -----------------------------
(1) Our initial commitment to invest in Storage USA was announced on 1 March
1996.
At the time of our investment in Storage USA, we 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 we
could help create a strategic organisational plan which would provide the
executive leadership necessary for growth and focus on developing growth
opportunities. Through representation on the board of directors of Storage USA,
we have 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:
internal growth through continued improvement in operating results at owned
properties, external growth through acquisitions, current investment for
enhanced long-term returns through development, and the franchising of Storage
USA's self-storage concept.
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. By regularly scheduling 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
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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, $353 million in 1997, $279 million in 1998 and $46 million in the first
six months of 1999, expanding its target markets to locations in 39 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 June 1999 Storage USA had 28 facilities under construction or in
planning, totaling approximately 2.2 million square feet, at an estimated cost
of $146 million. As of 30 June 1999 the average physical occupancy of the 397
facilities owned by Storage USA was 84.3%.
At 30 June 1999 Storage USA owned 397 facilities containing 26.6 million
net rentable square feet and managed for others or in joint ventures 96
facilities containing an additional 6.2 million net rentable square feet in 24
states and the District of Columbia. None of such properties, on an individual
basis, is materially important to Storage USA or us. As of 30 June 1999 Storage
USA employed approximately 1,850 employees, of whom approximately 370 were
employed part time at fewer than 30 hours per week on a regular basis.
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<PAGE>
The following table provides an overview of Storage USA's portfolio by
market:
Storage USA, Inc.
Market Analysis of All Properties
As of 30 June 1999
Number Of Available
State Properties Square Feet
- ----- ---------- -----------
Alabama............................. 1 36,250
Arizona............................. 18 1,081,500
California.......................... 73 5,394,022
Colorado............................ 2 156,214
Connecticut......................... 7 543,734
Florida............................. 28 2,160,857
Georgia............................. 6 439,147
Illinois............................ 1 76,341
Indiana............................. 22 1,031,234
Kansas.............................. 1 47,550
Kentucky............................ 6 306,183
Maryland............................ 11 720,565
Massachusetts....................... 16 1,166,853
Michigan............................ 14 910,120
Missouri............................ 1 61,805
Nevada.............................. 11 764,293
New Jersey.......................... 15 995,130
New Mexico.......................... 10 561,424
New York............................ 22 1,588,824
North Carolina...................... 7 460,881
Ohio................................ 25 1,525,576
Oklahoma............................ 14 891,096
Oregon.............................. 3 203,180
Pennsylvania........................ 9 586,029
Tennessee........................... 36 2,358,502
Texas............................... 21 1,481,580
Utah................................ 2 137,135
Virginia............................ 14 876,515
Washington.......................... 1 62,550
--- ----------
Total............................ 397 26,625,090
=== ==========
Competition from other self-storage facilities exists in every market in
which Storage USA's 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, based on the quality of its facilities and its customer service-oriented
managers and amenities, Storage USA's strategy is to lead particular markets in
terms of prices.
Storage USA monitors the development of self-storage facilities in its
markets. They have facilities in several markets where they believe
overbuilding has occurred, including: Atlanta GA, Las Vegas NV, Albuquerque NM,
Nashville TN, Portland OR and Dallas TX. In these markets, Storage USA may
experience a minimal reduction in physical occupancy and less growth in rental
rates than other markets. As a result of the geographic diversity of its
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portfolio, Storage USA does not expect the excess supply in these markets to
have a significant impact on its financial condition or results of operations.
Storage USA reports that it is the second largest owner and operator of
self-storage space in the United States as of March 22, 1999. There are four
other publicly traded REITs and numerous private and regional operators. These
other companies may be able to accept risk than Storage USA can prudently
manage. This competition may reduce the number of suitable acquisition
opportunities offered to Storage USA and increase the price required to acquire
particular facilities. Further, Storage USA believes that competition could
increase from companies organised with similar objectives. Nevertheless, Storage
USA believes that the operations, development, and financial experience of its
executive officers and directors along with its customer-oriented approach to
management of self-storage facilities should enable it to compete effectively.
Storage USA is a publicly traded company and information concerning Storage
USA can be obtained from the Securities and Exchange Commission at the addresses
listed under "--Overview of Strategic Investment Positions--Office: CarrAmerica
Realty Corporation" above. For information concerning certain agreements
between Storage USA and us which relate to, among other things, our rights to
nominate directors of Storage USA, participate in future shares issuances by
Storage USA and consult with Storage USA about certain significant matters, you
should read "--Agreements Between SC-U.S. Realty and its Strategic Investees"
below.
Grocery-Anchored Neighbourhood Infill Shopping Centres: Regency Realty
Corporation
Security Capital Group'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 Group
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 Group'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 Group's research showed that changing
demographics were affecting shopping patterns and that, 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 Group'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 Group'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. We believe 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 Group 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 Group 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.
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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 last time Regency publicly provided a business and property
description, the following discussion provides information separately for the
two companies. Once Regency has presented results on a combined basis, it is
our intention to combine the following discussion.
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 our
investment to take advantage of attractive acquisition and development
opportunities in its target markets.
From our initial commitment in June 1996 to invest $132.2 million at
$17.625 per share of common stock in Regency and $200 million in Pacific Retail
in October 1995, our investment at cost in Regency, following the merger, has
increased to $759.8 million as of 30 June 1999 at an average price per share of
$22.17, as a result of additional investments. As of 30 June 1999 we owned 57.5%
of Regency's outstanding common stock. On April 2000, 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 our initial commitment:
High Low
Closing Price Closing Price
------------- -------------
1996
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
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............................. 22.44 19.13
Third Quarter.............................. 21.94 19.94
Fourth Quarter............................. 20.63 18.75
2000
First Quarter..............................
First Quarter (through April 2000).........
- -----------------------------
(1) Our initial commitment to invest in Regency was announced on 12 June 1996.
At the time of our investment in Regency, we 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
(1) to generate superior shareholder returns by sustaining above-average
annual increases in funds from operations and long-term growth in free cash
flow,
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(2) to create the largest real estate portfolio of quality grocery-
anchored neighbourhood shopping centres in targeted infill markets in
the United States,
(3) 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
(4) 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 30 June 1999 comprised 214 neighbourhood infill
shopping centres, 24.7 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 30 June 1999 the real estate
portfolio was 92.3% leased and had average annualised rents of $10.43 per square
foot. None of such properties, on an individual basis, is materially important
to Regency or us. As of 30 June 1999 Regency employed approximately 340 people.
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The following table provides an overview of Regency's portfolio by market
as of 30 June 1999:
Company-Owned
Location Number Of Gross Leasable %
- -------- Properties Area (Sq. Ft.) Leased
---------- --------------- ------
Florida..................... 48 5,894,467 90.5%
Texas....................... 30 4,084,686 85.6
California.................. 36 3,820,264 96.0
Georgia..................... 27 2,718,554 93.1
Ohio........................ 14 1,892,686 93.3
North Carolina.............. 12 1,241,633 97.5
Colorado.................... 9 865,031 95.8
Washington.................. 8 851,485 93.7
Oregon...................... 6 583,704 94.3
Alabama..................... 5 516,060 99.5
Tennessee................... 4 388,357 96.8
Arizona..................... 2 326,984 99.8
Delaware.................... 1 232,752 96.1
Kentucky.................... 1 205,060 92.3
Virginia.................... 2 197,324 96.1
Mississippi................. 2 185,061 94.7
Illinois.................... 1 178,600 85.9
Michigan.................... 2 177,399 81.5
South Carolina.............. 2 162,056 98.2
Missouri.................... 1 82,498 98.4
Wyoming..................... 1 75,000 81.3
--- ---------- ----
Total.................... 214 24,679,661 92.3%
=== ========== ====
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 30 June 1999 Regency had 25 centres which are either in the
process of being completed or are undergoing development or redevelopment with
an anticipated total cost of approximately $327 million on a completed cost
basis.
Regency is a publicly traded company and information concerning Regency can
be obtained from the Securities and Exchange Commission at the address listed
under "--Overview of Strategic Investment Positions--Office: CarrAmerica Realty
Corporation" above. For information concerning certain agreements between
Regency and us which relate to, among other things, our rights to nominate
directors of Regency, participate in future share issuances by Regency and
consult with Regency about certain significant matters, you should read "--
Agreements Between SC-U.S. Realty and its Strategic Investees" below.
Urban Infill Retail: City Center Retail Trust
In the second quarter of 1997, we 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
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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 Group's strategic research in the retail sector uncovered
several key trends in the United States which Security Capital Group 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 Group'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 Group 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 Group'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 us 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 30 June 1999 we 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, we owned 99.9% of City Center Retail's equity capital.
City Center Retail has four properties which are materially important, on
an individual basis to its operations, although none of such properties, on an
individual basis, is materially important to us. 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 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 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 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. 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.
As a result of our 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 through our funding.
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As of 30 June 1999 City Center Retail had made investments in 28 projects
for an aggregate cost of $488 million at full funding containing approximately
2.1 million square feet. As of such date, City Center Retail had 5 projects
under development and/or redevelopment with an expected total cost at completion
of approximately $177 million.
City Center Retail is still in the early stages, acquiring a critical mass
of properties and developing a value-added operating system. In the long term,
City Center Retail's goal is to become the preferred provider of urban retail
space in meeting the national real estate needs of its customers. For
information concerning agreements between City Center Retail and us which relate
to, among other things, our rights to nominate trustees of City Center Retail
and consult with City Center Retail about certain significant matters, you
should read "--Agreements Between SC-U.S. Realty and its Strategic Investees"
below.
Manufactured Housing Communities: CWS Communities Trust
In December 1997 we established CWS Communities Trust, a private start-up
real estate operating company which is taxed as a REIT. CWS Communities
acquires, develops and owns manufactured housing communities in selected target
markets throughout the U.S. Our 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 Group's strategic research, we believe 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. We
believe that supply is constrained due to the difficulty of identifying
attractive sites and receiving zoning approval by municipalities for new
development.
In December 1997 we committed to invest $300 million in common shares of
CWS Communities at $10.00 per common share. As of 30 June 1999 we had funded
$224 million of our commitment and owned 96.4% of CWS Communities' equity
capital. We expect that we will own approximately 80% of CWS Communities upon
full funding of our commitment.
CWS Communities is one of the largest private owners, operators and
developers of manufactured housing communities in the United States. As of 30
June 1999 CWS Communities owned and operated or had under contract to acquire or
develop a total of 41 communities with over 16,300 spaces in nine states for a
total estimated cost of approximately $410 million. None of such properties, on
an individual basis, is materially important to CWS Communities or to us.
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 our remaining $76 million unfunded commitment. As of 30 June 1999
CWS Communities was expanding two existing communities which have a total
expected investment of approximately $2 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.
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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. For information concerning certain agreements between CWS
Communities and us which relate to, among other things, our right to nominate
trustees of CWS Communities and consult with CWS Communities about significant
matters, you should read "--Agreements Between SC-U.S. Realty and its Strategic
Investees" below.
Urban Infill Parking: Urban Growth Property Trust
In April 1997, we 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 Group's strategic research, we believe 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 Group's research also indicates that the underlying demand,
supply and growth fundamentals for parking lots and car parks in urban infill
and certain 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 properties it owned as of 30 June 1999 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 $ million. None of such properties, on an individual basis, is
materially important to Urban Growth Property or to us.
As of 30 June 1999 we had funded $ million and owned % 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. For information concerning certain agreements between Urban Growth
Property and us which relate to, among other things, our rights to nominate
trustees of Urban Growth Property and consult with Urban Growth Property about
certain significant matters, you should read "--Agreements Between SC-U.S.
Realty and its Strategic Investees" below.
Description of Property
We do not hold any direct interests in real estate.
Legal Proceedings
We and our wholly-owned subsidiaries currently are not parties to any legal
proceedings.
AGREEMENTS BETWEEN SC-U.S. REALTY AND ITS STRATEGIC INVESTEES
CarrAmerica
As long as we own at least 25%, by value, of CarrAmerica's outstanding
shares of common stock on a fully diluted basis as a "25% Owner", we are
generally entitled to nominate for election by stockholders that number of
directors to CarrAmerica's board of directors that corresponds to our 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 our nominees.
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As long as we are a 25% Owner, we are entitled, subject to certain
exceptions, to a participation right to purchase or subscribe for up to 30%, or
up to 35% if necessary for us 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. We have 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 we are a 25% Owner, CarrAmerica is required to consult with us
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 our commitment to assist CarrAmerica to become the leading
owner, operator and developer of office properties in the United States, we have
committed, subject to certain limitations and exceptions, that while we are a
25% Owner, we will not invest in other companies in a similar industry to
CarrAmerica or in the types of properties owned by CarrAmerica.
We are subject to a standstill agreement which prohibits us 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 5% of any class of voting
capital stock of CarrAmerica, making certain transfers of our 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 our nomination rights discussed above. The standstill expires in April 2001,
and will be automatically extended for one-year periods unless we elect to
terminate the standstill, but the standstill terminates earlier if, among other
things,
(1) any person other than us 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 we are entitled,
(2) 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,
(3) certain events of default occur under debt arrangements of CarrAmerica or
its subsidiaries, or
(4) 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, we are 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 us and our affiliates, from acquiring
additional shares of CarrAmerica's capital stock if, as a result of such
acquisition, foreign investors, including us, would hold, directly or
indirectly, 50% or more of the fair market value of such capital stock, for
these purposes, we are assumed to own 45% of such capital stock. Because we
owned 42.8% of CarrAmerica's outstanding common stock as of 30 June 1999, these
provisions would effectively limit significant further investment in CarrAmerica
by non-U.S. investors.
Storage USA
As long as we own 20% or more of Storage USA's outstanding shares of common
stock as a "20% Owner", we are generally entitled to nominate for election to
Storage USA's board of directors such number of directors as corresponds to our
percentage ownership of the outstanding shares of common stock. Storage USA's
board currently
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consists of nine directors, of which three are our nominees. Storage USA's
charter requires that a majority of the directors on its board be independent.
As long as we own 15% or more of Storage USA's outstanding shares of common
stock, we are 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 our 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. We have 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 we are a 20% Owner, Storage USA is required to consult with us
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 our commitment to assist Storage USA to become the pre-eminent
national owner, operator and developer of self-storage facilities in the United
States, we have committed, subject to certain limitations and exceptions, that
while we are a 20% Owner, we will not invest in other companies in a similar
industry to Storage USA.
We are subject to a standstill agreement which prohibits us from, among
other things, acquiring more than 42.5% 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 our capital stock, or seeking representation on
Storage USA's board of directors other than with respect to our nomination
rights summarised above. The standstill expires in 2003, and will be
automatically extended for one-year periods unless we elect to terminate the
standstill, but the standstill terminates earlier if, among other things,
(1) 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 we are entitled,
(2) 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,
(3) certain events of default occur under debt arrangements of Storage USA
or its subsidiaries, or
(4) 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, we are
generally permitted to acquire up to 42.5% of the outstanding shares of common
stock. We have 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 we can acquire under the standstill agreement referred to
above.
Storage USA's organisational documents contain provisions generally
preventing foreign investors, other than us and our affiliates, from acquiring
additional shares of Storage USA's capital stock if, as a result of such
acquisition, foreign investors, including us, would hold, directly or
indirectly, 50% or more of the fair value of such capital stock.
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Regency
As long as we own 20% or more of Regency's outstanding shares of common
stock as a "20% Regency Owner", we are 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 our
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 our nominees.
As long as we own 15% or more of Regency's outstanding shares of common
stock as a "15% Owner", we are 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 our 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. We have 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 we are a 20% Regency Owner, Regency will be required to consult
with us 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.
As part of our commitment to assist Regency to become the leading owner,
operator and developer of grocery-anchored neighborhood infill shopping centres
in the eastern United States, we have committed, subject to certain limitations
and exceptions, while we are 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 us
to acquire up to
(1) 60% of the outstanding shares of Regency common stock on a fully
diluted basis so long as we own 45% or more of the outstanding shares
of Regency common stock on a fully diluted basis, and
(2) 49% of the outstanding shares of Regency common stock on a fully
diluted basis at any time after we own less than 45% of the
outstanding shares of Regency common stock on a fully diluted basis
for a continuous period of 180 days.
We have 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,
we will vote our 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 our option:
(1) in accordance with the recommendation of the Regency board of
directors, or
(2) 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, we will vote our 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 our
option:
(1) in accordance with the recommendation of the Regency board of
directors, or
(2) proportionately in accordance with the votes of the other holders of
Regency common stock.
We are subject to a standstill agreement which prohibits us 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,
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acting in concert with third parties to acquire over 5% of any class of voting
capital stock of Regency, making certain transfers of our 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 our
nomination rights discussed above. The standstill expires in July 2001, and will
be automatically extended for one-year periods unless we elect to terminate the
standstill, but the standstill terminates earlier if, among other things,
(1) any person other than us 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 we are entitled,
(2) 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,
(3) certain events of default occur under debt arrangements of Regency or
its subsidiaries, or
(4) 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 us and our affiliates, from acquiring additional
shares of Regency's capital stock if, as a result of such acquisition, foreign
investors, including us, 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 us, would hold, directly or indirectly, 5% or
more of the fair market value of such capital stock. Since we owned 61.3% of
Regency's shares of common stock on a fully funded and fully diluted basis as of
30 June 1999, these provisions would effectively limit further investment in
Regency by non-U.S. investors.
City Center Retail
As long as we own 10% or more of City Center Retail's outstanding common
shares, we are entitled to nominate for election to City Center Retail's board
of trustees such number of trustees as corresponds to our percentage ownership
of the outstanding common shares.
As long as we own 50% or more of City Center Retail's outstanding common
shares, we have consultation rights, and as long as we own less than 50% but at
least 20% of the outstanding common shares, City Center Retail is required to
obtain our 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 we own 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 we own 10% or more of CWS Communities' outstanding common
shares, we are 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, we will be entitled to nominate
for election to CWS Communities' board of trustees such number of trustees as
corresponds to our percentage ownership of the outstanding shares.
As long as we own 50% or more of CWS Communities' outstanding common
shares, we have consultation rights, and as long as we own less than 50% but at
least 20% of the outstanding common shares, CWS Communities is required to
obtain our approval of its annual operating budget; major acquisitions,
dispositions or developments of
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assets; certain sales of shares or convertible securities; major financings;
certain agreements for the management of properties, as long as we own 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 we own 10% or more of Urban Growth Property's outstanding common
shares, we are entitled to nominate for election to Urban Growth Property's
board of trustees such number of trustees as corresponds to our percentage
ownership of the outstanding shares.
As long as we own 50% or more of Urban Growth Property's outstanding common
shares, we have consultation rights, and as long as we own less than 50% but at
least 20% of the outstanding common shares, Urban Growth Property is required to
obtain our 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 we own 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 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.
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VALUATION AND INVESTMENT RESTRICTIONS
Valuation
Pursuant to our Articles of Incorporation, we are required to report our
net asset value or NAV annually. We intend to calculate our NAV and report it to
major news services for international publication on a quarterly basis. In order
to determine our NAV, we subtract total liabilities and the original
contribution amount for any preferred shares from total asset value, then divide
by the number of shares (other than preferred shares) outstanding as of each
valuation day.
Total asset value will be based primarily upon the NYSE market price of our
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 our assets.
Private company investments are valued on the basis of the probable net
realisation value estimated with prudence and in good faith by our Board of
Directors. For private company investments in which we have an ownership
interest, we will, whenever our 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. Our 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 of our assets. 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, we will use the market price of such shares
for NAV purposes. We expect the shares of all of our 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 our Articles of Incorporation, be deemed
to be the full amount. 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 of our assets.
The foregoing is a summary of the key elements of the calculation of our
NAV.
Investment Restrictions
The Board of Directors have established the following investment
restrictions:
. We 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 us. We
may also invest up to 10% of our assets in securities of Security
Capital Group, although our directors expect that in the long term
less than 5% of our assets will be invested in securities of Security
Capital Group. We 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 greater detail
in "--Agreements between SC-U.S. Realty and its Strategic Investees"
above .
. In order to achieve a minimum spread of investment risks, we are not
permitted to invest more than 20% of our 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, we may not invest more than 20% of our net
assets in a single real
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estate company that is not a strategic investee. As of 30 June 1999 we
were 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 our Articles of Incorporation, the aggregate
of all our borrowings may not exceed on average 50% of the aggregate
valuation of the sum of our debt and equity interest in our real
estate companies and direct properties and property rights. The long-
term targeted maximum debt percentage is 30% to 40%.
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PRINCIPAL SHAREHOLDERS
The following table sets forth, as of 31 December 1999, the ownership of
shares of SC-U. S. Realty for each person known to us to be the owner of more
than 10% of the shares and the officers and Directors as a group. No American
Depositary Receipts or ADRs being registered hereby were outstanding on that
date. As described in greater detail below under "Description of American
Depositary Shares--Rule 144 American Depositary Receipt Facility", we have a
Rule 144A ADR facility which we plan to terminate.
||
Percent of
Amount Outstanding
Name of Owner Owned Shares
------------- -------------- ----------
SC Realty Shares Limited................... 30,386,683(1) 37.7
All officers and directors as a group...... 24,643 0.03
||
- -----------------------------
(1) SC Realty Shares Limited, a Bermuda company, is an indirectly wholly-owned
subsidiary of Security Capital Group. Excludes 15,000 shares owned of
record by the Operating Advisor.
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NATURE OF TRADING MARKET
Market Prices
Our shares have traded on the AEX Stock Exchange in Amsterdam since 27 June
1996. On April 2000 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 the periods since trading
began:
High Low
Closing Price Closing Price
------------- -------------
1996
Third Quarter........................... $23.00 $20.80
Fourth Quarter.......................... 25.60 21.60
1997
First Quarter........................... 29.00 25.40
Second Quarter.......................... 32.00 26.80
Third Quarter........................... 30.60 28.00
Fourth Quarter.......................... 31.00 27.00
1998
First Quarter........................... 32.00 26.20
Second Quarter.......................... 28.00 24.40
Third Quarter........................... 26.00 19.80
Fourth Quarter.......................... 21.20 16.00
1999
First Quarter........................... 19.60 15.40
Second Quarter.......................... 19.50 15.40
Third Quarter........................... 19.00 16.50
Fourth Quarter.......................... 17.00 13.20
2000
First Quarter...........................
Second Quarter (through April 2000).....
________________________________
(1) All prices prior to 18 June 1999 have been revised to reflect the one-
for-two reverse stock split effective on that date.
Source: Bloomberg Financial Markets.
The shares are also listed on the LSE, but no substantial trading of shares
has occurred on the LSE.
Our American Depositary Shares or ADSs have traded on the NYSE since 24 June
1999. On April 2000, the closing price per ADS on the NYSE, as quoted by
Bloomberg Financial Markets, was $ . The following table shows the high
and low closing prices of the American Depositary Shares on the NYSE during the
periods since trading began:
High Low
Closing price Closing price
------------- -------------
1999
Second Quarter........................ 18.5625 18.500
Third Quarter......................... 19.2500 18.250
Fourth Quarter........................ 18.3125 13.625
2000
First Quarter.........................
Second Quarter (through April 2000)...
||
There has been no market for the Convertible Notes.
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DIRECTORS AND MANAGERS
The board of directors of SC-U.S. Realty and the board of directors of
Holdings have the broadest powers to act in any circumstances on our behalf,
subject to the powers expressly assigned by applicable law to the general
meetings of shareholders.
The boards of directors are responsible for our overall investments and
administration and for the adoption and implementation of our policies.
The directors must review and, if appropriate, approve, among other
matters:
. our 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 our
registrar and transfer agent, and our officers;
. all our issuances of shares and our 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 we have 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 our Managing Director, in
which capacity he is responsible for our day-to-day investment and operating
oversight. 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 SC-U.S. Realty, 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.
Holdings' board of directors has appointed Mr. Cozad as Managing Director,
in which capacity he is responsible for day-to-day investment and operating
oversight.
We believe that directors should have financial interests closely aligned
with shareholders. To help to assure this alignment, we granted share option
equivalents to our independent directors at the time of our initial private
equity offering in October 1995 and at certain later dates, as described below.
Each director in office at the time of the initial private equity offering
received a share option equivalent of 25,000 shares, $500,000 at the initial
private offering price of $20 per share. The share option equivalent does not
represent a right to purchase 25,000 shares at $20 per share; rather, it
represents the right to receive a restricted cash payment equal to the excess,
if any, of the NAV of 25,000 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
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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, $21.90 per share. Mr. Didier J.
Cherpitel, currently an advisory director, who was appointed as a director 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, $28.88
per share. Dr. Erich Coenen and Francois Moes, who were appointed as directors
on 16 October 1998 when Didier J. Cherpitel and Alfred Knor 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, $17.20 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, $19.60 per share. Mr. Knor has exercised share option
equivalents representing a restricted cash payment of $47,750, 12,500 shares
multiplied by the difference in NAV on the date he received the share option
equivalent and 31 December 1998, pursuant to which he received 1,856 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. We intend 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.
We do not have any employees. Our 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 our
operating advisory activities are handled by the Operating Advisor and the Sub-
Advisor. Our directors and officers and those of 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. Our officers work under the supervision of
the Managing Director and do not themselves make policy decisions on our behalf.
Security Capital U.S. Realty
Directors
Erich Coenen (57) has been a director of SC-U.S. Realty 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 SC-U.S. Realty 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 of our shares.
Claude Kremer (42) has been a director of SC-U.S. Realty 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 SC-U.S. Realty 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
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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.
Francois Moes (51) has been a director of SC-U.S. Realty 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 SC-U.S. Realty
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 (33) has been a Vice President of SC-U.S. Realty 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 (43) has been Treasurer of SC-U.S. Realty and Security
Capital Holdings S.A. since January 1999, where he is responsible for treasury
and cash management functions. Mr. Fell joined us in September 1997 with cash
management responsibilities. Prior to joining us, 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 Senior Vice President of SC-U.S. Realty
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 SC-U.S. Realty since
March 1996. Prior to joining us, 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.
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
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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.
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.
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.
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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, 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.
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 "Directors and Managers" above. We do not separately compensate our
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 below, SC-U.S. Realty, will pay out of their assets
all expenses which shall include, but not be limited to,
(1) the fees and expenses payable or reimbursable to the Operating Advisor
and expenses payable to the Sub-Advisor;
(2) 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 us;
(3) any fees and expenses involved in registering and maintaining our
registration with any governmental agency or stock exchange in
Luxembourg, the United States and in any other country;
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(4) 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 our shareholders;
(5) all taxes, duties, governmental and similar charges; and
(6) all other operating expenses, as more fully described below, including
all costs of buying and selling assets or raising capital, interest,
bank charges and brokerage, postage, telephone and telex.
We 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.
We shall pay, the following operating and administrative expenses or
investment and financing costs, regardless of whether such expenses or costs are
capitalised or expensed under GAAP, and, if the Operating Advisor advances money
for any of such expenses or costs, it shall be entitled to reimbursement by us
for the following:
(1) 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 use or evaluating, investigating, negotiating or closing the
purchase, financing, refinancing or sale of our investments;
(2) all other costs and expenses relating to our operations, 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 our shares;
(3) expenses in connection with payments of distributions in cash or any
other form made or caused to be made by our board of directors to or
on account of holders of our shares;
(4) expenses connected with communications to holders of our shares 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 our
shares;
(5) 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 our 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
(6) expenses relating to any office or office facilities maintained for us
separate from the office or offices of the Operating Advisor.
Director Compensation
We will pay each of the directors a remuneration 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 our meetings. We paid
a total of $103,000 as compensation to all directors as a group during 1998. We
have no employees and therefore we do not compensate any officers.
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Operating Advisor Fees
The Operating Advisor will receive for the services it provides a fee of
1.25% per annum payable quarterly in arrears, pursuant to the Advisory Agreement
of the average monthly value of funds invested by us, 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 SC-U.S. Realty and half by Holdings. The Operating
Advisor has received fees for these services for the periods from 7 July 1995,
the date of our incorporation, to 31 December 1995, from 1 January 1996 to 31
December 1996, from 1 January 1997 to 31 December 1997, from 1 January 1998 to
31 December 1998 and from 1 January 1999 to 30 June 1999 of $99,000, $8,041,000,
$24,632,000, $35,220,000 and $16,713,000, respectively.
We will pay or reimburse the Operating Advisor, as appropriate, for the
operating and administrative expenses or costs described above in U.S. Dollars.
However, we do not pay or reimburse the Operating Advisor for any 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 us, 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. To the extent that we incur any of these
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 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 in the amount of the excess of these
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, our other costs are not expected to exceed 0.25% per annum of the
average monthly value of funds invested by us, other than funds placed in
liquid, short-term investments pending further investment, or investments in
Security Capital Group securities, in any calendar year.
Options to Purchase Securities
We have no outstanding options to purchase securities.
Interests of Directors in Certain Transactions
Erich Coenen has been our director 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 our line of credit and acted in a
similar capacity with regard to the Holdings line of credit.
Claude Kremer has been our director since January 1999 and has been a
partner with the law firm of Arendt & Medernach since 1982. Arendt & Medernach
has provided legal services to us since its formation.
Francois Moes has been our director since October 1998 and has been a
member of the executive board of BIL since 1990. BIL provides all custodial
duties for us, 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.
Interests of the Operating Advisor in Certain Transactions
The Operating Advisor provides us with advice with respect to strategy,
investments, financing and certain other administrative matters affecting us.
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
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and its affiliates have committed significant resources to researching and
developing our strategy, and the Operating Advisor advises on the management of
our operations to execute this strategy.
The Operating Advisor analyses potential opportunities for us 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 us to deploy our capital. The
Operating Advisor believes that there are a number of specific additional
opportunities in which we could generate significant returns by strategically
deploying our capital.
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. We believe 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 us 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 our investment criteria.
The Operating Advisor provides services to us 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 we 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 we 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, Mark P. Duke and William D. Sanders.
Subject to the prior approval of our board of directors, 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.
Please read "Operating Advisor" and "Relationship with Security Capital Group"
for more information concerning our relationship with 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 us, which conducts
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.
We have appointed Security Capital European Services S.A. as our agent (the
"Domiciliary Agent") and service agent (the "Service Agent") responsible for our
domiciliation 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 us 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
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registered office is at 25b, boulevard Royal, L-2449 Luxembourg. Its share
capital amounted to $50,000 as of 30 June 1999.
Also see "Charges and Expenses" above for more information concerning the
affiliates of the Operating Advisor.
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DESCRIPTION OF CONVERTIBLE NOTES
The Convertible Notes were issued under the Indenture dated as of 22 May 1998
between SC-U.S. Realty and State Street Bank and Trust Company, as Trustee. The
following description is subject to, and is qualified in its entirety by
reference to, all of the provisions of the Convertible Notes, the Indenture and
the related registration rights agreement between SC-U.S. Realty and the initial
purchasers of the Convertible Notes (the "Registration Rights Agreement").
General
The Convertible Notes represent our senior unsecured general obligations, and
are convertible into our shares which the holder may convert into American
Depositary Shares. The Convertible Notes are the only series of debt securities
that have been issued under the Indenture. The Convertible Notes rank equally
with all of our existing and future senior unsecured indebtedness. The
Convertible Notes mature at their aggregate principal amount at maturity on 22
May 2003, unless the holder has previously converted them or unless we have
redeemed them.
Except as described in "--Certain Limitations on Incurrence of Indebtedness"
below, the Indenture does not contain any financial covenants or restrictions on
the incurrence of indebtedness, the payment of dividends or the issuance or
repurchase of our securities. Financial covenants or restrictions on any future
series of debt securities which may be issued under the Indenture will not,
unless otherwise provided at that time, apply to the Convertible Notes. In
addition, the Indenture contains no covenants or other provisions to afford
protection to holders of Convertible Notes in the event of a highly leveraged
transaction, although holders of Convertible Notes have certain rights upon a
change in control. Please read "--Repurchase at Option of Holders Upon Change
in Control".
We pay interest on the Convertible Notes semi-annually at the rate of 2% per
annum in cash in arrears on 8 May and 22 November of each year to holders of
record at the close of business on the preceding 8 May and 8 November,
respectively. The interest paid by us on the Convertible Notes has been
computed on the basis of a 360-day year comprised of twelve 30-day months. The
Convertible Notes have borne interest from 22 May 1998. The Convertible Notes
were sold at a discount to their aggregate 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.
Principal, premium, if any, and accrued and unpaid interest, including
liquidated damages, if any, on the Convertible Notes is paid, and the
Convertible Notes may be presented for conversion, registration of transfer and
exchange, without service charge, at the offices of the Trustee, security
registrar, paying agent and conversion agent maintained for such purpose in
Boston, Massachusetts and in Luxembourg. In connection with any conversion,
registration or transfer and exchange, we may require payment by a holder of a
sum sufficient to cover any tax, assessment or other governmental charge payable
in connection with such charge.
Conversion of Notes
The holders of Convertible Notes are entitled at any time through the close of
business on 22 May 2003, subject to prior redemption, to convert any Convertible
Notes or a portion of the Convertible Notes, in denominations of $1,000 of
aggregate principal amount at maturity, into our shares, at the conversion rate
set forth below, subject to adjustment as described below. We will not make any
adjustment on conversion of any Convertible Notes for interest accrued on the
Convertible Notes or for dividends on any shares issued. Our delivery to the
holder of the shares into which the Convertible Note is converted, together with
the cash payment, if any, in lieu of a fractional share, will be deemed to
satisfy our obligation to pay the principal amount of the Convertible Note and
accrued but unpaid interest, including liquidated damages, if any. In the case
we call some or all of the Convertible Notes for redemption, conversion rights
will expire at the close of business on the date fixed for redemption unless we
default in payment of the redemption price.
The Convertible Notes are convertible into shares at a conversion rate of
26.39095 shares per $1,000 aggregate principal amount at maturity of Convertible
Notes on a post reverse stock split basis. To the extent permitted by our
Articles of Incorporation, this rate is subject to adjustment, under formulae
established pursuant to the Indenture, in certain events, including:
(1) the issuance of shares as a dividend or distribution on shares;
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(2) certain subdivisions and combinations of the shares;
(3) the issuance to all holders of shares of certain rights, options or
warrants to purchase shares at a price less than 94% of the closing market
price of the shares on the primary exchange on which the shares are listed
at the time of pricing;
(4) the issuance or sale of securities convertible into shares where the
conversion price per share is less than 94% of the closing market price of
the shares on the primary exchange on which the shares are listed at the
time of pricing of the convertible securities;
(5) the distribution to all holders of securities of SC-U.S. Realty, other
than shares, or evidences of our indebtedness or assets, including
securities, but excluding those rights, options, warrants, dividends and
distributions referred to in (3) above or paid in cash; and
(6) distributions consisting of cash, other than in connection with the
liquidation or dissolution of or in connection with any dividend or
distribution paid exclusively in cash out of our retained earnings, to
holders of shares, or of a class or series of capital stock convertible
into or exchangeable or exercisable for shares.
To the extent adjustments for the events specified in the immediately preceding
sentence are not permitted by our Articles of Incorporation, we have agreed not
to effect any such event. No adjustment need be made if holders of Convertible
Notes may participate in the transaction or in certain other cases. In the event
of a distribution to all holders of shares of certain rights, options or
warrants to subscribe for additional shares as provided in clause (3) above, we
may, instead of making any adjustment in the conversion rate and to the extent
permitted by our Articles of Incorporation, make proper provision so that each
holder of a Convertible Note who converts their Convertible Note after the
record date for this distribution and prior to the expiration or redemption of
these rights, options or warrants will be entitled to receive upon a conversion,
in addition to shares, a number of other rights, options or warrants determined
in accordance with a formula established pursuant to the Indenture. Notice of
any adjustment of the conversion rate will be given to holders of Convertible
Notes by publication 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.
The following table shows the initial offering price for the Convertible
Notes, accrued original issue discount, accreted value and deemed conversion
price of the Convertible Notes at six-month intervals from issuance of the
Convertible Notes through 22 May 2003. If the Convertible Notes are converted
between any two such dates, the actual accreted value would include an
additional amount reflecting the additional original issue discount accrued from
the previous date in the table, and the deemed conversion price would need to be
adjusted accordingly.
Accrued
Original Deemed
Offering Issue Accreted Conversion
Date Price Discount Value Price
---- ----- -------- ----- -----
22 November 1998......... $801.23 $ 17.04 $ 818.27 $31.00
22 May 1999.............. 801.23 34.66 835.89 31.68
22 November 1999......... 801.23 52.87 854.10 32.36
22 May 2000.............. 801.23 71.70 872.93 33.08
22 November 2000......... 801.23 91.16 892.39 33.82
22 May 2001.............. 801.23 111.27 912.50 34.58
22 November 2001......... 801.23 132.07 933.30 35.36
22 May 2002.............. 801.23 153.57 954.80 36.18
22 November 2002......... 801.23 175.80 977.03 37.02
22 May 2003.............. 801.23 198.77 1,000.00 37.90
Accreted value means, as of any date of determination, the sum of (a) the
initial offering price of each Convertible Note and (b) the portion of the
excess of (1) the aggregate principal amount of each Convertible Note over (2)
the initial offering price that has been amortised through the date of
determination. This amount is amortised on a daily basis and compounded semi-
annually on each 22 May and 22 November through the date of
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determination to achieve, during this period, an annual rate of return on the
aggregate principal amount at maturity of each Convertible Note equal to
6 3/4%, assuming the rate of interest payable on the Convertible Notes is 2%
per annum on the aggregate principal amount at maturity of each Convertible
Note.
In addition, the Indenture provides that if we implement a shareholder rights
plan, such rights plan must provide that upon conversion of the Convertible
Notes the holders will receive, in addition to the shares issuable upon
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.
Beneficial owners of interests in the Convertible Notes may exercise their
right of conversion by delivering to DTC, Euroclear or Clearstream, Luxembourg,
as appropriate, the appropriate instruction form for conversion pursuant to the
appropriate entity's conversion program or normal operating procedures. To
convert a Convertible Note held in certificated form, a holder must
(1) complete and manually sign the conversion notice on the back of a
Convertible Note, or complete and manually sign a facsimile of the
Convertible Note, and deliver such notice to the Trustee in Boston,
Massachusetts or to one of the paying agents in Boston, Massachusetts and
in Luxembourg;
(2) surrender the Convertible Note to the Trustee in Boston, Massachusetts or
the paying agents in Boston, Massachusetts and in Luxembourg, as the case
may be;
(3) if required, furnish appropriate endorsements and transfer documents;
(4) if required, pay all transfer or similar taxes; and
(5) if required, pay funds equal to interest payable on the next succeeding
interest payment date.
Pursuant to the Indenture, the date on which all of the above 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 the
office of any paying agent. As promptly as practicable on or after the
conversion date, we will issue and deliver to the Trustee a certificate or
certificates for the number of full shares issuable upon conversion, together
with payment in lieu of any fractional share. This certificate will be sent by
the Trustee to the appropriate paying agent for delivery to the holder entitled
for the certificate. The shares we issue upon conversion of the Converted Notes
will be fully paid and nonassessable. Please read "Description of Shares" for
more information concerning the shares, including the trading of shares.
Any 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 the interest payment date on the
aggregate principal amount of the Convertible Notes being surrendered for
conversion. In the case of any Convertible Note which has been converted after
any regular record date, but on or before the next interest payment date,
interest due on that interest payment date shall be payable on the interest
payment date notwithstanding the conversion. We will pay interest to the holder
of the Convertible Note on the regular record date. As a result, a holder that
surrenders 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 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. We will not issue fractional shares upon conversion but will
pay the equivalent amount in cash based on the NAV on the valuation date
immediately preceding the conversion date.
The paying agent will forward Convertible Notes held in certificated form
surrendered for conversion, in whole or in part, promptly by the paying agent to
the Trustee for cancellation. We shall execute and the Trustee shall
authenticate and deliver a new Convertible Note or Notes in principal amount at
maturity equal to the unconverted portion of Convertible Notes so surrendered,
if any. The Trustee will deliver promptly to the paying agent in Boston,
Massachusetts or Luxembourg, as applicable, all funds collected representing
interest payable on a Convertible Note converted between a regular record date
and the next succeeding interest payment date.
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A holder delivering a Convertible Note for conversion will not be required to
pay any documentary, stamp or similar duties in respect of the issue or delivery
of shares on conversion but will be required to pay any tax or duty which may be
payable in respect of any transfer involved in the issue and delivery of the
shares in a name other than that of the holder of a Convertible Note.
Certificates representing shares will not be issued or delivered unless all
taxes and duties, if any, payable by the holder have been paid.
If the repurchase right upon a change in control, as described below, is
available but is not elected by a holder, then in the case of any
reclassification of the shares, or any consolidation, merger or combination
involving us, other than a consolidation, merger or combination that does not
result in any reclassification, conversion, exchange or cancellation of shares,
any sale or other transfer or distribution of our assets as an entirety or
substantially as an entirety or any compulsory share exchange where the shares
are converted into other securities, cash or property, the holders of the
Convertible Notes then outstanding will be entitled afterwards, during the
period the Convertible Notes are convertible as specified above, to convert the
Convertible Notes into the kind and amount of shares of stock, other securities
or other property or assets, including cash, which they would have owned or been
entitled to receive upon such reclassification, change, consolidation, merger,
combination, sale, disposition or share exchange had the Convertible Notes been
converted into shares immediately prior to such reclassification, change,
consolidation, merger, combination, sale, disposition or share exchange assuming
that a holder of Convertible Notes would not have exercised any rights of
election as to the stock, other securities or other property or assets
receivable in the transaction.
We may from time to time, increase the conversion rate by any amount to the
extent permitted by law and by our Articles of Incorporation. If we do, the
period in which to convert at such increased rate must be at least 20 days and
the increased rate must be irrevocable during this period. In addition, holders
must receive at least 15 days' notice of any such increase. In order to increase
the conversion rate, the Board of Directors must make a determination that such
increase is in our best interests, which determination shall be conclusive.
We may also make such increases in the conversion rate, in addition to those
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 resulting from any dividend or
distribution of shares or issuance of rights, options or warrants to purchase or
subscribe for shares, or from any event treated as such for income tax purposes.
No adjustment in the conversion rate will be required unless such adjustment
would require a change of at least 1% in the conversion rate then in effect;
provided that any adjustment that would otherwise be required to be made shall
be carried forward and taken into account in any subsequent adjustment. Except
as stated above, the conversion rate will not be adjusted for the issuance of
shares or any securities convertible into or exchangeable for shares or carrying
the right to purchase any of the foregoing.
The holder of a Convertible Note may, at its option, elect to receive American
Depositary Shares, rather than shares, upon conversion of the Convertible Notes,
upon the terms and conditions described elsewhere in this prospectus.
Optional Redemption by SC-U.S. Realty
The Convertible Notes are not entitled to any sinking fund. At any time on or
after 16 May 2001, we may redeem the Convertible Notes at our option on at least
30 days' notice in whole or in part, from time to time, at the accreted value,
together with accrued and unpaid interest, including liquidated damages, if any;
provided that any semi-annual payment of interest becoming due on the date fixed
for redemption shall be payable to the holders of record on the relevant record
date of the Convertible Notes being redeemed.
If fewer than all the Convertible Notes are to be redeemed, the Trustee will
select the Convertible Notes to be redeemed on a pro rata basis. If any
Convertible Note is to be redeemed in part only, a new Convertible Note or Notes
in an aggregate principal amount equal to the unredeemed principal portion
thereof will be issued. If a portion of a holder's Convertible Notes is selected
for partial redemption and the holder converts a portion of its Convertible
Notes, the converted portion shall be deemed to be taken from the portion
selected for redemption and, accordingly, such portion shall be converted
instead of redeemed.
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Ranking of the Convertible Notes
The Convertible Notes are our senior unsecured obligations and will rank
equally in right of payment with all of our existing and future senior unsecured
indebtedness. The Convertible Notes are our obligations exclusively and not of
any of our subsidiaries or strategic investees. The Convertible Notes are
effectively subordinated to all existing and future secured indebtedness, to the
extent of the value of the collateral securing such indebtedness, and are
effectively subordinated to all indebtedness and other liabilities and
commitments of our subsidiaries and strategic investees. As a result, the cash
flow and our consequent ability to service debt, including the Convertible
Notes, may be dependent upon the earnings of our subsidiaries and strategic
investees and the distribution of those earnings, or upon loans or other
payments of funds by those subsidiaries and strategic investees, to us. All
future subsidiaries and strategic investees will be separate and distinct legal
entities and have no obligation, contingent or otherwise, to pay any amounts due
pursuant to the Convertible Notes or to make any funds available, whether by
dividends, distributions, loans or other payments. In addition, the payment of
dividends or distributions and the making of loans and advances to us by our
subsidiaries and strategic investees could be subject to statutory or
contractual restrictions, are contingent upon the earnings of those subsidiaries
and strategic investees and are subject to various business considerations.
Any right we have to receive any assets of any of our subsidiaries or
strategic investees upon their liquidation or reorganisation, and the consequent
right of the holders of the Convertible Notes to participate in those assets,
will be effectively subordinated to the claims of that subsidiary's or strategic
investee's creditors, including trade creditors, except to the extent that we
are recognised as a creditor of such subsidiary or strategic investee, in which
case our claims would still be subordinate to any security interest in the
assets of such subsidiary or strategic investee and any indebtedness of such
subsidiary or strategic investee senior to that held by us.
At 30 June 1999 our aggregate indebtedness on a consolidated basis was
approximately $671.9 million, and the aggregate indebtedness of our strategic
investees was approximately $3.7 billion. We do not guarantee the debt of our
strategic investees. The Indenture does not limit the amount of additional
indebtedness which we or any subsidiary, except in certain limited
circumstances, or any strategic investee can create, incur, assume or guarantee.
We are obligated to pay reasonable compensation to the Trustee and to
indemnify the Trustee against any losses, liabilities or expenses it incurs in
connection with its duties relating to the Convertible Notes. The Trustee's
claims for such payments will be senior to those of holders of the Convertible
Notes in respect of all funds collected or held by the Trustee.
Repurchase at Option of Holders upon Change in Control
The Indenture provides that if a change in control occurs, each holder of
Convertible Notes has the right to require us to repurchase all of such holder's
Convertible Notes, or any portion of the principal amount 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 described below, for cash at a price equal to the accreted value
thereof (the "Repurchase Price") together with accrued and unpaid interest,
including liquidated damages, if any, to, 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 Convertible Notes being repurchased.
Procedures for Offers
Within 30 days following any change in control, subject to the provisions of
the Indenture, we shall give notice (the "Company Notice") to each holder of
Convertible Notes in the form described below under "--Notices" stating:
. 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;
. the Repurchase Price, the amount of accrued and unpaid interest, including
liquidated damages, if any, at the Repurchase Date; and
. such other information required by the Indenture and applicable law and
regulations.
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On any Repurchase Date, we will, to the extent lawful and required by the
Indenture and such Offer:
(1) accept for payment all Convertible Notes or portions of the Convertible
Notes tendered pursuant to such Offer;
(2) deposit with the Trustee the aggregate Repurchase Price of all Convertible
Notes or portions of the Convertible Notes accepted for payment together
with any accrued and unpaid interest, including liquidated damages, if
any, to the Repurchase Date; and
(3) deliver or cause to be delivered to the Trustee the Notes so accepted
together with an officer's certificate stating the aggregate principal
amount at maturity of the Convertible Notes or portions of the Convertible
Notes tendered to us.
The Trustee shall promptly mail to each holder of Convertible Notes so accepted,
payment in an amount equal to the Repurchase Price for those 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 a holder a new Convertible
Note equal in aggregate principal amount at maturity to any unpurchased portion
of the Convertible Notes surrendered, provided that each new Convertible Note
will be in denominations of a principal amount of $1,000 aggregate principal
amount at maturity. We will publicly announce the results of the Offer on or as
soon as practicable after the Repurchase Date.
A change in control will be deemed to have occurred at any time after the
original issuance of the Convertible Notes as:
(1) any "person" or "group" (as such items are used under Section 13(d) and
14(d) of the Exchange Act), other than us, one of our subsidiaries,
Security Capital Group or any affiliate of Security Capital Group or any
of our 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 us, of shares entitling such person or
group to exercise in excess of 50% of the total voting power of SC-U.S.
Realty entitled to vote generally in the election of directors; or
(2) there occurs any consolidation of us with, or merger of us into, any other
person, any merger of another person into us, or any sale or transfer of
all or substantially all of our assets to another person, other than (a)
any 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 the
transaction which entitle them 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 or (b)
any merger (i) which does not result in any reclassification, conversion,
exchange or cancellation of outstanding Shares or (ii) which is effected
solely to change our jurisdiction of incorporation and results in a
reclassification, conversion or exchange of outstanding shares solely into
shares of common stock.
The definition of change in control in the Indenture includes a phrase
relating to the sale, lease, transfer, conveyance or other disposition of "all
or substantially all" of our assets as determined in accordance with the laws
of The State of New York. Although there is a developing body of case law
interpreting the phrase "substantially all", there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of Convertible Notes to require us to repurchase their Convertible Notes
as a result of a sale, lease, transfer, conveyance or other disposition of less
than all of our assets and our subsidiaries to another person may be uncertain.
To the extent applicable, we will comply with the provisions of Rule 14e-1,
Rule 13e-4 or any other tender offer rules under the Exchange Act and/or the
applicable laws and regulations of any country other than the United States, and
will file a Schedule 13E-4 or any other schedule required under such rules, in
connection with any offer by us to repurchase Convertible Notes at the option of
the holders thereof upon a change in control.
The change in control feature of the Convertible Notes may in certain
circumstances make it more difficult or discourage a takeover of us and, thus,
the removal of incumbent management.
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The foregoing provisions would not necessarily afford holders of the
Convertible Notes protection in the event of a highly leveraged transaction,
certain changes in control of us or other transactions involving us that may
adversely affect holders.
Our ability to repurchase Convertible Notes upon the occurrence of a change in
control is subject to limitations. If a change in control were to occur, there
can be no assurance that we would have sufficient financial resources, or would
be able to arrange financing, to pay the Repurchase Price plus accrued and
unpaid interest and liquidated damages, if any, for all Convertible Notes
tendered by holders. In addition, the terms of our line of credit identify
certain events that would constitute a change in control, as well as certain
other events with respect to us, which would constitute an event of default
under such agreement. If we do not obtain a consent or repay borrowings or
otherwise terminate those agreements, we may remain prohibited from repurchasing
Convertible Notes. Any failure by us to repurchase the Convertible Notes when
required following a change in control would result in an event of default under
the Indenture.
Merger or Consolidation
The Indenture provides that we shall not consolidate or merge with or into, or
sell, lease, convey or otherwise dispose of all or substantially all of its
assets to, any person, any such consolidation, merger or sale being a
"Disposition", unless:
(1) either we are the continuing entity or the successor entity of such
Disposition or the person to which such Disposition shall have been made
is a corporation or entity organised or existing under the laws of the
Grand Duchy of Luxembourg;
(2) the successor entity of such Disposition or the person to which such
Disposition shall have been made, if applicable, expressly assumes our
obligations, pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee, under such Indenture and the related
Convertible Notes; and
(3) immediately after such Disposition, no default or event of default shall
exist.
Events of Default and Remedies
An Event of Default is defined in the Indenture as being:
. a default in payment of the principal of or premium, if any, on the
Convertible Notes;
. a default for 30 days in payment of any instalment of interest, including
liquidated damages, if any, on the Convertible Notes;
. a failure by us to perform any conversion of Convertible Notes required
under the Indenture and continuance of such failure for 30 days;
. default by us for 60 days after notice in the observance or performance,
in any material respect, of any other covenants in the Indenture;
. default in the payment of an aggregate principal amount exceeding
$10,000,000 of any evidence of recourse indebtedness of us or any mortgage,
indenture or other instrument under which such indebtedness is issued or by
which such indebtedness is secured, such default having occurred after the
expiration of any applicable grace period and having resulted in the
acceleration of the maturity of such indebtedness, but only if such
indebtedness is not discharged or such acceleration is not rescinded or
annulled, such default having continued for a period of 10 days after
written notice as provided pursuant to the Indenture;
. a violation on the limitation on incurrence of indebtedness described
below; or
. certain events involving bankruptcy, insolvency or reorganisation, orders
or resolutions for our winding up or dissolution or other similar events
relating to us.
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The Trustee shall give notice to holders of Convertible Notes of any
continuing Default known to the Trustee within 90 days after the occurrence of a
Default; provided that the Trustee may withhold notice to the holders of
Convertible Notes of any default, except in payment of principal, premium, if
any, interest, including liquidated damages, if any, with respect to the
Convertible Notes, if the Trustee considers it in the interest of the holders of
the Convertible Notes to do so.
The Indenture provides that if an event of Default occurs and is continuing,
the Trustee or the holders of not less than 25% in aggregate principal amount at
maturity of the Convertible Notes then outstanding may declare the accreted
value of and accrued interest, including liquidated damages, if any, on the
Convertible Notes to be due and payable immediately. However, if we shall cure
all defaults, except the nonpayment of accreted principal of, premium, if any,
interest, including liquidated damages, if any, on any of the Convertible Notes
which shall have become due by acceleration, and certain other conditions are
met, such declaration may be annulled and past defaults may be waived by the
holders of a majority of the principal amount of the Convertible Notes then
outstanding. In the case of certain events of bankruptcy or insolvency, the
accreted value of and accrued interest on the Convertible Notes shall
automatically become immediately due and payable.
The holders of a majority in principal amount at maturity of the Convertible
Notes then outstanding shall have the right to direct the time, method and place
of conducting any proceedings for any remedy available to the Trustee, subject
to certain limitations specified in the Indenture.
We are required to furnish to the Trustee annually a statement as to our
performance of certain of our obligations under the Indenture and as to any
default in such performance.
Certain Limitations on Incurrence of Indebtedness
Under the Indenture, we are not permitted to incur
. senior indebtedness that is not subordinated to the same extent as the
Convertible Notes or
. secured indebtedness that is by its terms senior in right of payment to the
Convertible Notes,
except that we are permitted to guarantee, on a secured and/or senior
unsubordinated basis, the obligations of any wholly-owned subsidiary, with
respect to any permitted indebtedness of such wholly-owned subsidiary. In
addition, under the Indenture, no wholly-owned subsidiary is permitted to incur
. any indebtedness that is by its terms subordinated in right of payment to
any permitted indebtedness of such wholly-owned subsidiary,
. any secured indebtedness if such wholly-owned subsidiary is an obligor
under any unsecured permitted indebtedness, or
. any unsecured indebtedness if such wholly-owned subsidiary is an obligor
under any secured indebtedness which is permitted indebtedness.
Modifications of the Indenture
The Indenture contains provisions permitting us and the Trustee, with the
consent of the holders of not less than a majority in aggregate principal amount
at maturity of the Convertible Notes at the time outstanding, to modify the
Indenture or any supplemental indenture or the rights of the holders of the
Convertible Notes, except that no such modification shall
(1) extend the fixed maturity of any Convertible Note, reduce the rate or
extend the time for payment of interest and liquidated damages, if any,
reduce the principal amount or premium, if any, thereon, reduce any
amount payable upon redemption, change the currency in which the
Convertible Notes are payable or impair the right to convert the
Convertible Notes into shares subject to the terms set forth in the
Indenture, without the consent of each holder of a Convertible Note so
affected or
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(2) reduce the percentage of Convertible Notes the holders of which are
required to consent to any such modifications, without the consent of the
holders of all of the Convertible Notes then outstanding.
The Indenture may also be modified or amended without the consent of the
holder of the Convertible Notes for certain specified purposes, including, among
other things, curing ambiguities, defects or inconsistencies, qualifying or
maintaining the qualifications of the Indenture under the U.S. Trust Indenture
Act of 1939, as amended, or making any change that does not adversely affect the
rights of any noteholder.
Book Entry, Delivery and Form
The Convertible Notes were issued in the form of one or more global notes in
fully registered form (the "Global Notes") and were deposited on behalf of DTC
and registered in the name of DTC's nominee. Except as set forth below, the
Global Notes may be transferred, in whole and not in part, only to DTC.
Investors may hold their beneficial interests in the Global Notes directly
through DTC if they are participants in such system, indirectly through
organisations which are participants in such system, or Clearstream, Luxembourg
or Euroclear on behalf of their participants through their respective
depositaries, which in turn will hold such beneficial interests in the Global
Notes in participants' securities accounts in the depositaries' names on the
books of DTC.
Transfers between participants in Euroclear and Clearstream, Luxembourg are
effected in the ordinary way in accordance with their respective rules and
operating procedures.
The interests in the Global Notes will trade in DTC's Same-Day Funds
Settlement System until maturity, and secondary market trading activity in the
Convertible Notes will therefore settle in immediately available funds. Any
cross-market transfer of any beneficial interest in the Global Notes will be
effected in DTC on behalf of Euroclear or Clearstream, Luxembourg in accordance
with the rules of DTC. However, such cross-market transactions will require
delivery of instructions to Euroclear or Clearstream, Luxembourg, as the case
may be, by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines. Euroclear or Clearstream,
Luxembourg, as the case may be, will, if the transaction meets its settlement
requirements, deliver instructions to its respective depositary to take action
to effect final settlement on its behalf by delivering or receiving beneficial
interests in DTC, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to DTC. Euroclear
participants and Clearstream, Luxembourg participants may not deliver
instructions directly to the depositaries for Euroclear or Clearstream,
Luxembourg.
Because of time zone differences, the securities account of a Euroclear or
Clearstream, Luxembourg participant purchasing an interest in a Global Note from
an institution that has an account with DTC (a ''Participant'') will be credited
during the securities settlement processing day, which must be a business day
for Euroclear or Clearstream, Luxembourg, immediately following the DTC
settlement date. Credit of such transactions in a Global Note settled during
such processing day will be reported to the relevant Euroclear or Clearstream,
Luxembourg participant on that day. Cash received in Euroclear or Clearstream,
Luxembourg as a result of sales of interests in a Global Note by or through a
Euroclear or Clearstream, Luxembourg participant to a Participant will be
received with value on the DTC settlement date but will be available in the
relevant Euroclear or Clearstream, Luxembourg cash account only as of the
business day following settlement in DTC.
Ownership of beneficial interests in Global Notes is limited to Participants
or persons that may hold interests through Participants. Ownership of beneficial
interests in the Global Notes will be shown on, and the transfer of those
ownership interests will be effected only through, records maintained by DTC,
with respect to Participants' interests, and such Participants, with respect to
the owners of beneficial interests in the Global Notes other than Participants.
The laws of some jurisdictions may require that certain purchasers of securities
take physical delivery of such securities in definitive form. Such limits and
laws may impair the ability to transfer or pledge beneficial ownership in the
Global Notes.
Persons who are not Participants may beneficially own interests in the Global
Notes held by DTC only through Participants, including Euroclear and
Clearstream, Luxembourg, or certain banks, brokers, dealers, trust companies and
other parties that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly (''Indirect Participants''). So long
as DTC, or its nominee, is the registered holder and owner of the Global Notes,
DTC or such nominee, as the case may be, will be considered the sole owner and
holder of the related Convertible Notes for all purposes of such Convertible
Notes. Except as set forth below, owners of beneficial interests in the Global
Notes will not be entitled to have the Convertible Notes represented by such
Global Notes registered in their
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names, will not receive or be entitled to receive physical delivery of
certificated Convertible Notes in definitive form and will not be considered to
be the owners or holders of any Convertible Notes under the Global Notes.
Accordingly, each person owning a beneficial interest in the Global Notes must
rely on the procedures of DTC and, if such person is not a Participant, on the
procedures of the Participant through which such person owns its interests, to
exercise any right of a holder of Convertible Notes under the Global Notes. We
understand that under existing industry practice, in the event an owner of a
beneficial interest in the Global Notes desires to take any action that DTC, as
the holder of the Global Notes, is entitled to take, DTC would authorise the
Participants to take such actions, and that the Participants would authorise
beneficial owners owning through such Participants to take such action or would
otherwise act upon the instructions of beneficial owners owning through them.
Payments of principal of and interest on the Convertible Notes represented by
the Global Notes registered in the name and held by DTC or its nominee will be
made to DTC or its nominee, as the case may be, as the registered owner and
holder of the Global Notes, by wire transfer of immediately available funds on
each relevant payment date. Neither we, the Trustee nor any paying agent will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial ownership interests in the Global
Notes or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests or for any other aspect of the relationship
between DTC and its Participants or the relationship between such Participants
and the owners of the beneficial interests in the Global Notes owned through
such Participants.
We have been informed by DTC that with respect to any payment of principal or
interest in respect of a Global Note, DTC's practice is to credit Participants'
accounts on the payment date therefor with payments in amounts proportionate to
their respective beneficial interests in the principal amount of such Global
Note as shown on the records of DTC or its nominee, adjusted as necessary so
that such payments are made with respect to whole Convertible Notes only, unless
DTC or its nominee has reason to believe that it will not receive payment on
such payment date. Payments by Participants to owners of beneficial interests in
such Global Notes held through such Participants will be governed by standing
instructions and customary practices and will be the responsibility of such
Participants, as is now the case with securities held for the accounts of
customers registered in ''street name''.
Because DTC can only act on behalf of Participants, who in turn act on behalf
of Indirect Participants and certain banks, the ability of a person having a
beneficial interest in Convertible Notes represented by a Global Note to pledge
such interest to persons or entities that do not participate in the DTC system,
or otherwise take actions in respect of such interest, may be affected by the
lack of a physical certificate evidencing such interest.
Neither we nor the Trustee, nor any registrar, paying agent or conversion
agent under the Indenture, will have any responsibility for the performance by
DTC or its Participants or Indirect Participants of their respective obligations
under the rules and procedures governing their operations. DTC has advised us
that it will take any action permitted to be taken by a holder of Convertible
Notes, including, without limitation, the presentation of Convertible Notes for
exchange, as described below, only at the direction of one or more Participants
to whose account with DTC interests in a Global Note are credited and only in
respect of the aggregate principal amount at maturity of the Notes represented
by a Global Note as to which such Participant or Participants has or have given
such direction.
Unless and until they are exchanged in whole or in part for certificated
Convertible Notes in definitive form, the Global Notes may not be transferred
except as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or
another nominee of DTC.
Although DTC, Euroclear and Clearstream, Luxembourg have agreed to the
foregoing procedures in order to facilitate transfers of interests in the Global
Notes among participants of DTC, Euroclear and Clearstream, Luxembourg, they are
under no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. Neither the Trustee nor we will have
any responsibility for the performance by DTC, Euroclear or Clearstream,
Luxembourg or their respective participants or indirect participants of the
respective obligations under the rules and procedures governing their
operations.
DTC has advised us as follows: DTC is a limited-purpose trust company
organised under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions
of Section 17A of the Exchange Act. DTC was created to hold securities of
Participants and to facilitate the clearance and settlement of securities
transactions among its Participants in such securities through electronic book-
entry changes in accounts of
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its Participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organisations, some of whom,
and/or their representatives, own DTC. Access to DTC's book-entry system is also
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly. DTC agrees with and represents to its Participants that
it will administer its book-entry system in accordance with its rules and by-
laws and requirements of law.
Euroclear and Clearstream, Luxembourg have requested that the following two
paragraphs be included in this prospectus.
Euroclear eligible securities are freely transferable in Euroclear. Morgan
Guaranty Trust Company of New York, Brussels office, as Operator of the
Euroclear System (the ''Operator''), is holding securities on behalf of
participants of Euroclear. All participants in Euroclear are banks, broker-
dealers and other financial institutions. The Operator has information about the
positions held by the various participants; however, it has no knowledge of, or
information on, the beneficial holders or owners of the securities in question.
Under general principles of Belgian Banking Secrecy, the Operator may not
disclose any information about a participant's account or positions in such
account without having first obtained such participant's prior written
authorisation. Euroclear participants are not likely to authorise disclosure of
such information. Therefore, no ownership nor any transfer restrictions will be
monitored by the Operator.
Clearstream, Luxembourg eligible securities are freely transferable in
Clearstream, Luxembourg. Clearstream, Luxembourg holds securities for its
customers and facilitates the clearance and settlement of securities
transactions between Clearstream, Luxembourg customers through electronic book-
entry changes in accounts of Clearstream, Luxembourg customers, thereby
eliminating the need for physical movement of certificates. Clearstream,
Luxembourg's customers are world-wide financial institutions including
underwriters, securities brokers and dealers, banks, trust companies and
clearing corporations. Clearstream, Luxembourg's U.S. customers are limited to
securities brokers and dealers, and banks. Clearstream, Luxembourg has
information about the positions held by the various customers; however, it has
no knowledge of, or information on, the beneficial holders or owners of the
securities in question. Clearstream, Luxembourg is registered as a bank in
Luxembourg, and as such is subject to regulation by the Commission de
Surveillance du Secteur Finance, the CSSF, which supervises Luxembourg's banks.
Under general principles of Luxembourg Banking Secrecy Law, Clearstream,
Luxembourg may not disclose any information about a customer's account or
positions in such account without having first obtained such customer's prior
written authorisation. Clearstream, Luxembourg customers are not likely to
authorise disclosure of such information. Therefore, no ownership nor any
transfer restrictions will be monitored by Clearstream, Luxembourg.
The information in this section concerning DTC and DTC's book-entry system has
been obtained from sources that we believe to be reliable, but we take no
responsibility for its accuracy.
Certificated Convertible Notes
The Convertible Notes represented by the Global Notes are exchangeable for
certificated Convertible Notes in definitive form if
(1) no successor depositary is appointed by us as set forth above, or if at
any time DTC ceases to be a clearing agent registered under the Securities
Exchange Act of 1934,
(2) at any time we determine not to have Convertible Notes represented by the
Global Notes or
(3) a default entitling the holders of the Convertible Notes to accelerate the
maturity of the Convertible Notes has occurred and is continuing.
Any Convertible Note that is exchangeable pursuant to the preceding sentence is
exchangeable for certificated Convertible Notes issuable in authorised
denominations and registered in such names as DTC shall direct. Subject to the
foregoing, the Global Notes are not exchangeable, except for a Global Note or
Global Notes of the same aggregate denominations to be registered in the name of
DTC or its nominees. Upon issuance of the Convertible Notes in definitive form,
the Trustee is required to register the Convertible Notes in the name of, and
cause the Convertible Notes to be delivered to, the person or persons, or the
nominee thereof, identified as the beneficial
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owner as DTC shall direct. The transfer of Convertible Notes issued in
definitive form will be registrable, at the offices of the paying agents in
Boston, Massachusetts and Luxembourg. In addition, a transfer will not be
recognised until it is recorded on our security register. Payments on
certificated Convertible Notes will be made at the offices of the paying agents
in Boston, Massachusetts and Luxembourg. No service charge will be made for any
registration of transfer or exchange of certificated Convertible Notes, but we
or the Trustee will require payment of a sum sufficient to cover any tax or
governmental charge payable in connection with such transfer or exchange. In
case of a partial transfer, conversion or redemption, new certificates may be
obtained from the paying agents in Boston, Massachusetts and Luxembourg.
Defeasance
We may terminate our obligations under the Convertible Notes, except
obligations relating to registration, replacement, conversion and payment, upon
the deposit with the Trustee of money or U.S. governmental obligations that,
through the payment of principal and interest in accordance with their terms,
will provide money in an amount sufficient to pay the principal of and the
interest on the scheduled due dates. In the case of defeasance, holders will be
entitled to receive payments in respect of such Convertible Notes solely from
that trust. Such a trust may be established only if no event of default relating
to our bankruptcy, insolvency or reorganisation exists or is continuing during
91 days following the deposit and if we have delivered to the Trustee an opinion
of counsel, as specified in the Indenture, to the effect that holders will not
recognise income, gain or loss for United States federal income tax purposes as
a result of the defeasance and will be subject to United States 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.
Listing on the NYSE; Registration of Notes and Underlying Shares and American
Depositary Shares
Our shares are listed for trading on the AEX Stock Exchange in Amsterdam and
our American Depositary Shares are listed for trading on the New York Stock
Exchange.
We have agreed to use our best efforts to file with the Securities and
Exchange Commission three registration statements (each, a "Registration
Statement") with respect to the resale of the Convertible Notes and the
securities issuable upon their conversion ("Registrable Securities"). We agreed
to use our best efforts to file an initial Registration Statement by 31 December
1998 and use our best efforts to have it declared effective by 1 March 1999. We
agreed to use our best efforts to have a second Registration Statement declared
effective by 31 July 1999. We agreed to keep each such Registration Statement
effective for a period of 30 consecutive days from the effective date of the
respective Registration Statement, except in the circumstances described below.
We also agreed to use our best efforts to have a third Registration Statement (a
shelf Registration Statement) declared effective by 1 March 2000. We agreed to
use our best efforts to keep the third Registration Statement effective until
the earliest to occur of
(1) 14 May 2000,
(2) the time when there are no outstanding Registrable Securities or
(3) the time when all outstanding Registrable Securities may be resold without
registration under the Securities Act pursuant to Rule 144(k)
(collectively, the ''Effectiveness Period'').
We are permitted to suspend the filing or effectiveness of a Registration
Statement or the use of the prospectus which is a part of a Registration
Statement for a period not to exceed 45 days in any three-month period or two
periods not to exceed an aggregate of 90 days in any twelve-month period in
circumstances relating to pending corporate developments, public filings with
the Commission or other regulatory bodies, and similar events.
A holder who sells Registrable Securities pursuant to a Registration Statement
generally will be required to be named as a selling securityholder in the
related prospectus, deliver a prospectus to purchasers and be bound by those
provisions of the Registration Rights Agreement which are applicable to such
holder, including indemnification provisions. We will pay all expenses of the
Registration Statements, provide to each registered holder requesting to sell
Registrable Securities copies of the prospectus, notify each such registered
holder when a Registration Statement has become effective and take certain other
actions as are required to permit, subject to the foregoing, unrestricted
resales of the Registrable Securities. Prior to effecting a sale pursuant to a
Registration Statement, a holder must provide at least three days', but no more
than 30 days', notice to us, confirm that no suspension of the use of the
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prospectus which is a part of a Registration Statement is in effect and provide
certain information with respect to such holder for inclusion in the prospectus,
to the extent not already included or previously included but required to be
updated. There can be no assurance that the prospectus will be available to
effect resales at the time any such notice is given by a holder.
Liquidated Damages
Pursuant to the terms of the Registration Rights Agreement, we are obligated
to pay liquidated damages in the event that any of the following five
circumstances (each being an "Illiquidity Event") occur:
(1) the shares were not listed on the NYSE by 31 December 1998,
(2) the initial Registration Statement was not filed with the Securities and
Exchange Commission by 31 December 1998,
(3) the initial Registration Statement was not declared effective by the
Securities and Exchange Commission by 1 March 1999 or was not kept
effective for 30 consecutive days, except as described above,
(4) the second Registration Statement is not declared effective by the
Securities and Exchange Commission by 31 July 1999 or is not kept
effective for 30 consecutive days, except as described above, or
(5) the third Registration Statement (a shelf registration statement) is not
declared effective by the Securities and Exchange Commission by 1 March
2000),
In the event any of the above five circumstances occurs, then, in each case,
additional interest ("Liquidated Damages") at a rate per annum equal to 0.25%
above the interest rate currently payable will accrue on the Convertible Notes,
subject to the limitation described below, from and including the day following
the inception of an Illiquidity Event to, but excluding, the day on which such
Illiquidity Event has been cured. In the event an Illiquidity Event occurs and
is continuing for more than 90 days, additional Liquidated Damages at a rate per
annum equal to an additional 0.25% above the interest rate currently payable
will accrue on the Convertible Notes, subject to the limitation described below,
from and including the 91st day following the inception of an Illiquidity Event
to but excluding the day on which such Illiquidity Event has been cured.
Liquidated Damages will be paid in cash semi-annually in arrears, with the first
semi-annual payment due on the first interest payment date following the date on
which such Liquidated Damages begin to accrue.
Notwithstanding any suspensions permitted by the Registration Rights
Agreement, in the event that the third Registration Statement ceases to be
effective during the Effectiveness Period or we suspend the use of this
prospectus for more than 90 days, whether or not consecutive, during any twelve-
month period, then the interest rate borne by the Convertible Notes will
increase by an additional 0.50% per annum, subject to the limitation described
below, from the 91st day of the applicable twelve-month period the third
Registration Statement ceases to be effective or we suspend the use of this
prospectus, as the case may be, until such time as
(1) the third Registration Statement (a shelf Registration Statement) again
becomes effective,
(2) the use of a prospectus ceases to be suspended or
(3) the Effectiveness Period expires.
The increase in the interest rate on the Convertible Notes as Liquidated Damages
will be reflected in an increase in the interest rate currently payable on the
Convertible Notes and not in the rate at which additional interest accretes on
the Convertible Notes from their original discount. Upon the effectiveness of
the third Registration Statement, a shelf Registration Statement, all
Illiquidity Events shall be deemed cured. Under no circumstances will the
interest rate be increased to a rate in excess of 2/1//2% per annum.
We will provide notice to holders of any change in the interest rate payable
on the Convertible Notes.
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Guaranties
Each or our direct and indirect subsidiaries has fully and unconditionally
guaranteed all payments with respect to the Convertible Notes. The guarantees
are a direct, unsecured obligation of each subsidiary. The obligations under
the guaranties are limited so as not to constitute a fraudulent conveyance under
applicable law.
Holders of Convertible Notes are not required to tender their notes to have
the existence of the guaranties endorsed thereon. The Second Supplemental
Indenture dated as of 2000 provides that the
guaranties will remain in full force and effect with respect to all outstanding
Convertible Notes, whether or not a notation of the guaranties are endorsed on
the Convertible Note.
Provision of Financial Information to Holders of Convertible Notes
So long as the Convertible Notes are outstanding, we will provide to all
holders of Convertible Notes and file with the Trustee copies of such annual
reports, interim reports and other documents it is required to furnish to
shareholders generally. In addition, we have agreed that, for so long as any
Convertible Notes remain outstanding, we will furnish to the holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act if, at any time, we are neither subject to Section 13 or 15(d) of
the Exchange Act, nor exempt from reporting pursuant to Rule 12g3-2(b) under the
Securities Exchange Act of 1934.
Transfer and Exchange
We have appointed the Trustee as a security registrar and paying agent in
Boston, Massachusetts and State Street Bank Luxembourg, S.A. as security
registrar and paying agent in Luxembourg. We reserve the right to vary or
terminate the appointment of the security registrar or any paying agent or to
appoint additional or other conversion agents or to approve any change in the
office through which any security registrar or any paying agent acts, provided
that there will at all times be a security registrar and paying and transfer
agent in Luxembourg.
Purchase and Cancellation
We may at any time and from time to time purchase Convertible Notes in the
open market or otherwise at any price, subject to applicable securities laws.
All Convertible Notes that are surrendered for payment, redemption,
repurchase, registration of transfer or exchange or conversion will forthwith be
cancelled and may not be reissued or resold.
Title
Prior to the registration of transfer of any Convertible Note, we and the
Trustee may treat the registered owner, as reflected in the security register,
of such Convertible Note as its absolute owner, whether or not the Convertible
Note is overdue, for the purpose of making payment and for all other purposes.
Notices
Notice to holders of Convertible Notes will be given by mail to the addresses
of such holders as they appear on the security register. Such notices will be
deemed to have been given on the date of such mailing or on the date of the
first such publication, as the case may be.
Notices to holders of the Convertible Notes will 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. Such
notices will be deemed to have been given on the date of such publication or, if
published in such newspapers on different dates, on the date of the first such
publication.
Notices of a redemption of Convertible Notes will be given at least once not
less than 30 nor more than 60 days prior to the Redemption Date, which shall be
published in accordance with the procedures described in the preceding
paragraphs, and will be irrevocable and will specify the Redemption Date.
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Replacement of Convertible Notes
Convertible Notes held in certificated form that become mutilated, destroyed,
stolen or lost will be replaced by us at the expense of the holder of the
Convertible Notes upon delivery to the Trustee or to a paying agent outside the
United States, or us in the case of lost, stolen or destroyed certificates, of
the mutilated Convertible Notes or evidence of the loss, theft or destruction of
a Certificate satisfactory to us or the Trustee or such paying agent, as the
case may be. In the case of a lost, stolen or destroyed Convertible Note,
security or indemnity satisfactory to the Trustee and us and such paying agent
may be required from the holder of such Convertible Note before a replacement
Convertible Note will be issued.
Payment of Stamp and Other Taxes
We shall pay all stamp and other similar duties, if any, which may be imposed
by the United States or any political subdivision of the U.S. or taxing
authority thereof or therein with respect to the issuance of the shares upon any
conversion of Convertible Notes. Except as described in the preceding sentence,
we will not be required to make any payment with respect to any other tax,
assessment or governmental charge imposed by any government or any political
subdivision or taxing authority.
Governing Law
The Indenture and the Convertible Notes and the rights and duties of the
Trustee are governed by and construed in accordance with the laws of the State
of New York without giving effect to applicable principles of conflicts of laws,
except that matters relating to authorisation and execution by us of the
Indenture and the Convertible Notes are governed by the laws of the Grand Duchy
of Luxembourg.
Consent to Service
Pursuant to the Indenture, we have irrevocably designated an authorised agent
for service of process in any legal action or proceeding arising out of or
relating to the Indenture or the Convertible Notes brought in any U.S. federal
or state court in the Borough of Manhattan, The City of New York, which agent
currently is the office of the paying agent in Boston, Massachusetts, and we
have irrevocably submitted to the nonexclusive jurisdiction of those courts.
Concerning the Trustee
State Street Bank and Trust Company, as Trustee under the Indenture, has been
appointed by us as the paying agent, conversion agent, registrar and custodian
with regard to the Convertible Notes. The Trustee or its affiliates may from
time to time in the future provide banking and other services to us or our
affiliates in the ordinary course of its business.
In the case an event of default of which the Trustee has actual knowledge
shall occur and be continuing, the Trustee will be required in the exercise of
its powers to use the degree of care of a prudent person in the conduct of his
own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any of the holders of the Convertible Notes, unless they shall have
offered to the Trustee reasonable security or indemnity.
DESCRIPTION OF AMERICAN DEPOSITARY SHARES
The following is a description of the material provisions of the Deposit
Agreement (the "Deposit Agreement"), dated as of 18 June 1999, among SC-U. S.
Realty, The Bank of New York, as depositary and the holders from time to time of
registered American Depositary Receipts or ADRs. This summary is not complete.
For full information, you should read 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.
The Depository may issue American Depositary Shares or ADSs 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
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share, deposited with the Depositary or the Depositary's custodian (the
"Custodian"). An ADR may represent any number of ADSs. On 24 June 1999 the
American Depositary Shares began trading on the NYSE.
Deposited Securities
As used in this section, "Deposited Securities" as of any time means our
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.
Deposit and Withdrawal of Deposited Securities
The Depositary has agreed that, upon deposit with the Custodian of shares, or
evidence of rights to receive shares, 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 therefore are deemed to represent and warrant that
(1) the shares are validly issued and subscribed for, fully paid and non-
assessable and therefore are deemed free of any preemptive rights,
(2) such person is duly authorised to deposit shares and
(3) such shares are not, and the ADRs issuable upon deposit will not be,
restricted securities under the Securities Act of 1933.
The Depositary may issue ADRs against the rights to receive shares from us or
any agent of recording share ownership. The Depositary will not issue ADRs
against any other rights to receive shares unless
(1) the ADRs are fully collateralised, marked to market daily, with cash or
other collateral as the Depositary deems appropriate,
(2) the applicant for the ADRs represents in writing that it or its customer
owns the shares before the issuance of the ADRs,
(3) the issuance is terminable by the Depositary on not more than five
Business Days' notice and
(4) subject to any 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
its terms and of our Articles of Incorporation 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 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 U.S. dollars. Whenever the Depositary
receives from us or the Custodian any cash dividends or other cash distributions
denominated in a currency other than U.S. dollars, it shall, to the extent that
in its judgment it can convert such currency on a reasonable basis into U.S.
dollars and transfer the resulting amounts to the United States, convert such
dividends and distributions to U.S. dollars and distribute such
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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 us, our agents
or the Depositary on account of taxes.
If a distribution on any Deposited Securities consists of a dividend in, or
free distribution of, shares, the Depositary may with our approval, and shall if
we request, 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
also represent the additional shares distributed in respect of the shares
represented by such ADS prior to such distribution.
If we offer 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 us, 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 U.S.
dollars to such holders. The Depositary will, if requested by us, either
(1) 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
(2) after consultation with us, 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
the place or places and upon the terms as the Depositary may deem proper,
and allocate the net proceeds of the 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 holders' equity interest.
If a registration statement under the Securities Act of 1933 is required with
respect to the securities to which any rights relate in order for us 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 of 1933 and the Depositary has received an opinion from
recognised counsel in the United States for us 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 of 1933. We have no
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 for shares, 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 sale or the balance
of any property after deduction of taxes or charges to the ADR holders entitled
to those proceeds.
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 us or to
which we are 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 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 we pay any cash dividend or other cash distribution, or we make any
distribution other than cash, or whenever we issue rights 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
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number of shares that are represented by each ADS, the Depositary shall, after
consultation with us 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
(1) determining the holders of ADRs who shall be entitled (a) to receive the
dividend, distribution or rights, or the net proceeds of sale thereof, or
(b) to give instructions for the exercise of voting rights at any meeting
or
(2) 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, mail to the holders of ADRs a notice which shall be prepared by the
Depositary and approved by us, which shall contain
(1) such information as is contained in such notice of meeting,
(2) 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 our Articles of Incorporation, 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
(3) 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 our Board of Directors.
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 us
which are both
(1) received by the Depositary or the Custodian or the nominee of either
receives as the holder of the Deposited Securities and
(2) we make generally available to the holders of such Deposited Securities.
The Depositary also sends to ADR holders copies of such reports we furnish
pursuant to the Deposit Agreement.
Amendment and Termination of the Deposit Agreement
We may at any time amend the form of the ADR and the Deposit Agreement by
agreement with 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 the amendment has been given to the record holders of outstanding ADRs. Every
holder of an ADR at the time the amendment becomes effective shall be deemed, by
continuing to hold such 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
the Deposited Securities represented, except in order to comply with mandatory
provisions of applicable law.
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Whenever we direct the Depositary to do so, 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 us
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
(1) surrender of such ADR at the Depositary's Office,
(2) payment of the fee of the Depositary for the surrender of ADRs and
(3) 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
will discontinue the registration of transfers of ADRs, will suspend the
distribution of dividends to the holders of ADRs and will not give any further
notices or perform any further acts under the Deposit Agreement, except
(1) the collection of the dividends and other distributions pertaining to the
Deposited Securities,
(2) the sale of rights as provided in the Deposit Agreement and
(3) 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 been surrendered
and those holders will become general creditors of the Depositary with respect
to such net proceeds. After making this 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 we declare 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 our share register 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;
(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
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(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.
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 this ADR until the 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 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 we nor the Depositary will be liable to the holders of ADRs if we are
prevented or delayed by law or by reason of any provision, present or future, of
our Articles of Incorporation or the Deposited Securities or any circumstances
beyond its control from performing our obligations under the Deposit Agreement.
Our obligations under the Deposit Agreement are expressly limited to using our
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
the Depositary deems expedient in connection with the performances of its duties
or at the request of the Company. Before the Depositary executes and delivers,
registers, registers a 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 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 we
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
(1) temporary delays caused by closing the transfer books of the Depositary or
us or the deposit of Deposited Securities in connection with voting at a
meeting of shareholders or payment of dividends,
(2) the payment of fees, taxes and similar charges, and
(3) compliance with any U.S. or foreign laws or governmental regulations
relating to the ADRs or to the withdrawal of Deposited Securities.
The Depositary may suspend the delivery, registration, transfer and surrender
of ADRs during any period when the transfer books of the Depositary or us are
closed, or if we or the Depositary deem any such action necessary or advisable
at any time or from time to time because of any requirement of our Articles of
Incorporation, 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. These books will be open for
inspection at all reasonable times by the holders of ADRs and us. Such
inspection shall not be for the purpose of communicating with holders of ADRs in
the interest of a business or object other than our business or a matter related
to the Deposit Agreement or the ADRs or shares.
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The Depositary, upon request or with our approval, 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 entitled persons.
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 our directors. We have an
authorised capital of $1,000,000,000 consisting of 250,000,000 shares, par value
of $4.00 per share. As of 30 June 1999 we had issued capital of 86,561,872
shares, representing issued capital of $346.2 million. Pursuant to our Articles
of Incorporation, the Board of Directors is authorised to issue additional
shares up to the total authorised capital. The shares will participate in the
payment of dividends when, as and if declared by the general meeting of
shareholders, upon proposal from the directors.
All shares must be fully paid up. Our Articles of Incorporation provide that
shareholders will have preferential or preemptive rights if shares are offered
at below NAV. We do not, however, 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 or ADRs representing
such shares, reported on the last trading day preceding the time upon which the
directors approved the pricing of the shares. Please read "--Future Share
Issuances--Rights Offerings and Convertible Debt" below for more information.
Each holder is entitled to one vote per share at any general meeting of
shareholders, in compliance with Luxembourg law and our Articles of
Incorporation, subject to the special voting provisions described below. The
holders of ordinary 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
also issue cumulative, convertible, redeemable preferred shares or cumulative,
redeemable preferred shares, as the case may be (the "Preferred Shares"). The
consequences of such issue are set out in our Articles of Incorporation.
Shares are freely transferable subject to the share ownership limitations and
other provisions described in Article 10 of our Articles of Incorporation.
The inscription of a shareholder's name in the register of shares evidences
that holder's 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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Recent Events Concerning the Shares
On 5 May 1999, we announced that our Board of Directors had authorised a share
repurchase programme of up to $100 million of the shares. On 29 June 1999, we
announced that we had purchased 6,030,255 shares at a cost of $117,955,550 and
that our Board of Directors had increased the share repurchase programme to $200
million. We plan to repurchase shares from time to time in the open market and
privately negotiated transactions, depending on market prices and other
conditions. The share repurchase programme may be terminated at any time.
On 17 May 1999, we announced that our shareholders had approved amendments to
our Articles of Incorporation that, on 18 June 1999, affected a one-for-two
reverse share split. Following effectiveness of the reverse share split, every
two shares, par value $2.00 per share, became one share, par value $4.00 per
share. Each ADS represents one share on a post reverse split basis.
On 30 June 1999, our shareholders approved various amendments to our Articles
of Incorporation relating to, among other things, the authorisation of the
directors to issue Preferred Shares, the redemption price of the Preferred
Shares and the restriction on ownership of Preferred Shares.
Future Share Issuances
General
Our Articles of Incorporation provide that shares offered from time to time
will be offered at a price per share which is no less than NAV except by
reserving for existing shareholders the right to subscribe for new shares on a
preferential and ratable basis in compliance with our Articles of Incorporation.
We do 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 or ADRs, reported on the last trading day
preceding the time upon which the directors approved the pricing of the shares
or in connection with the conversion of outstanding debt securities.
We may offer shares by way of private placement or public offering if our
directors determine to raise additional capital in order to enable us to take
advantage of further investment opportunities.
We have the authority under our Articles of Incorporation to increase the
issue price per share by the estimated costs and expenses we incur for
investing the proceeds of the issue and by applicable sales commissions. In
addition, we have the authority under our Articles of Incorporation to pay such
costs and expenses and applicable sales commissions from our assets rather than
increasing the price at which shares are offered. We intend to use such
authority when market conditions indicate that to do so would be in our best
interests and our shareholders.
Rights Offerings and Convertible Debt
While we intend to continue capitalising the company by issuing shares to
investors at or above NAV or at or above market price where this is the most
appropriate method, we also have the additional flexibility of raising capital
through rights offerings for example, 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, we 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. We retain the right to do rights
offerings for financing flexibility, but have not done a rights offering and
have no current plans to do a rights offering.
If we issued shares at a price below NAV, our existing shareholders would
experience some reduction in the NAV of outstanding shares. This is because in
determining NAV after the issuance of new shares, our assets would be divided by
a larger number of shares. Although our assets 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.
Our Articles of Incorporation 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 or ADRs, reported on the last trading day preceding the time
upon which the Directors
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approved the pricing of the convertible debt securities. The price per share
into which such debt securities are convertible shall be capable of adjustment
as 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 NAV increased to a level above the conversion price, after we issued
convertible debt securities, 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 our net assets would increase upon
conversion of such convertible debt securities, as a result of canceling the
indebtedness represented by such convertible debt securities, the increase in
our net assets would be less than the aggregate NAV of the shares issued upon
conversion of the convertible debt securities. However, we and our shareholders
would have benefitted from the issue of the convertible debt securities as such
would give us access to an additional source of funds at a lower interest rate
than, in the Directors' judgment, would have been available in a conventional
borrowing transaction. We would have used these funds to make additional
investments intended to increase NAV for the benefit of all shareholders.
Preferred Shares
Our Board of Directors is empowered by our Articles of Incorporation, without
the approval of shareholders, to cause additional Preferred Shares to be issued
with limited voting rights in one or more series. The Preferred Shares will be
cumulative as to dividends and will be redeemable. The Board of Directors will
be able to determine, among other things, the number of Preferred Shares of each
series, whether or not the Preferred Shares will be convertible, and any
additional rights, preferences, powers and limitations of each series which may
be senior to the rights of the shares all as permitted by our Articles of
Incorporation. Dividends may only be paid after they have been declared by the
shareholders at a general meeting of the shareholders. No Preferred Shares are
currently outstanding and we have no present plans to issue any Preferred
Shares.
Trading through ASAS
Our 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 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 we make in shares are effected through ASAS. This means that
payments we make on behalf of the investor will be made via the Account Holder.
If the investor holds its shares through ASAS, notice and other information
from us will not be sent directly to the relevant investor by us. We will
publish notices to shareholders in the Daily Official List (Officiele
Prijscourant) of the Amsterdam Exchanges N.V. and at least one Dutch newspaper.
The 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 Clearstream, Luxembourg
Transfers of shares held within Euroclear and Clearstream, Luxembourg will be
in accordance with the usual rules and operating procedures of the relevant
system. Cross-market transfers between investors who hold shares
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through Euroclear and/or Clearstream, Luxembourg will be effected through the
respective depositaries of Euroclear and Clearstream, Luxembourg.
Share Ownership Limitations
Article 10 of our Articles of Incorporation contains 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 us 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 we were treated as a PHC, FPHC or CFC, some U.S.
Shareholders could have adverse U.S. federal income tax consequences.
In addition, under Article 10 of our Articles of Incorporation, no person may
"beneficially own" shares in excess of 9.5% (or any other percentage as our
Board of Directors may determine) of the number, value or vote of the
outstanding shares. If shares of more than one class are outstanding, this
restriction will apply to each class. Any person who acquires or attempts to
acquire shares in excess of this ownership limitation must immediately notify
us.
If the restrictions on transfer described above are violated, the shares
represented thereby become excess shares as defined in our Articles of
Incorporation and are subject to transfer to, or sale on behalf of, a charitable
organisation described in Sections 170(b)(1)(A) and 170(c) of the Internal
Revenue Code. Please read the Articles of Incorporation for more information
concerning the restrictions on transfer provisions and the effects on any
shareholder who may violate those provisions.
"Beneficial Ownership" is defined in our Articles of Incorporation based on
the rules contained in the U.S. Internal Revenue Code and the rules of the
Securities and Exchange Commission.
Redemption of Shares
We are a closed-end undertaking for collective investment; consequently, the
shares shall not be redeemable at the request of a shareholder. We 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 9 of our Articles of Incorporation, we may redeem the
shares within the limits of Luxembourg law and our Articles of Incorporation
whenever the Directors consider a redemption to be in our best interest. Shares
may be redeemed at the option of the Directors on a pro rata basis as between
existing shareholders, in order to return to shareholders any proceeds should
we dispose of investment assets.
We do not currently intend to redeem any shares.
Redemption Price
The redemption price will be the NAV as determined by applying the provisions
of Article 11 of our Articles of Incorporation calculated on the relevant
valuation day, less an amount equal to any duties and charges which would be
incurred upon the disposal of our investments in order to fund such a
redemption. 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 or ADRs, reported on such trading day as specified by the directors
at their discretion. If the redemption is initiated by the board of directors
and is effected in a privately negotiated transaction, the redemption price may
be lower than such last available sales price. 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 we elect 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 our Articles of Incorporation 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 the number of business days fixed by
the board of directors 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 on our part.
The provisions of the above two paragraphs do not apply to shares redeemed by
virtue of purchases on a stock exchange.
Shares which we redeem shall remain in existence but shall not have any voting
rights or any right to participate in any dividends declared by us or in any
distribution paid upon our liquidation or winding up and shall be disregarded
for purposes of determining the NAV, in each case, for so long as such shares
are held by us. If we reissue such shares, any consideration we receive 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 or ADRs, 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 our annual net profits be allocated to a
special reserve. This allocation is not required as soon and so long as such
surplus reserve equals or exceeds 10% of our issued capital as such capital is
increased or reduced from time to time.
The shareholders at the general meeting of shareholders shall, within the
limits provided by law, determine how the balance of our net profits shall be
disposed of, and may from time to time declare or authorise the Directors to pay
dividends and distributions in respect of such amounts.
We expect to have opportunities to make further investments in our strategic
investment positions. In addition, we will continue to research other
opportunities, consistent with its operating strategy. While opportunities are
available which are consistent with our strategy, we currently intend 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
We will mail notice of any general meeting of shareholders, including those
considering amendments to our Articles of Incorporation or our dissolution and
liquidation, to each registered shareholder at least eight days prior to the
meeting and publish a notice 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.
If our Articles of Incorporation are amended, such amendments shall be filed
with the Chancery of the District Court of Luxembourg and published in the
Memorial.
We annually publish a consolidated report on our activities and on the
management of our assets; such report includes, among other things, our audited
consolidated annual accounts, a detailed description of our assets and a report
from our auditors. The most recent annual report was published as of 31 December
1999.
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We also publish semi-annual unaudited consolidated reports, including, among
other things, a description of our assets and the number of Shares issued,
disposed of and redeemed since the last publication. The most recent semi-annual
report was published as of 30 June 1999.
In our annual and semi-annual reports, we clearly explain the accounting
principles applied for the consolidation of our accounts and those of our
consolidated subsidiaries.
We send the annual and semi-annual reports to registered Shareholders within
four and two months of the dates of those reports. Copies may be obtained free
of charge by any person at our registered office. Shareholders who hold their
shares through ASAS can obtain copies via their Account Holder, please read "--
Trading through ASAS" above for more information.
We will also publish quarterly reports summarising our consolidated financial
information.
Our accounting year commences on the first day of January of each year and
terminates on the last day of December of the same year.
Our 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.
Our consolidated accounts are maintained in U.S. Dollars, which is the
reference currency of the share capital.
In the event that we request the Dutch Central Bank to revoke its
authorisation pursuant to Section 15(a) of the Investment Institution
Supervision Act, we will announce such request through an advertisement in a
Dutch national newspaper.
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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 the Convertible Notes and our shares or American
Depositary Shares. In the opinion of Mayer, Brown & Platt, the discussions
below under "United States Federal Income Taxation of Noteholders", "United
States Federal Income Taxation of Securityholders", "United States Federal
Information Reporting and Withholding" , "U.S. Federal Information Requirements"
and "U.S. Federal Income Taxation of SC-U.S. Realty" are accurate in all
material respects as to matters of law and legal conclusions. In the opinion of
PricewaterhouseCoopers SARL (Luxembourg), the discussion below under "Luxembourg
Taxation of SC-U.S. Realty and its Subsidiaries" accurately summarises the
Luxembourg tax consequences material to SC-U.S. Realty of its European
activities. In the opinion of PricewaterhouseCoopers (United Kingdom), the
discussion under "United Kingdom Taxation of SC-U.S. Realty and its
Subsidiaries" accurately summarises the United Kingdom tax consequences material
to SC-U.S. Realty of its European activities. The opinions of Mayer, Brown &
Platt, PricewaterhouseCoopers SARL (Luxembourg) and PricewaterhouseCoopers
(United Kingdom) referenced above are based on tax law and tax treaties (double
tax conventions) and relevant interpretations in effect on the date of this
prospectus. The opinions are not binding on any tax authority, regulator, court
or government agency except to the extent rulings have been obtained. Changes
in tax law or treaties or interpretations thereof could materially alter the tax
burden of SC-U.S. Realty and/or holders of the Convertible Notes, shares or
ADRs, and no responsibility is undertaken to update the opinions for changes in
law or fact. Investors should consult their own tax advisors regarding the
particular consequences to them of an investment in the Convertible Notes,
shares or ADRs. For purposes of this section, the word Securities refers to
both shares and ADSs.
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 the Convertible Notes and Securities. In particular, the
discussion does not address the tax consequences to any investors under state,
local and 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, 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 complete discussion of all United States federal income tax consequences or
Luxembourg or United Kingdom income tax consequences relating to making an
investment in the Convertible Notes and 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 the Convertible Notes and 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 the Convertible Notes and
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:
. a citizen or resident of the United States;
. a corporation, partnership or other entity created or organised in the
United States or under the laws of the United States or any state;
. an estate whose income is includible in gross income for United States tax
purposes regardless of source; or
. a "United States Trust".
A United States Trust includes a trust if, and only if:
. a court within the United States is able to exercise primary supervision
over the administration of the trust; and
. one or more U.S. persons have the authority to control all substantial
decisions of the trust.
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United States Federal Income Taxation of Noteholders
Interest
Interest on a Convertible Note which constitutes the 2% current mandatory
payment of interest is "qualified stated interest" as defined below under
"Original Issue Discount", and is taxable to a United States Holder as ordinary
income at the time it is received or accrued, depending on the holder's method
of accounting for tax purposes.
Original Issue Discount
The Convertible Notes were issued at an original issue discount equal, in the
case of a Convertible Note, to the excess of the Convertible Note's "stated
redemption price at maturity" over its "issue price." Generally, the issue
price of a Convertible Note was the first price at which a substantial amount of
Convertible Notes included in the issue of which the Convertible Note is a part
is sold to persons other than bond houses, brokers or similar persons or
organisations acting in the capacity of underwriters, placement agents, or
wholesalers. The stated redemption price at maturity of a Convertible Note is
the total of all payments provided by the Convertible Note that are not payments
of "qualified stated interest." A qualified stated interest payment is
generally any one of a series of stated interest payments on a Convertible Note
that are unconditionally payable at least annually at a single fixed rate
applied to the outstanding principal amount of the Convertible Note.
Accordingly, the 2% current mandatory interest payable on a Convertible Note
constitutes "qualified stated interest".
United States Holders of a Convertible Note must generally include original
issue discount ("OID") in income calculated on a constant-yield method before
the receipt of cash attributable to such income, and generally will have to
include in income increasingly greater amounts of OID over the life of the
Convertible Note. The amount of OID includible in income by a United States
Holder of a Convertible Note is the sum of the daily portions of OID with
respect to the Convertible Note for each day during the taxable year or portion
of the taxable year on which the United States Holder holds such Convertible
Note ("accrued OID"), subject to the adjustments described below with respect to
persons which purchase such Convertible Note at a premium over its principal
amount or a price less than its principal amount but at a lower yield to
maturity then the Convertible Note had for OID purposes with respect to the
initial Holder of the Convertible Note. The daily portion is determined by
allocating to each day in any "accrual period" a pro rata portion of the OID
allocable to that accrual period. Accrual periods with respect to a Convertible
Note may be of any length selected by the United States Holder and may vary in
length over the term of the Convertible Note as long as no accrual period is
longer than one year and each scheduled payment of interest or principal on the
Convertible Note occurs on either the final or first day of an accrual period.
The amount of OID allocable to an accrual period equals the excess of (a) the
product of the Convertible Note's adjusted issue price at the beginning of any
accrual period and such Convertible Note's yield to maturity, determined on the
basis of compounding at the close of each accrual period and properly adjusted
for the length of the accrual period, over (b) the sum of the payments of
qualified stated interest on the Convertible Note allocable to the accrual
period. The "adjusted issue price" of a Convertible Note at the beginning of
any accrual period is the issue price of the Convertible Note increased by (x)
the amount of accrued OID for each prior accrual period and decreased by (y) the
amount of any payments previously made on the Convertible Note that were not
qualified stated interest payments.
For purposes of determining the amount of OID allocable to an accrual period,
if an interval between payments of qualified stated interest on the Convertible
Note contains more than one accrual period, the amount of qualified stated
interest payable at the end of the interval (including any qualified stated
interest that is payable on the first day of the accrual period immediately
following the interval) is allocated pro rata on the basis of relative lengths
of each accrual period in the interval, and the adjusted issue price at the
beginning of each accrual period in the interval must be increased by the amount
of any qualified stated interest that has accrued prior to the first day of the
accrual period but that is not payable until the end of the interval. The
amount of OID allocable to an initial short accrual period may be computed using
any reasonable method if all other accrual periods other than a final short
accrual period are of equal length. The amount of OID allocable to the final
accrual period is the difference between (x) the amount payable at the maturity
of the Convertible Note (other than any payment of qualified stated interest)
and (y) the Convertible Note's adjusted issue price as of the beginning of the
final accrual period.
If a United States Holder acquires the Convertible Note at a lower yield to
maturity than the yield on the Convertible Note for original issue discount
purposes with respect to the initial Holder of the Convertible Note, the
subsequent United States Holder may reduce its periodic inclusions of original
issue discount income to reflect the
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lower yield to maturity of the Convertible Note or elect to compute original
issue discount accruals by treating the purchase as a purchase at original issue
and applying the mechanics of the constant yield method.
A United States Holder of a Convertible Note that purchases the Convertible
Note at a cost greater than its principal amount, excluding from such cost for
this purpose any amount attributable to the conversion feature of the
Convertible Note, will be considered to have purchased the Convertible Note at a
premium, will not be subject to the OID rules described above, and may make an
election, applicable to all notes, other than obligations the interest on which
is excludable from gross income, purchased at a premium and held by such Holder
at the beginning of the first taxable year to which the election applies or
thereafter acquired, to amortise such premium, using a constant yield method,
over the remaining term of such notes.
Tax Basis
A United States Holder's initial tax basis in a Convertible Note generally is
equal to the purchase price paid by such Holder for such Convertible Note. A
United States Holder's tax basis in a Convertible Note will be increased by the
amount of any OID that is included in the Holder's income pursuant to the
foregoing rules, and will be decreased by the amount of any cash payments
received other than payments of qualified stated interest and by any amortised
premium claimed by the Holder, as the case may be.
Payments on an Illiquidity Event
Because additional interest is payable on the Convertible Notes in the event
of an Illiquidity Event, interest on the Convertible Notes, instead of being
taken into account under the rules described above, might have to be taken into
account under special rules applicable to "contingent interest" set forth in
United States Treasury Regulations (the "Contingent Interest Regulations")
unless, as discussed below, the likelihood of an additional payment is
considered "remote". The Company determined that, as of the date of issuance of
the Convertible Notes, the possibility that additional interest would be paid to
Holders pursuant to an Illiquidity event was remote. Assuming the possibility of
such additional payments was remote as of the issue date, the Convertible Notes
should not be subject to the Contingent Interest Regulations. The Service may
take a different position, which could affect the timing and character of
interest income reported by United States Holders. The Company's determination
that such additional payments were a remote contingency for these purposes is
binding on a United States Holder, unless such Holder discloses in the proper
manner to the Service that it is taking a different position.
Assuming that the possibility that additional interest will be paid to United
States Holders pursuant to an Illiquidity Event was appropriately considered
remote under the Contingent Interest Regulations but such additional interest is
in fact paid, the additional interest so paid would be taxable to a United
States Holder as ordinary interest income in accordance with such Holder's
method of accounting, subject to the discussion below. Under the Contingent
interest Regulations the Convertible Notes would be considered to have been
reissued as of the date of the Illiquidity Event for an amount equal to their
adjusted issued price at that time. If at the time of such deemed reissuance,
the possibility that SC-U.S. Realty would be required to make future payments of
additional interest were not considered remote, under the Contingent Interest
Regulations, the stated interest and the additional interest in respect of an
Illiquidity Event anticipated, as of the date of the Convertible Notes'
reissuance, to be payable on the Convertible Notes could be treated as OID
required to be accrued and included in income by United States Holders on a
constant yield basis, including by United States Holders who use the cash method
of accounting for federal income tax purposes, in which case there generally
would be:
. a timing difference between the accrual of such OID as income for United
States federal income tax purposes and the receipt of cash interest
payments;
. adjustments to such income to the extent actual additional interest
payments differed from anticipated additional interest payments; and
. a possibility that gain recognised on disposition of a Convertible Note
would be recognised as interest income and not capital gain.
United States Holders should consult their tax advisors with respect to the
tax consequences of additional interest payable upon an Illiquidity Event.
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Adjustment of Conversion Rate
The conversion rate of the Convertible Notes is subject to adjustment in
certain circumstances. Adjustments that have the effect of increasing the
proportionate interest of a holder of the Convertible Notes in assets or
earnings of SC-U.S. Realty may give rise to deemed dividend income to United
States Holders. If, for example, at any time SC-U.S. Realty makes a distribution
of property to Shareholders that would be taxable to such Shareholders as a
dividend for United States Federal income tax purposes, for example,
distributions of evidence of indebtedness or assets of SC-U.S. Realty, but
generally not stock dividends or rights to subscribe for shares, and, pursuant
to the antidilution provisions of the Convertible Notes, the conversion rate of
the Convertible Notes is increased, such increase would likely result in taxable
income for the United States Holders of the Convertible Notes. Similarly, if the
conversion rate were increased at the discretion of SC-U.S. Realty, such
increase will likely result in taxable income for the United States Holders of
the Convertible Notes.
Sale, Redemption or Retirement of Convertible Notes
Upon the sale of a Convertible Note for cash, a United States Holder will
recognise gain or loss equal to the difference between the amount of cash
received, other than cash attributable to accrued interest not included in basis
as accrued OID, and such holder's adjusted tax basis in the Convertible Note.
Subject to the discussion below concerning "market discount," such gain or loss
will be capital gain or loss if the Convertible Note is a capital asset to such
holder and will be taxed at the rates discussed below under "U.S. Federal Income
Taxation of Securityholders--General". Cash received attributable to accrued
interest not recognised as OID income will constitute ordinary interest income
to a cash method United States Holder, and a return of capital with respect to
interest accrued as income by an accrual method United States Holders. Upon the
redemption or retirement by SC-U.S. Realty of a Convertible Note for cash, a
United States Holder will recognise gain or loss equal to the difference between
the amount of cash received, other than cash attributable to accrued interest
not included in basis as accrued OID, and such holder's adjusted tax basis in
the Convertible Note. Subject to the discussion below concerning "market
discount", such gain or loss will be capital gain or loss if the Convertible
Note is a capital asset to such holder. Cash received attributable to accrued
interest not recognised as OID income will constitute ordinary interest income
to a cash method United States Holder, and a return of capital with respect to
interest accrued as income by an accrual method United States Holder.
If a United States Holder of a Convertible Note purchases the Convertible Note
at a price that produces a yield to maturity higher than the yield to maturity
at which such Convertible Note first was issued, the Convertible Note generally
will be considered to bear "market discount" in the hands of such United States
Holder. In such case, gain realised by the United States Holder on the sale,
exchange or retirement of the Convertible Note generally will be treated as
ordinary income to the extent of the market discount that accrued on the
Convertible Note while held by such Holder and such Holder could be required to
defer the deduction of a portion of the interest paid on any indebtedness
incurred or continued to purchase or carry the Convertible Note, unless the
Holder elects to include such market discount in income as it accrues. In some
cases a Holder may have to recognise accrued market discount as ordinary income
in excess of the Holder's gain realised at the time, for example, in the case of
a gift of the Convertible Note or receipt of a principal payment. In general
terms, market discount on a Convertible Note will be treated as accruing ratably
over the term of such Convertible Note, or, at the election of the Holder, under
a constant yield method.
Conversion of Convertible Note
If a Convertible Note is converted into Shares, accrued interest which is
deemed paid by delivery of the Shares (see "Description of Convertible Notes--
Conversion") , and accrued OID, such interest and OID accruing on a daily basis,
on the Convertible Note are includible in income by the United States Holder of
the Convertible Note in the manner described above as ordinary interest and OID
income. Gain or loss will not be recognised on the conversion of the Convertible
Note into Shares (except for any gain or loss attributable to the receipt of
cash in lieu of fractional shares), and the United States Holder's adjusted tax
basis in the Shares will equal his adjusted tax basis, including accrued OID, in
the Convertible Note converted plus the amount of accrued interest on the
Convertible Note deemed paid by the delivery of the Shares.
Please read the discussion under "U.S. Federal Information Reporting and
Withholding" below for more information concerning the reporting and withholding
on the Convertible Notes.
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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 we make distributions, a securityholder will recognise ordinary income to
the extent of current and accumulated earnings and profits 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 we pay will
not be eligible for the dividends received deduction available to corporations
receiving dividends.
In general, the IRS will treat holders of ADRs evidencing ADSs 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 IRS were to classify SC-U.S. Realty as a PHC within the meaning of
section 542(a) of the Code, we would be subject to a personal holding company
tax equal to 39.6 percent of our undistributed taxable income subject to certain
adjustments under section 545(b) of the Code. We would generally be classified
as a PHC if (i) at least 60 percent of our 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 our outstanding Securities were
owned, directly or indirectly, by or for not more than five individuals. We
intend our securities to be widely held and that we will not be classified as a
PHC. To this end, we have adopted ownership and transfer restrictions on
Securities in our Articles of Incorporation 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 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. We believe that, based upon the current ownership of
Securities and the ownership and transfer restrictions on Securities described
above, which we intend to monitor and enforce, we will not be classified as a
PHC.
Foreign Personal Holding Company
If the IRS were to classify SC-U.S. Realty as a FPHC within the meaning of
section 552(a) of the Code, we 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 our
securityholders on the last day of our taxable year. A securityholder would be
required to include its pro rata share of the dividend in income even though we
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. We would generally be classified as a FPHC
if (i) at least 60 percent of our 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 our Securities entitled to
vote or (B) the total value of our Securities were owned, directly or
indirectly, by or for more than five individuals who are citizens or residents
of the United States. We intend for our Securities to be widely held, and that
we will not be classified as a FPHC. To this end, we have adopted ownership and
transfer restrictions on Securities in our Articles of
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Incorporation 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. SC-
U.S. Realty believes that, based upon the current ownership of Securities and
the ownership and transfer restrictions on Securities described above, which we
intend to monitor and enforce, SC-U.S. Realty will not be classified as a FPHC.
Controlled Foreign Corporation
If the IRS were to classify SC-U.S. Realty 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 we 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 our
current or accumulated earnings and profits. We would generally be classified as
a CFC if more than 50 percent of (i) the total combined voting power of all
classes of our Securities, or (ii) the total value of our Securities 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 our Securities
entitled to vote. We intend for our securities to be widely held and that we
will not be classified as a CFC. To this end, we have adopted ownership and
transfer restrictions on Securities in our Articles of Incorporation 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. We believe that, based upon
the current ownership of Securities and the ownership and transfer restrictions
on Securities described above, which we intend to monitor and enforce, we will
not be classified as a CFC.
Accumulated Earnings Tax
If the IRS were to classify SC-U.S. Realty as a corporation subject to the
accumulated earnings tax ("AET") within the meaning of section 532(a) of the
Code, we would be subject to a tax equal to 39.6 percent of our undistributed
taxable income subject to certain adjustments under section 535(b) and 535(c) of
the Code. We would generally be classified as a corporation subject to the AET
if we had been formed or availed for the purpose of avoiding income tax, with
respect to our 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." In the opinion of Mayer, Brown & Platt,
based on certain factual representations made by SC-U.S. Realty regarding its
shareholder composition, capital needs for long-term growth and operational
activities, SC-U.S. Realty should not be classified as a corporation subject to
the AET.
Foreign Investment Company
If the IRS were to classify SC-U.S. Realty 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 SC-U.S. Realty. We would
generally be classified as a FIC if (i) we were registered under the Investment
Company Act as a management company or as a unit investment trust, or (ii) we
were 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
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of all classes of stock, was held, directly or indirectly, by U.S. persons (as
defined in Section 7701(a)(30) of the Code). We are not registered under the
Investment Company Act as a management company or as a unit investment trust.
While we expect that 50 percent or more of the total combined voting power of
all classes of our Securities entitled to vote or the total value of all classes
of our Securities will be held by U.S. persons, we do not believe, based on our
anticipated method of operation and the nature of our investments, that we
should be considered engaged primarily in the business of investing, reinvesting
or trading securities, commodities or any interest therein. Furthermore, in the
opinion of Mayer, Brown & Platt, based on certain factual representations made
by SC-U.S. Realty regarding its current and anticipated method of operation and
the nature of its investments, SC-U.S. Realty 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. In the opinion of Mayer, Brown & Platt, a
determination under section 3(a)(1) of the Investment Company Act will be
determinative of whether or not SC-U.S. Realty 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, we should not be a FIC.
Passive Foreign Investment Company
If the IRS were to classify SC-U.S. Realty as a passive foreign investment
company ("PFIC") within the meaning of section 1297(a) of the Code, a
securityholder would, upon certain distributions by us and upon disposition of
his or her 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. We would generally be classified as a PFIC if:
(1) 75 percent or more of our gross income for the taxable year is passive
income, or
(2) the average percentage of assets held by us 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:
(1) dividends, interest, and income equivalent to interest such as income from
commitment fees, royalties, rents, except active rents as discussed below,
and annuities;
(2) net gains from the sale or exchange of property, other than inventory,
that produces dividends, interest, royalties, rents, except for active
rents as discussed below, or annuities, or that produces no income;
(3) net gains from the sale or exchange of an interest in a trust or
partnership; and
(4) net gains from certain commodity and foreign currency transactions.
Rents are considered "active rents" if such rents are derived from leasing:
(1) 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
(2) 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 we
are a PFIC, if we own, directly or indirectly, at least 25 percent by value of
the stock of another corporation, SC-U.S. Realty would be treated as if we (1)
held our proportionate share of the assets of such other corporation, and (2)
received directly our proportionate share of the income of such other
corporation. In the opinion of Mayer, Brown & Platt, based on certain factual
representations regarding monitoring effects and magnitude of investments as of
31 December 1999, and assuming continued compliance, SC-U.S. Realty should not
be classified as a PFIC. However, because classification of SC-U.S. Realty as a
PFIC depends in significant part upon the investments and activities of the
various strategic positions in which SC-U.S. Realty invests and because changes
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with respect to such investments and activities may occur as a result of
circumstances beyond the control of SC-U.S. Realty, there can be no assurance
SC-U.S. Realty will be able to avoid PFIC classification. However, SC-U.S.
Realty's strategic investees have contractually agreed to certain limitations
designed to help ensure SC-U.S. Realty will not be a PFIC as a result of changes
in their investment and activities.
SC-U.S. Realty will use its best efforts to notify securityholders if we
conclude that we will be treated as a PFIC for any taxable year to enable
affected taxpayers to consider whether to elect to treat us 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. SC-U.S. Realty
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 (1) interest and original issue
discount on, and the proceeds of a sale, exchange or redemption of, the
Convertible Note and (2) 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, for example,
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:
(1) fails to furnish its Taxpayer Identification Number ("TIN") which, for an
individual, would be his Social Security number,
(2) furnishes an incorrect TIN,
(3) is notified by the Service that it has failed to properly report payments
of interest and dividends, or
(4) 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 interest or OID on a Convertible Note or dividends on a Security 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 amended, the New Regulations
are generally effective regardless of the issue date of the instrument with
respect to which such payments are made, to those payments made after 31
December 2000, subject to certain transition rules. The New Regulations
generally have similar rules to those described in the preceding paragraphs.
If payments on a Convertible Note are made to or through a foreign office of a
custodian, nominee, broker or other agent acting on behalf of a beneficial owner
of a Convertible Note, such custodian, nominee or other agent will not be
required to apply backup withholding or information reporting to such payments
made to such beneficial owner. If, however, such nominee, custodian, agent or
broker is, for United States federal income tax purposes, a United States
person, a controlled foreign corporation 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, such payments will not be
subject to backup withholding but will be subject to information reporting,
unless (1) such custodian, nominee, agent or broker has documentary evidence in
its records that the beneficial owner is not a United States person and certain
other conditions are met or (2) the beneficial owner otherwise establishes an
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exemption. Under the New Regulations, backup withholding will not apply to such
payments, absent actual knowledge that the payee is a United States person, and
failure to otherwise establish an exemption.
Payments on the sale, exchange or other disposition of a Convertible Note or
Security 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 Convertible Note or
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, for example, 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 Convertible Notes or 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.
Interest and OID paid on the Convertible Notes will be treated by the Company
as foreign source interest not subject to United States withholdings tax.
Assuming that less than 25% of our gross income and our 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
SC-U.S. Realty prior to the taxable year of declaration of any distribution, any
such distributions we make 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 (1) total combined voting power
of all classes of our Securities entitled to vote or (2) total value of our
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 SC-U.S. Realty
We and our subsidiaries have conducted, and will continue to conduct, our
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".
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 our subsidiaries
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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 our 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 our subsidiaries should qualify for the safe harbor.
Holdings and its subsidiaries have 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 that we qualify as a "venture capital operating
company", we are and will be a party to the contract between Holdings and the
investee company pursuant to which we have 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 our
subsidiaries which would not cause us or our subsidiaries to be engaged in a
United States trade or business.
In the opinion of Mayer, Brown & Platt, the current method of operation of SC-
U.S. Realty and its subsidiaries' 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, we own or will primarily
own through our wholly owned direct and indirect subsidiaries, shares in United
States real estate companies, most of which are or intend to become REITs as
defined in the Code. Assuming our subsidiaries are not considered engaged in a
United States trade or business, they will generally be subject to United States
withholding taxes on dividends from the REITs in which they invest and propose
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 our subsidiaries to the extent of their respective
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, for example,
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, our 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. Our 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.
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, our 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, our subsidiaries are treated for U.S. federal income tax purposes as the
beneficial owners of such dividends. Mayer, Brown & Platt is of the opinion
that SC-U.S. Realty'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.
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Under certain "conduit" income tax regulations promulgated by the U.S.
Treasury Department, if any of our 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 us, the Service could assert that such income should
be attributed to us 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.
Our subsidiaries have been capitalised with a combination of equity and debt
from us. Such debt could constitute a financing transaction, but should not be
considered part of a financing arrangement unless the underlying proceeds are
used by our subsidiaries in a second financing transaction. Investments by our
subsidiaries in U.S. stocks which do not have certain redemption rights should
not constitute financing transactions. We and our 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 our 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 our subsidiaries
own directly or by attribution more than 10% of the voting stock. In any event,
our 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. 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. We believe that our 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 our subsidiaries. Furthermore,
under the revised terms of the proposed new treaty, we believe that Holdings, or
other subsidiaries of SC-U.S. Realty, should also be able to qualify for the 15%
rate for future REIT investments. We base our beliefs upon advice of Mayer,
Brown & Platt regarding the requirements for qualifying for the 15% rate, and
the manner in which our management 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 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.
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<PAGE>
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 of our other subsidiaries 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:
. a company that satisfies an ownership test and a base erosion test;
. a company that satisfies a public company test;
. a company that is controlled by certain public companies and also satisfies
a base erosion test; or
. 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.
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 of our
subsidiaries, only at a future point in time and will be dependent on the
particular facts at such time. However, management will use its best efforts to
ensure Holdings, or other of our subsidiaries, meets the conditions for claiming
the reduced treaty withholding rate at the relevant time. We currently believe
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.
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<PAGE>
However, assuming the proposed treaty and the Senate Reservation approved by
Luxembourg remain unchanged and that instruments are exchanged during 2000, and
assuming our 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 our subsidiaries
for U.S. source income, including dividends of operating income from REITs,
received on or after 1 January 2002.
Generally, gains on the sale of shares of a REIT by a subsidiary of ours 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 our subsidiaries hold 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, for example, 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 subsidiary of ours 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 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 that one of our subsidiaries 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 the 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
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 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, we expect that all such USRPHCs will ultimately elect REIT status.
Other than the investments in United States REITs and real estate operating
companies, which are described above, neither we nor any of our subsidiaries
intend 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.
Luxembourg Taxation of SC-U.S. Realty and its Subsidiaries
Taxation of SC-U.S. Realty
We are not liable to any Luxembourg tax on profits or income, nor are
distributions or interest payments we pay liable to any Luxembourg withholding
tax. We are, 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
our aggregate net assets 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 our assets.
We were liable to an initial capital tax of LUF 50,000, which was paid upon
incorporation.
Taxation of Holdings
As described above, we own and expect 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,
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together with the treatment of interest paid to us as a deductible expense, has
been verified by a ruling from the Luxembourg Tax Inspector. We intend 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 Holdings pays to us 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 SC-U.S. Realty 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 our 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 our intended operating methods and capital structure, our
consolidated taxation in Luxembourg will approximate a maximum of 3.75% of
dividends and capital gains realised from our REIT investments. No assurance can
be given that actual operating requirements will not result in a higher level of
taxation.
United Kingdom Taxation of SC-U.S. Realty and its Subsidiaries
It is the intention of our directors 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 we
nor Holdings will be subject to tax on their net income or capital gains.
General
Dividends and interest we or one of our subsidiaries receive on 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
shares except for:
(1) non-residents having permanent establishment in Luxembourg to the extent
the shares are effectively connected to the permanent establishment; or
(2) non-residents of Luxembourg who hold more than 25% of the Shares and who
dispose of all or part of their holdings within six months of the date of
acquisition; or
(3) in some limited cases, certain former residents of Luxembourg who held
more than 25% of the Shares. For purposes of (2) and (3) above, ownership
of Convertible Notes is disregarded when calculating the 25% ownership
tests.
Under current legislation, investors who are not resident in Luxembourg are
not subject to capital gains, income or withholding tax in Luxembourg on the
Convertible Notes except for non-residents of Luxembourg having a permanent
establishment to the extent that the Convertible Notes are effectively connected
to this permanent establishment.
United Kingdom
Tax Treatment of U.K. Holders of Shares
The following discussion is given on the basis that the offshore funds
legislation does not apply. Investors may wish to consider whether the UK
offshore funds legislation, which applies according to each investor's
circumstances, applies to them.
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<PAGE>
Tax Treatment of Companies
Dividends (if any) paid by us to a United Kingdom resident corporation will
be included in taxable profits and charged with a corporation tax of 30%.
Any capital gains arising on sales of shares in excess of the indexation
allowance and any available capital losses will also be included in the
calculation of taxable profits.
Under United Kingdom tax law, special rules apply to the United Kingdom
resident life insurance companies which hold as part of a long-term business
fund a "relevant interest in offshore funds". Any such company wishing to
invest in us should consult its professional advisers 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, that is, the activities of the Pension
funds are not in the ordinary course of business.
There should be no United Kingdom tax on dividends paid by us or on gains
realised on sales of shares.
Tax Treatment of U.K. Holders of Convertible Notes
Tax Treatment of Companies
Interest receivable on the Convertible Notes 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 Convertible
Notes. 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.
Companies holding the Convertible Notes before conversion will be subject
to tax on the discount which must be apportioned to each accounting period on
the basis of an acceptable accounting method. This will either be on a "mark to
market" basis or an acceptable method of accruals accounting.
When the Convertible Notes are transferred or redeemed, a company will be
subject to tax on the amount realised less any amounts previously subject to
corporation tax.
When the Convertible Notes are converted, a company will be subject to tax
on an amount equal to the value of the shares received less any amounts
previously subject to corporation tax.
The capital gains tax base cost of the shares after conversion will be
equal to the market value of the shares at conversion. Dividends receivable in
relation to the shares after conversion will be subject to the corporation tax
rate.
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, that is, the activities of the pension
funds are not in the ordinary course of business.
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<PAGE>
SELLING HOLDERS
Pursuant to a Registration Rights Agreement between the representatives of
the selling holders and us, we are required to register the Registrable
Securities owned by the selling holders. This prospectus covers the offer and
sale from time to time of the Registrable Securities by each of the selling
holders. Each selling holder may from time to time offer all or a portion of
his, her or its Registrable Securities for sale pursuant to this prospectus.
Since the selling holders may sell all, some or none of their Registrable
Securities, the amount of Registrable Securities that will be owned by each
person identified below after completion of this offering cannot be determined.
Please read "Description of Convertible Notes--Listing on the NYSE; Registration
of Notes and Underlying Shares and American Depositary Shares" for more
information concerning the registration rights agreement including the periods
during which we are required to keep the registration statement effective.
Pursuant to the Registration Rights Agreement, we and the selling holders
agreed to indemnify each other against various liabilities, including
liabilities under the Securities Act in connection with the sale of the
securities. The selling holders are required to pay the underwriting discounts
and commissions and expenses of their legal counsel and accountants associated
with the offering contemplated by this prospectus and we are generally required
to pay all of the other expenses contemplated by this prospectus including,
without limitation, the cost of registering the Registrable Securities. None of
the selling holders are under any obligation known to us to sell any of the
Registrable Securities.
The table below sets forth the name of each selling holder and
relationship, if any, with us. The table also shows the amount of Registrable
Securities beneficially owned by each holder, assuming no Registrable Securities
have been sold or converted under this prospectus and the number of shares into
which the Registrable Securities may be converted.
<TABLE>
<CAPTION>
Amount of Number of Shares
Convertible Notes into which
Beneficially Owned Convertible Notes
Name of Selling Holder Prior to Offering (1) May Be Converted
- ---------------------- --------------------- ----------------
<S> <C> <C>
ABN Amro 460,000 12,139
Bank of New York 48,260,000 1,273,627
Bankers Trust Company 8,620,000 227,489
Bank One Trust Company 1,400,000 36,947
Banque Nationale de Paris - New York Branch 400,000 10,556
Bear Stearns 300,000 7,917
BNP Arbitrage SNC 500,000 13,195
Boston Safe Deposit and Trust Company 114,270,000 3,015,693
Chase Manhattan Bank 83,324,000 2,198,999
Chrysler Corporation Master Retirement Trust 2,700,000 71,255
Citibank, N.A. 30,200,000 797,006
Commerce Bank of Kansas City, N.A. 100,000 2,639
Delta Air Lines Master Trust 1,190,000 31,405
Firstar Trust Company 200,000 5,278
First National Bank of Omaha 1,540,000 40,642
First Union National Bank 3,120,000 82,339
FUNB-Philadelphia Main 880,000 69,672
Goldman, Sachs & Co. 18,308,000 483,165
Investors Fiduciary Trust Company 130,000 3,430
LaSalle National Bank 210,000 5,542
Marshall & Ilsley Bank 20,000 527
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Amount of Number of Shares
Convertible Notes into which
Beneficially Owned Convertible Notes
Name of Selling Holder Prior to Offering (1) May Be Converted
- ---------------------- --------------------- ----------------
<S> <C> <C>
Mercantile Safe Deposit & Trust Company 300,000 7,917
Merrill Lynch Global Allocation Fund 53,100,000 1,401,359
Morgan Stanley & Co. Incorporated 2,769,000 73,076
National City Bank 420,000 11,084
NationsBank, N.A. 1,500,000 39,586
Norwest Bank Minnesota, National Association 4,190,000 110,578
The Northern Trust Company 2,125,000 56,080
OCM Convertible Trust 1,390,000 36,683
Old Kent Bank 640,000 16,890
Oppenheimer Convertible Securities Fund 14,500,000 382,668
Partner Reinsurance Company Ltd. 510,000 13,459
PNC Bank, National Association 740,000 19,529
Raytheon Company Master Pension Trust 1,815,000 47,899
State Street Bank and Trust Company 44,239,000 1,167,509
UMB Bank, National Association 1,000,000 26,390
Union Bank of California, N.A. 560,000 14,778
U.S. Bank National Association 270,000 7,125
Vanguard Convertible Securities Fund, Inc. 1,760,000 46,448
Wachovia Bank, N.A. 40,000 1,055
The Fifth Third Bank 2,000,000 52,781
-----------
Totals 450,000,000
</TABLE>
(1) All Convertible Notes beneficially owned by the selling holder are
potentially being offered for sale by this prospectus. If all such
Convertible Notes are sold, the selling holder will beneficially own no
Convertible Notes after the offering. Amounts represent aggregate principal
amount at maturity of Convertible Notes.
(2) Convertible Notes may be converted into shares at the option of the selling
holder or further converted into American Depositary Shares, at the option
of the selling holder. The number of shares or American Depositary Shares
beneficially owned by each selling holder as a result of the conversion of
Convertible Notes is therefore the same.
All Convertible Notes are held of record by Cede & Co. The following
information has been provided to us by The Depository Trust Company or its
participants and is information we believe to be accurate. We will update this
information as applicable at the time of sale of any of the Registrable
Securities.
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PLAN OF DISTRIBUTION
This prospectus relates to the offer and sale from time to time, which
would include an exchange of shares for American Depositary Shares of up to
$450,000,000 of the Convertible Notes, and the 11,875,928 shares into which the
Convertible Notes may be converted, or American Depositary Shares for which the
shares may be exchanged, held by the selling holders.
The selling holders may from time to time offer and sell the Registrable
Securities on the AEX Stock Exchange in Amsterdam (shares only), the NYSE (ADSs
only) or otherwise at market prices then prevailing or at prices and upon terms
then obtainable. Sales may be made in ordinary brokerage transactions, in block
transactions or in privately negotiated transactions, pursuant to Rule 144 or
otherwise.
We will not receive any proceeds from the sale of the securities by the
selling holders. The selling holders and any agents or broker-dealers that
participate in the distribution of the securities may be deemed to be
"underwriters" within the meaning of the Securities Act, and any commissions
received by them and any profit on the resale of the securities may be deemed to
be underwriting commissions or discounts under the Securities Act.
At the time a particular offer of securities is made, a prospectus
supplement, if required by the Securities Act, will be distributed that will set
forth any change in the identity of the selling holder, the names of any agents
or broker-dealers, any commissions or discounts and other terms constituting
compensation from the selling holders and any other required information. The
securities may be sold from time to time at varying prices determined at the
time of sale or at negotiated prices.
In order to comply with the securities laws of certain states, if
applicable, the securities may be sold only through registered or licensed
agents or broker-dealers. In addition, in certain states, the securities may not
be sold unless they have been registered or qualified for sale in such state or
an exemption from such registration or qualification requirement is available
and complied with.
EXPERTS
The consolidated financial statements for SC-U.S. Realty as of 31 December
1998 and 1997, and for each of the three years in the period ended 31 December
1998, included in this prospectus have been so included in reliance on the
report of Price Waterhouse SARL, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
LEGAL MATTERS
Arendt & Medernach will pass on various legal matters relating to the
validity of the securities being registered. In addition, the description of
income tax consequences contained in this prospectus under "Taxation" is based
on, to the extent that it constitutes matters of law or legal conclusions, the
opinion of either Mayer, Brown & Platt, PricewaterhouseCoopers SARL (Luxembourg)
or PricewaterhouseCoopers (United Kingdom), as applicable, each special tax
counsel to us. Arendt & Medernach, Mayer, Brown & Platt, PricewaterhouseCoopers
SARL (Luxembourg) and PricewaterhouseCoopers (United Kingdom) have in the past
represented SC-U.S. Realty, some of the selling holders or their respective
affiliates.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the reporting requirements of the Exchange Act and file
the reports required by the Exchange Act with the Securities and Exchange
Commission. You may read and copy materials we file with the Securities and
Exchange Commission at its Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the Securities Exchange Commission at
1-800-SEC-0330. In addition, the Securities and Exchange Commission maintains an
Internet site that contains reports and other information regarding issuers that
file electronically, and the address of that site is http://www.sec.gov. The
Securities and Exchange Commission has assigned the file number 1-1511 to
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<PAGE>
the reports and other information that we file with the Securities and Exchange
Commission. The American Depositary Shares are listed on the New York Stock
Exchange under the symbol "RTY" and all reports and other information we file
with the New York Stock Exchange may be inspected at the New York Stock Exchange
offices at 20 Broad Street, New York, NY 10005.
We have filed with the Securities and Exchange Commission a registration
statement on Form F-1 under the Securities Act with respect to the Registrable
Securities. This prospectus, which constitutes part of the registration
statement, does not contain all of the information set forth in the registration
statement. Parts of the registration statement are omitted from this prospectus
in accordance with the rules and regulations of the Securities and Exchange
Commission. For further information, your attention is directed to the
registration statement. Statements made in this prospectus concerning the
contents of any documents referred to herein are not necessarily complete, and
in each case are qualified in all respects by reference to the copy of such
document filed with the Securities and Exchange Commission.
You should rely only on the information contained in this prospectus or to
which we have referred you. We have not authorised anyone to provide you with
information that is inconsistent with information contained in this document or
any document incorporated herein. This prospectus is not an offer to sell these
securities in any state where the offer and sale of these securities is not
permitted. The information in this prospectus is current as of the date is
mailed to Selling Holders, and not necessarily as of any later date. If any
material changes occurs, during the period that this prospectus is required to
be delivered, this prospectus will be supplemented or amended.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants............................................................................ F-2
Consolidated Statements of Net Assets at 30 June 1999 and at 31 December 1998 and 1997....................... F-3
Consolidated Statements of Operations for the six month periods ended 30 June 1999 and 1998 and the years
ended 31 December 1998, 1997 and 1996........................................................................ F-4
Consolidated Statements of Cash Flows for the six month periods ended 30 June 1999 and 1998 and the years
ended 31 December 1998, 1997 and 1996........................................................................ F-5
Consolidated Statements of Changes in Net Assets for the six months ended 30 June 1999 and 1998 and the
years ended 31 December 1998, 1997 and 1996.................................................................. F-6
Consolidated Statements of Changes in Shares Outstanding for the six months ended 30 June 1999 and 1998
and the years ended 31 December 1998, 1997 and 1996.......................................................... F-6
Consolidated Financial Highlights for the six months ended 30 June 1999 and 1998 and the years ended 31
December 1998, 1997 and 1996................................................................................ F-7
Consolidated Schedules of Strategic Investment Positions at 30 June 1999 and at 31 December 1998 and 1997.... F-8
Consolidated Schedules of Special Opportunity Positions at 30 June 1999 and at 31 December 1998 and 1997..... F-9
Notes to the Consolidated Financial Statements............................................................... F-10
Additional Financial Information............................................................................. F-19
</TABLE>
-F-1-
<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, except for note 13
which is as of 24 June 1999
-F-2-
<PAGE>
SECURITY CAPITAL U.S. REALTY
CONSOLIDATED STATEMENTS OF NET ASSETS
(in thousands $, except per share amounts)
<TABLE>
<CAPTION>
AT 30 JUNE 1999 AT 31 DECEMBER
---------------- -------------------------
A S S E T S (UNAUDITED) 1998 1997
----------- ------------ -----------
<S> <C> <C> <C>
Strategic investment positions at value:
CarrAmerica (Cost $699,902, $699,851 and $636,387,
respectively)................................................... $ 715,085 $ 686,482 $ 838,343
City Center Retail (Cost $304,113, $304,035 and $83,665,
respectively)................................................... 304,113 304,035 83,300
CWS Communities (Cost $224,488, $153,563 and $92,600,
respectively)................................................... 224,488 153,563 91,646
Advance - CWS Communities.......................................... 24,000 -- --
Pacific Retail (Cost $0, $524,038 and $523,459, respectively)...... -- 501,805 610,811
Regency (Cost $759,806, $235,750 and $225,695, respectively)....... 751,869 260,775 312,438
Storage USA (Cost $394,360, $394,272 and $348,444,
respectively)................................................... 375,030 380,178 422,265
Urban Growth Property (Cost $181,082, $181,082 and $17,703,
respectively)................................................... 181,082 181,082 17,241
Special opportunity positions at value:
Security Capital Group Incorporated (Cost $165,000, $165,000
and $165,000, respectively)..................................... 120,307 116,245 165,000
Other special opportunity positions (Cost $233,235, $314,031
and $282,708, respectively)..................................... 191,996 262,480 352,010
---------- ---------- ----------
Total investments.................................................... $2,887,970 $2,846,645 $2,893,054
Cash and cash equivalents............................................ 4,050 2,994 1,970
Accounts receivable and other........................................ 18,322 23,989 6,796
---------- ---------- ----------
TOTAL ASSETS......................................................... $2,910,342 $2,873,628 $2,901,820
---------- ---------- ----------
L I A B I L I T I E S
---------------------
Accounts payable and accrued expenses................................ $ 69,887 $ 13,497 $ 12,382
Taxes payable........................................................ 2,780 1,306 1,018
Line of credit....................................................... 294,000 262,500 130,000
Convertible notes.................................................... 377,932 369,940 --
---------- ---------- ----------
TOTAL LIABILITIES.................................................... $ 744,599 $ 647,243 $ 143,400
---------- ---------- ----------
TOTAL NET ASSETS (SHAREHOLDERS' EQUITY).............................. $2,165,743 $2,226,385 $2,758,420
========== ========== ==========
SHARES
Authorized 250,000,000 shares, $4.00 par value, 86,561,872 shares
issued and 80,531,617 shares outstanding at 30 June 1999,
86,561,872 shares issued and outstanding at 31 December 1998
and 31 December 1997 (1)........................................... $ 346,247 $ 346,247 $ 346,247
Share premium account................................................ 1,631,203 1,749,158 1,749,598
---------- ---------- ----------
PAID-IN CAPITAL...................................................... $1,977,450 $2,095,405 $2,095,845
Legal reserve........................................................ 30,375 30,375 27,304
Reserve for own shares............................................... 117,955 -- --
Undistributed net operating income................................... $ 176,882 $ 148,152 $ 73,324
Accumulated net realised gain........................................ 79,051 77,431 44,553
Unrealised (depreciation)/appreciation on strategic investment and
special opportunity positions...................................... (98,015) (124,978) 517,394
Acquisition of own shares............................................ (117,955) -- --
---------- ---------- ----------
TOTAL NET ASSETS..................................................... $2,165,743 $2,226,385 $2,758,420
========== ========== ==========
Net Asset Value per share (1)........................................ $ 26.89 $ 25.72 $ 31.87
</TABLE>
(1) Share and per share amounts have been restated to reflect the reverse stock
split which took effect 18 June 1999. See Note 13C.
The accompanying notes form an integral part of the financial statements.
-F-3-
<PAGE>
SECURITY CAPITAL U.S. REALTY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands $, except per share amounts)
<TABLE>
<CAPTION>
For the six months
ended 30 June For the Years ended 31 December
------------------- -------------------------------
1999 1998 1998 1997 1996
-------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
(unaudited)
REVENUES
Gross dividends from strategic investment positions:
CarrAmerica........................................ $26,458 $ 25,541 $ 51,999 $ 41,412 $ 13,567
CWS Communities.................................... 3,148 1,622 4,783 -- --
Pacific Retail..................................... 5,163 18,089 36,178 21,576 9,482
Regency............................................ 21,157 9,930 20,244 11,441 773
Storage USA........................................ 15,766 14,874 29,934 24,497 8,700
Urban Growth Property.............................. 213 -- 4,338 -- --
------- --------- --------- -------- --------
$71,905 $ 70,056 $ 147,476 $ 98,926 $ 32,522
Gross dividends from special opportunity positions... 6,311 9,602 20,908 17,594 5,192
------- --------- --------- -------- --------
$78,216 $ 79,658 $ 168,384 $116,520 $ 37,714
Interest income from affiliate....................... 1,788 1,788 3,575 2,896 504
Interest income from non-affiliate and other income.. 1,566 579 1,132 805 2,169
------- --------- --------- -------- --------
TOTAL GROSS REVENUES................................. $81,570 $ 82,025 $ 173,091 $120,221 $ 40,387
Withholding tax on dividends received (Note 9)....... (9,270) (8,700) (16,266) (17,304) (5,551)
------- --------- --------- -------- --------
TOTAL REVENUES....................................... $72,300 $ 73,325 $ 156,825 $102,917 $ 34,836
======= ========= ========= ======== ========
EXPENSES
Operating advisor fees (Note 8)...................... $16,713 $ 17,658 $ 35,220 $ 24,632 $ 8,041
Custodian fees....................................... 236 237 459 470 318
Directors' fees...................................... 60 62 103 85 57
Professional expenses................................ 629 164 1,843 810 1,023
Administrative expenses.............................. 703 225 2,057 1,159 845
Amortisation of convertible notes deferred costs..... 789 171 959 -- --
Amortisation of formation expenses................... -- -- -- -- 1,654
Formation expenses................................... -- -- -- -- 172
Taxes................................................ 2,089 1,248 2,429 1,857 628
Line of credit arrangement and commitment fees....... 95 1,059 2,561 2,259 2,991
Interest on line of credit........................... 8,639 8,758 18,434 11,336 6,168
Interest on convertible notes........................ 13,617 2,636 14,861 -- --
------- --------- --------- -------- --------
TOTAL EXPENSES....................................... $43,570 $ 32,218 $ 78,926 $ 42,608 $ 21,897
------- --------- --------- -------- --------
NET OPERATING INCOME................................. $28,730 $ 41,107 $ 77,899 $ 60,309 $ 12,939
NET REALISED AND UNREALISED GAIN/(LOSS)
ON STRATEGIC INVESTMENT AND SPECIAL
OPPORTUNITY POSITIONS
Net realised gain on special opportunity positions... $ 1,620 $ 30,562 $ 32,878 $ 41,073 $ 3,480
Net increase/(decrease)in appreciation on strategic
investment and special opportunity positions......... 26,963 (212,905) (642,372) 264,974 252,294
------- --------- --------- -------- --------
NET GAIN/(LOSS) ON STRATEGIC INVESTMENT
AND SPECIAL OPPORTUNITY POSITIONS.................. $28,583 $(182,343) $(609,494) $306,047 $255,774
------- --------- --------- -------- --------
INCREASE/(DECREASE) IN NET ASSETS....................
RESULTING FROM OPERATIONS.......................... $57,313 $(141,236) $(531,595) $366,356 $268,713
======= ========= ========= ======== ========
</TABLE>
The accompanying notes form an integral part of the financial statements.
-F-4-
<PAGE>
SECURITY CAPITAL U.S. REALTY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands $, except per share amounts)
<TABLE>
<CAPTION>
For the six months
ended 30 June For the years ended 31 December
-------------------------- -----------------------------------------
1999 1998 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Operating Activities:
(Decrease)/Increase in net assets resulting from
operations......................................... $ 57,313 $ (141,236) $ (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....................... (26,963) 212,905 642,372 (264,974) (252,294)
Movement in accretion on convertible notes........ 7,992 1,662 9,387 -- --
Movement in convertible notes deferred costs...... 789 171 959 -- --
Amortisation of formation expenses................ -- -- -- -- 1,654
Changes in operating assets and liabilities:
Accounts receivable and other.................... 4,879 (7,587) (10,266) 1,498 (8,289)
Interest receivable from affiliate............... -- -- -- 366 (366)
Accounts payable and accrued expenses............ 62,109 2,279 (256) 2,488 2,426
Operating advisor fees payable................... (5,718) 1,750 1,371 4,629 2,594
Taxes payable.................................... 1,475 425 286 625 386
----------- ----------- ----------- ----------- -----------
Net cash provided by operating activities..... $ 101,876 $ 70,369 $ 112,258 $ 110,988 $ 14,824
----------- ----------- ----------- ----------- -----------
Investing Activities:
Fundings in strategic investment positions:
CarrAmerica........................................ $ (51) $ (63,455) $ (63,464) $ (207,971) $ (428,416)
City Center Retail................................. (78) (110,965) (220,370) (83,665) --
CWS Communities.................................... (70,926) (42,575) (60,963) (92,600) --
Advance - CWS Communities.......................... (24,000) -- -- -- --
Pacific Retail..................................... 524,038 (11) (579) (313,145) (157,255)
Regency............................................ (524,056) (9,757) (10,055) (158,596) (67,098)
Storage USA........................................ (88) (41,434) (45,828) (76,561) (271,883)
Urban Growth Property.............................. -- (88,009) (163,379) (17,703) --
Fundings in Security Capital Group.................. -- -- -- (142,500) (22,500)
Fundings in other special opportunity positions, net 80,796 (120,143) (31,323) (104,700) (176,413)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities......... $ (14,365) $ (476,349) $ (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........ -- 352,666 352,667 -- --
Offering expenses charged against the share
premium account.................................... -- (1,081) (440) -- --
Acquisition of own shares............................ (117,955) -- -- -- --
Net drawdowns from line of credit.................... 31,500 53,000 132,500 (39,500) 169,500
----------- ----------- ----------- ----------- -----------
Net cash provided by financing activities......... $ (86,455) $ 404,585 $ 484,727 1,033,466 $ 1,156,738
----------- ----------- ----------- ----------- -----------
Net increase/(decrease) in cash and cash equivalents. $ 1,056 $ (1,395) $ 1,024 $ (52,987) $ 47,997
Cash and cash equivalents, beginning of the period... 2,994 1,970 1,970 54,957 6,960
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents, end of the period......... $ 4,050 $ 575 $ 2,994 $ 1,970 $ 54,957
=========== =========== =========== =========== ===========
Supplemental disclosure of cash flow information:
Tax paid............................................ $ 619 $ 823 $ 2,141 $ 1,232 $ 242
=========== =========== =========== =========== ===========
Interest paid on borrowings.......................... $ 14,264 $ 8,083 $ 22,987 $ 11,929 $ 5,522
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes form an integral part of the financial statements.
-F-5-
<PAGE>
SECURITY CAPITAL U.S. REALTY
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(in thousands $)
<TABLE>
<CAPTION>
For the six months
ended 30 June For the years ended 31 December
-------------------------- -----------------------------------------
1999 1998 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(unaudited) (in thousands $, except per share amount)
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net operating income................................. $ 28,730 $ 41,107 $ 77,899 $ 60,309 $ 12,939
Realised gain on special opportunity positions....... 1,620 30,562 32,878 41,073 3,480
(Decrease)/Increase in appreciation on strategic
investment and special opportunity positions........ 26,963 (212,905) (642,372) 264,974 252,294
----------- ----------- ----------- ----------- -----------
(Decrease)/Increase in net assets resulting from
operations.......................................... $ 57,313 $ (141,236) $ (531,595) $ 366,356 $ 268,713
CAPITAL TRANSACTIONS:
Net proceeds from offerings.......................... -- -- $ -- $ 1,072,965 $ 987,238
(Decrease)/Increase in share premium account......... (117,955) (1,081) (440) -- --
Acquisition of own shares during the period/year..... (117,955) -- -- -- --
Increase in reserve for own shares................... 117,955 -- -- -- --
----------- ----------- ----------- ----------- -----------
(Decrease)/Increase in net assets resulting from
capital transactions................................ $ (117,955) $ (1,081) $ (440) $ 1,072,965 $ 987,238
NET ASSETS:
(Decrease)/Increase in net assets during the
period/year......................................... $ (60,642) $ (142,317) $ (532,035) $ 1,439,321 $ 1,255,951
Net assets at the beginning of the period/year....... 2,226,385 2,758,420 2,758,420 1,319,099 63,148
----------- ----------- ----------- ----------- -----------
Net assets at the end of the period/year (includes
undistributed net operating income of $176,822
and $114,431 for the six month periods ended 30
June 1999 and 1998, respectively, and $148,252,
$73,324, and $13,015 for the years ended 31
December 1998, 1997 and 1996, respectively)......... $ 2,165,743 $ 2,616,103 $ 2,226,385 $ 2,758,420 $ 1,319,099
=========== =========== =========== =========== ===========
</TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHARES OUTSTANDING (1)
<TABLE>
<CAPTION>
Number of shares
-----------------------------------------------------------------------
For the six months
ended 30 June For the years ended 31 December
-------------------------- -----------------------------------------
1999 1998 1998 1997 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
At the beginning of the period....................... 86,561,872 86,561,872 86,561,872 48,246,355 3,147,287
Issued during the period............................. -- -- -- 38,315,517 45,099,068
Acquisition of own shares during the period/year..... (6,030,255) -- -- -- --
----------- ----------- ----------- ----------- -----------
At the end of the period............................. 80,531,617 86,561,872 86,561,872 86,561,872 48,246,355
=========== =========== =========== =========== ===========
</TABLE>
(1) Share amounts have been restated to reflect the reverse stock split which
took effect 18 June 1999. See Note 13C.
The accompanying notes form an integral part of the financial statements.
-F-6-
<PAGE>
CONSOLIDATED FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the six months
ended 30 June For the years ended 31 December
-------------------------- -----------------------------------------
1999 1998 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Per share data (1):
Net asset value per share at the beginning of the period...... $25.72 $31.87 $31.87 $27.34 $20.06
Net operating income.......................................... 0.59 0.47 0.90 0.74 0.24
Net change in movement in unrealised appreciation and
realised gain on strategic investment and special
opportunity positions in the period.......................... 0.58 (2.12) (7.05) 3.79 7.04
------ ------ ------ ------ ------
Net asset value per share at the end of the period............ $26.89 $30.22 $25.72 $31.87 $27.34
====== ====== ====== ====== ======
</TABLE>
(1) Per share amounts have been restated to reflect the reverse stock split
which took effect 18 June 1999. See Note 13C.
The accompanying notes form an integral part of the financial statements.
-F-7-
<PAGE>
SECURITY CAPITAL U.S. REALTY
CONSOLIDATED SCHEDULES OF STRATEGIC INVESTMENT POSITIONS
At 30 June 1999
(in thousands $, except shares held and percentages)
(unaudited)
<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 $ 699,902 $ 715,085 24.6%
City Center Retail.......................... Common Stock 30,390,000 304,113 304,113 10.5%
CWS Communities............................. Common Stock 22,415,858 224,488 224,488 7.7%
Advance - CWS Communities................... Promissory Note n/a 24,000 24,000 0.8%
Regency(1).................................. Common Stock 34,273,236 759,806 751,869 25.8%
Storage USA................................. Common Stock 11,765,654 394,360 375,030 12.9%
Urban Growth Property....................... Common Stock 18,074,100 181,082 181,082 6.2%
---------- ---------- -------
Total investment in strategic investment
positions.................................. $2,587,751 $2,575,667 88.5%
========== ========== =======
</TABLE>
(1) See Note 3A and Note 13 to the Consolidated Financial Statements regarding
the merger of Pacific Retail and Regency.
At 31 December 1998
(in thousands $, except shares held and percentages)
(audited)
<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 investment
positions.................................. $2,492,591 $2,467,920 85.9%
========== ========== =======
</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)
(audited)
<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 investment
positions.................................. $1,927,953 $2,376,044 82.0%
========== ========== =======
</TABLE>
The accompanying notes form an integral part of the financial statements.
-F-8-
<PAGE>
CONSOLIDATED SCHEDULES OF SPECIAL OPPORTUNITY POSITIONS
At 30 June 1999
(in thousands $, except percentages)
(unaudited)
<TABLE>
<CAPTION>
Percentage of
Property Type Cost Value Total Assets
- ------------- --------- --------- -------------
<S> <C> <C> <C>
Companies in which SC-U.S. Realty owns a 5% or greater interest:
Other............................................................ 39,514 39,514 1.4%
Companies in which SC-U.S. Realty owns less than a 5% interest:
Office/Industrial................................................ 64,248 59,696 2.1%
Hotel............................................................ 78,186 43,281 1.5%
Retail........................................................... 21,239 21,556 0.7%
Diversified...................................................... 12,043 10,230 0.4%
Storage.......................................................... 5,730 6,580 0.2%
Other............................................................ 12,275 11,139 0.4%
-------- -------- -----
Total investment in other special opportunity positions............ $233,235 $191,996 6.7%
Investment in Security Capital Group Incorporated.................. 165,000 120,307 4.1%
-------- -------- -----
Total investment in special opportunity positions.................. $398,235 $312,303 10.8%
======== ======== =====
</TABLE>
At 31 December 1998
(in thousands $, except percentages)
(audited)
<TABLE>
<CAPTION>
Percentage of
Property Type Cost Value Total 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)
(audited)
<TABLE>
<CAPTION>
Percentage of
Property Type Cost Value Total 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.
-F-9-
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ORGANISATION
Security Capital U.S. Realty (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. Our primary capital
deployment objective is to take a proactive ownership role in businesses that it
believes can potentially generate above-average rates of return. We are
organised in Luxembourg as a Societe d'Investissement a Capital Fixe (a company
with a fixed capital).
We own our assets through 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 SC-U.S. Realty and all significant intercompany transactions
have been eliminated upon consolidation. References 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 our 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
We account for our 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, our 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 we have an ownership interest,
we 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
of our assets.
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 our 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 our operating
methods and plans, our investment gains generally are not subject to income
taxes.
As of 30 June 1999 and 1998 (unaudited) and as of 31 December 1998, 1997
and 1996, 26.6% and 33.1% (23.0% excluding the investment in Pacific
Retail which merged with Regency on 28 February 1999, see Note 3A and Note 13)
27.8%, 40.6% and 17.1%, respectively, of our 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 our 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.
-F-10-
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
We consider 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 our 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
We aim 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
will be positioned to be taken public. With private companies which we sponsor,
it expects to own substantially more than 50% of the voting shares until such
companies become publicly traded, at which time we expect its ownership of such
shares will begin to be diluted until it reaches 35% to 45% on a fully diluted
basis. We 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.
The merger of Pacific Retail and Regency 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, we
have reflected in our 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 we believe possess the
requisite fundamentals to generate strong cash flow growth and/or value
appreciation. In exceptional circumstances, and to a very limited extent, we 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 we may take a strategic investment position in the future.
-F-11-
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of 30 June 1999 (unaudited) and as of 31 December 1998, we 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 30 June 1999 At 31 December 1998
--------------- -------------------
(in thousands $ (in thousands $)
unaudited)
<S> <C> <C>
Dividends......................................... $ 7,740 $ 8,162
Receivable from brokers on investments sold....... 433 8,219
Deferred issue costs on Convertible Notes (1)..... 6,139 6,927
Interest.......................................... 1,989 580
Refund of withholding tax......................... 2,019 97
Other............................................. 2 4
------- -------
$18,322 $23,989
======= =======
</TABLE>
_____________________________
(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 30 June 1999 At 31 December 1998
--------------- --------------------
(in thousands $ (in thousands $)
unaudited)
<S> <C> <C>
Operating advisor fees............................ $ 2,896 $ 8,614
Interest payable on line of credit................ 121 762
Interest payable on Convertible Notes............. 1,219 975
Custodian fees.................................... 237 110
Acquisition of own shares......................... 63,854 --
Other............................................. 1,560 3,036
------- -------
$69,887 $13,497
======= =======
</TABLE>
NOTE 6--LINE OF CREDIT
Our total indebtedness under the line of credit as of 30 June 1999
(unaudited) and as of 31 December 1998 was $294.0 million and $262.5 million,
respectively.
In an effort to secure investment-grade credit ratings, on 8 December 1998,
we converted our $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 $294.0 million was drawn and
outstanding as of 30 June 1999. 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 we have 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 our 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
-F-12-
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 30 June 1999, we were in compliance with these covenants.
Average daily borrowings under the line of credit were $255.3 million and
$257.0 million for the six month periods ended 30 June 1999 and 1998,
respectively, and $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 6.37%, 6.84%, 6.67%, 7.27% and 7.18%,
respectively.
NOTE 7--CONVERTIBLE NOTES
AT 30 JUNE 1999
---------------
(IN THOUSANDS $
---------------
UNAUDITED)
---------------
Convertible Notes proceeds................................... $360,553
Accumulated accretion on Convertible Notes................... 17,379
--------
$377,932
========
We completed a convertible debt offering in May 1998. A holder may convert
the Convertible Notes at any time prior to maturity at a conversion rate equal
to 26.39095 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 we list
certain equity securities on the NYSE and register 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. We
may redeem the Convertible Notes, in whole or in part, on or after 23 May 2001
at the accreted value, together with accreted and unpaid interest. Upon a change
in control of SC-U.S. Realty, each holder of Convertible Notes may 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.
* Share amounts have been restated to reflect the reverse stock split
which took effect 18 June 1999. See Note 13C.
NOTE 8--ADVISORY AGREEMENT
We have 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 us with advice
with respect to strategy, investments, financing and certain other
administrative matters affecting us. 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 us 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). We pay our 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
-F-13-
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 monthly value of assets were
0.02% and 0.05% for the six month periods ended 30 June 1999 and 1998,
respectively, and 0.09%, 0.13% and 0.19% for the years ended 31 December 1998,
1997 and 1996, respectively.
We pay 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 our gross assets.
NOTE 9--TAXATION
SC-U.S. Realty as separate from Holdings, is not liable for any Luxembourg tax
on income. We are liable in Luxembourg for a capital tax of 0.06% per annum of
its net asset value. Cash dividends and interest received by SC-U.S. Realty 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, we believe 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). We also believe 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). Our beliefs are based on the manner in which management intends to operate
our subsidiaries. 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 our subsidiaries) 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 us to Holdings is deducted in determining
Holdings' taxable income.
Income paid from Holdings to us is subject to various levels of tax, including
withholding taxes. Gross cash (but not accrued) interest payments from Holdings
to us are subject to withholding tax at a rate of 3.75%. No dividends were paid
to us during the reporting periods.
For the six months ended
30 June
--------------------------
1999 1998
------------ -------------
(in thousands $ unaudited)
Gross cash interest payments..... $16,507 $11,894
======= =======
Capital tax...................... $ 1,670 $ 802
Withholding tax.................. 619 446
------- -------
$ 2,089 $ 1,248
======= =======
-F-14-
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the years ended
31 December
----------------------------
1998 1997 1996
-------- -------- --------
(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
======= ======= =======
NOTE 10--DIRECTORS' SHARE OPTION EQUIVALENTS
Each of our independent directors has received share option equivalents
("SOE") of 25,000 Shares* at strike prices ranging from $17.20* to $28.88* 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 us, but a right to receive a
restricted cash payment equal to the excess, if any, of the net asset value of
25,000 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 us, but a
right to receive a restricted cash payment equal to the excess, if any, of the
closing stock price of 25,000 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.
------------------------------------
For the six months ended 30 June
------------------------------------
1999 1998
----------------- -----------------
Weighted Weighted
Average Average
Exercise Exercise
Number Price Number Price
------- -------- ------- --------
SOEs outstanding at beginning of year.. 150,000 $20.94 125,000 $22.54
SOEs issued............................ -- -- -- --
SOEs forfeited......................... -- -- -- --
SOEs exercised......................... -- -- -- --
------- ------ ------- ------
SOEs outstanding at end of year........ 150,000 $20.94 125,000 $22.54
======= ====== ======= ======
SOEs currently exercisable............. 75,000 $20.94 62,500 $22.54
======= ====== ======= ======
<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.. 125,000 $22.54 100,000 $20.96 50,000 $20.00
SOEs issued............................ 50,000 17.20 25,000 28.88 50,000 21.90
SOEs forfeited......................... (12,500) 21.90 -- -- -- --
SOEs exercised......................... (12,500) 21.90 -- -- -- --
------- ------ ------- ------ ------- ------
SOEs outstanding at end of year........ 150,000 $20.94 125,000 $22.54 100,000 $20.96
======= ====== ======= ====== ======= ======
SOEs currently exercisable............. 75,000 $20.94 62,500 $22.54 50,000 $20.96
======= ====== ======= ====== ======= ======
</TABLE>
No SOEs have expired during the years represented above, except for an SOE in
respect of 12,500 Shares* granted to a director in October 1998 upon his
retirement. The retiring director exercised the remaining part of such SOE in
respect of 12,500
-F-15-
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Shares* in December 1998. We accrue 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 our 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 $0 and $205,000 for the
six month periods ended 30 June 1999 and 1998, respectively, and $561,000,
$526,500 and $636,000 for the years ended 31 December 1998, 1997 and 1996,
respectively.
* Share and per share amounts have been restated to reflect the reverse stock
split which took effect 18 June 1999. See Note 13C.
NOTE 11--COMMITMENTS
Our existing and committed fundings at cost as of 30 June 1999 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)............. $ 699,902 $ 699,902 $ --
City Center Retail (Private)....... 350,213 304,113 46,100(2)
CWS Communities (Private).......... 300,329 248,488(3) 51,841(3)
Regency (NYSE:REG)(4).............. 759,806 759,806 --
Storage USA (NYSE:SUS)............. 394,360 394,360 --
Urban Growth Property (Private).... 181,082 181,082 --
Special opportunity positions(5)... 398,235 398,235 --
---------- ---------- -------
Total............................ $3,083,927 $2,985,986 $97,941
========== ========== =======
</TABLE>
_____________________
(1) Included in Total Amount Committed.
(2) Represents a contractual obligation.
(3) The amount funded to CWS Communities includes an advance of $24 million in
the form of a promissory note that is to be repaid in September 1999.
(4) On 28 February 1999 Regency merged with Pacific Retail.
(5) Includes an aggregate of $165 million invested in shares of common stock
and convertible subordinated debentures of Security Capital Group.
-F-16-
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Our existing and committed fundings at cost as of 31 December 1998 were as
follows:
Total Total Cost Amount
Amount (Amount to be
Committed Funded)(1) Funded (1)
---------- -------------- ------------
(in thousands $)
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
========== ========== ========
_____________________________
(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.
(5) Includes an aggregate of $165 million invested in shares of common stock and
convertible subordinated debentures of Security Capital Group.
Our existing and committed fundings at cost as of 31 December 1997 were as
follows:
Total Total Cost Amount
Amount (Amount To Be
Committed Funded) (1) Funded (1)
---------- ----------- ------------
(in thousands $)
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
========== ========== ========
_____________________________
(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 our 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.
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.
-F-17-
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--SUBSEQUENT EVENTS
A. Close of merger of Pacific Retail and Regency
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.
B. Share Repurchase Programme
On 5 May 1999, we announced that our Board of Directors had authorised a
share repurchase programme of up to $100 million of our shares. On 29 June 1999,
we announced that our Board of Directors had increased the share repurchase
programme to $200 million. We plan to repurchase shares from time to time in
open market and privately negotiated transactions, depending on market prices
and other conditions. As of 31 December 1999, we had repurchased 9,861,435
shares for an aggregate cost of $184,219,433 , representing approximately 11.4%
of our shares outstanding. The net asset value per share as of 30 June 1999 has
been calculated on 80,531,617 shares.
C. Reverse Stock Split
On 17 May 1999, we announced that our shareholders had approved amendments to
our Articles of Incorporation that on 18 June 1999, affected a one-for-two
reverse share split. Following effectiveness of the reverse share split, every
two shares, par value $2.00 per share, became one share, par value $4.00 per
share.
D. Listing of American Depositary Shares
On 24 June 1999, SC-U.S. Realty's American Depositary Receipts began trading
on the New York Stock Exchange under the ticker symbol "RTY." Our shares
continue to be listed and traded on the AEX Stock Exchange in Amsterdam (ISIN-
Code: LU0060100673).
-F-18-
<PAGE>
ADDITIONAL FINANCIAL INFORMATION
The following interim financial information for the quarter ended 30 September
1999 is being provided because we have otherwise made public information
relating to revenues and income that is more current than the information
contained in our audited financial statements.
As you are aware, we account for our investments at fair value in accordance
with the U.S. specialised industry accounting rules prescribed by the American
Institute of Certified Public Accountants (AICPA) Audit and Accounting Guide for
Investment Companies. Under fair value accounting, unrealised gains or losses
are determined by comparing the fair value of the securities held to the cost of
those securities. Unrealised gains or losses relating to changes in fair value
of our investments are reported as a component of net earnings. Deferred income
taxes, if any, are recorded at the applicable statutory rate as the estimate of
taxes payable as if the gains were realised. Under current tax laws, and in
light of our operating methods and plans, our investment gains generally are not
subject to income taxes.
For more detail on fair value accounting, please read Note 2 of our
Consolidated Financial Statements at 31 December 1998.
-F-19-
<PAGE>
SECURITY CAPITAL U. S. REALTY
CONSOLIDATED STATEMENTS OF NET ASSETS
At 30 September 1999
(in thousands U. S.$ except per share amounts)
Unaudited
<TABLE>
<CAPTION>
September 30,
1999
------------
<S> <C>
ASSETS
Strategic investment positions at value:
CarrAmerica (Cost $699,905)....................................................................... $ 627,487
City Center Retail (Cost $304,113).............................................................. 304,113
CWS Communities (Cost $236,488)................................................................. 236,488
Regency (Cost $759,807)......................................................................... 719,738
Storage USA (Cost $394,362)..................................................................... 323,555
Urban Growth Property (Cost $188,582)........................................................... 188,582
Special opportunity positions at value:
Security Capital Group Incorporated (Cost $165,000)............................................. 121,862
Other special opportunity positions (Cost $203,839)............................................... 142,031
-----------
Total investments................................................................................. $ 2,663,856
Cash and cash equivalents......................................................................... 1,394
Accounts receivable and other..................................................................... 18,258
-----------
TOTAL ASSETS...................................................................................... $ 2,683,508
-----------
LIABILITIES
Accounts payable and accrued expenses............................................................. $ 8,896
Taxes payable..................................................................................... 3,670
Line of credit.................................................................................... 337,500
Convertible notes................................................................................. 382,089
-----------
TOTAL LIABILITIES................................................................................. $ 732,155
-----------
TOTAL NET ASSETS (SHAREHOLDERS' EQUITY)........................................................... $ 1,951,353
===========
Authorised 250,000,000 shares of $4.00 par value, 86,561,872 shares
issued, 78,116,061 shares outstanding, at 30 September 1999..................................... $ 346,247
Share premium account(1).......................................................................... 1,586,801
-----------
PAID-IN CAPITAL................................................................................... $ 1,933,048
Legal reserve..................................................................................... $ 30,375
Reserve for own shares(1)......................................................................... 162,357
Undistributed net operating income................................................................ 197,321
Accumulated net realised gain..................................................................... 78,852
Unrealised (depreciation)/appreciation on strategic investment and special opportunity positions.. (288,243)
Acquisition of own shares (1)..................................................................... (162,357)
-----------
SHAREHOLDERS' EQUITY.............................................................................. $ 1,951,353
===========
Net Asset Value per share......................................................................... $ 24.98
</TABLE>
(1) 8,445,811 shares have been repurchased under the share repurchase programme.
The Net Asset Value per share has been calculated on 78,116,061 shares
outstanding.
-F-20-
<PAGE>
SECURITY CAPITAL U.S. REALTY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the nine months ended 30 September 1999 and 1998
(in thousands U.S.$ except per share amounts)
Unaudited
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
REVENUES
Gross dividends from strategic investment positions:
CarrAmerica................................................................. $ 39,687 $ 38,770
CWS Communities.............................................................. 5,579 3,568
Regency...................................................................... 42,086 42,221
Storage USA.................................................................. 23,649 22,405
Urban Growth Property........................................................ 7,262 --
---------- ----------
$ 118,263 $ 106,964
Gross dividends from special opportunity positions:.......................... 8,176 14,515
---------- ----------
$ 126,439 $ 121,479
Interest income from affiliate............................................... 2,681 2,681
Interest income from non-affiliate and other income.......................... 3,160 847
---------- ----------
TOTAL GROSS REVENUES......................................................... $ 132,280 $ 125,007
Withholding tax on dividends received....................................... (16,503) (8,431)
---------- ----------
TOTAL REVENUES............................................................... $ 115,777 $ 116,576
========== ==========
EXPENSES
Operating advisor fees....................................................... $ 24,996 $ 26,606
Custodian fees............................................................... 361 350
Directors fees............................................................... 92 77
Director Share Option Equivalents............................................ (235) 426
Professional expenses........................................................ 731 1,992
Administrative expenses...................................................... 1,261 743
Amortisation of convertible notes deferred costs............................. 1,192 574
Taxes........................................................................ 3,122 1,845
Line of credit arrangement and commitment fees............................... 153 2,088
Interest on line of credit................................................... 14,555 13,367
Interest on convertible notes................................................ 20,380 8,856
---------- ----------
TOTAL EXPENSES............................................................... $ 66,608 $ 56,924
---------- ----------
NET OPERATING INCOME......................................................... $ 49,169 $ 59,652
NET REALISED AND UNREALISED GAIN/(LOSS) ON STRATEGIC
INVESTMENT AND SPECIAL OPPORTUNITY POSITIONS
Net realised gain on special opportunity positions........................... $ 1,421 $ 32,763
Net increase/(decrease) in appreciation on strategic investment and special
opportunity positions....................................................... (163,265) (601,047)
---------- ----------
NET GAIN/(LOSS) ON STRATEGIC INVESTMENT AND SPECIAL
OPPORTUNITY POSITIONS....................................................... $ (161,844) $ (568,284)
---------- ----------
INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS.................................................................. $ (112,675) $ (508,632)
========== ==========
</TABLE>
-F-21-
<PAGE>
SECURITY CAPITAL U.S. REALTY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended 30 September 1999 and 1998
(in thousands U.S.$ except per share amounts)
Unaudited
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Operating Activities:
Increase/(Decrease) in net assets resulting from operations................ $ (112,675) $ (508,632)
Adjustments to reconcile (decrease)/increase in net assets resulting from
operations to net cash provided by operating activities:
Movement in unrealised gain.............................................. 163,265 601,047
Movement in accretion on convertible notes............................... 12,149 5,581
Movement in convertible notes deferred costs............................. 1,192 574
Changes in operating assets and liabilities:
Accounts receivable and other.......................................... 5,433 (11,405)
Interest receivable from affiliate..................................... (894) (894)
Accounts payable and accrued expenses.................................. 1,318 10,181
Operating advisor fees payable......................................... (5,919) 1,704
Taxes payable.......................................................... 2,364 42
----------- -----------
Net cash provided by operating activities............................. $ 66,233 $ 98,198
----------- -----------
Investing Activities:
Fundings in strategic investment positions:
CarrAmerica................................................................ $ (54) $ (63,455)
City Center Retail........................................................ (78) (207,651)
CWS Communities........................................................... (82,925) (47,456)
Pacific Retail............................................................ -- (167)
Regency................................................................... (21) (9,791)
Storage USA............................................................... (90) (45,811)
Urban Growth Property..................................................... (7,500) (125,499)
Fundings in Security Capital Group......................................... -- --
Fundings in other special opportunity positions, net........................ 110,192 (130,661)
----------- -----------
Net cash provided by/(used in) investing activities...................... $ 19,524 $ (630,491)
----------- -----------
Financing Activities:
Net proceeds from shares offering.......................................... $ -- $ --
Net proceeds from convertible notes offering................................ -- 352,667
Transfer of net profit to the Legal Reserve................................. -- 3,071
Offering expenses charged against the share premium account................. -- (4,116)
Acquisition of own shares................................................... (162,357) 386,500
Net drawdowns/(repayments) from line of credit.............................. 75,000 (207,500)
----------- -----------
Net cash (used in)/provided by financing activities...................... $ (87,357) $ 530,622
----------- -----------
Net increase/(decrease) in cash and cash equivalents........................ $ (1,600) $ (1,671)
Cash and cash equivalents, beginning of the period.......................... 2,994 1,970
----------- -----------
Cash and cash equivalents, end of the period................................ $ 1,394 $ 299
=========== ===========
Supplemental disclosure of cash flow information:
Tax paid................................................................... $ 619 $ 823
=========== ===========
Interest paid on borrowings................................................. $ 14,264 $ 8,083
=========== ===========
</TABLE>
-F-22-
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table itemizes the expenses incurred by the Registrant in
connection with the offering of the securities being registered. All the amounts
shown are estimates (other than the SEC registration fee).
Amount
---------
SEC registration fee........................... $125,100
Trustee fees................................... 25,000
Printing fees.................................. 25,000
Legal fees and expenses (other than Blue Sky).. 100,000
Accounting fees and expenses................... 50,000
Miscellaneous expenses......................... 25,000
--------
Total.................................... $350,100
========
Item 14. Indemnification of Directors and Officers.
Article 21 of the Registrant's Articles of Incorporation provide as follows
with respect to the indemnification of directors and officers of the Registrant:
"The Company shall indemnify any director or officer, and his heirs,
executors and administrators, against any 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."
Item 15. Recent Sales of Unregistered Securities.
In May 1998, the Registrant, through Goldman, Sachs & Co., sold to
qualified institutional buyers in the United States in reliance on Rule 144A
and, through Goldman Sachs International and J.P. Morgan Securities Ltd., to
investors outside the United States in reliance on Regulation S, $450,000,000
aggregate principal amount at maturity of its Convertible Notes due 2003
(convertible into an aggregate of approximately 23,750,000 Shares). The
aggregate offering price was $360,553,500 and the underwriting discount was
2.5%.
From October 1995 through April 1996, the Registrant sold to Security
Capital Group and accredited investors in and outside the United States in
reliance on Regulation D 25,066,242 of its Shares for an aggregate purchase
price of $509,500,580. In July 1996, the Registrant sold to Security Capital
Group in the United States in reliance on Section 4(2) and to investors outside
the United States in reliance on Regulation S 11,122,210 of its Shares for an
aggregate purchase price of $243,576,400. In December 1996, the Registrant sold
to Security
<PAGE>
Capital Group and qualified institutional buyers in the United States in
reliance on Regulation D and to investors outside the United States in reliance
on Regulation S 12,057,902 of its Shares for an aggregate purchase price of
$297,106,718. In March 1997, the Registrant sold to Security Capital Group and
qualified institutional buyers in the United States in reliance on Regulation D
and to investors outside the United States in reliance on Regulation S 8,651,766
of its Shares for an aggregate purchase price of $239,999,989. In April 1997,
the Registrant, sold to Security Capital Group in the United States in reliance
on Regulation D and, through Commerzbank AG, to investors outside the United
States in reliance on Regulation S 11,362,977 of its Shares for an aggregate
purchase price of $319,981,432. In July 1997, the Registrant sold to Security
Capital Group and qualified institutional buyers in the United States in
reliance on Regulation D and to investors outside the United States in reliance
on Regulation S 3,103,448 of its Shares for an aggregate purchase price of
$89,999,992. In September 1997, the Registrant sold to Security Capital Group in
the United States in reliance on Regulation D and, through Commerzbank AG, to
investors outside the United States in reliance on Regulation S 6,085,192.5 of
its Shares for an aggregate purchase price of $179,999,994. In November 1997,
the Registrant sold to Security Capital Group and qualified institutional buyers
in the United States in reliance on Regulation D and to investors outside the
United States in reliance on Regulation S 3,207,949.5 of its Shares for an
aggregate purchase price of $94,826,987. In December 1997, the Registrant sold
to Security Capital Group in the United States in reliance on Regulation D and
to investors outside the United States in reliance on Regulation S 5,904,318.5
of its Shares for an aggregate purchase price of $174,999,999.
Each of the foregoing transactions was effected without registration under
the Securities Act in reliance on the exemption from registration provided
pursuant to Section 4(2) and/or Regulation D, Rule 144A or Regulation S
promulgated thereunder as indicated.
Item 16. Exhibits and Financial Statement Schedules.
See Index to Financial Statements and Index to Exhibits.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-
effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no note than
a 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
-II-2-
<PAGE>
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities registered which remain unsold at the termination of the
offering.
(4) To file a post-effective amendment to the registration statement to include
any financial statements required by Rule 3-19 of Regulation S-X at the
start of any delayed offering or throughout a continuous offering.
Financial statements and information otherwise required by Section 10(a)(3)
of the Act need not be furnished, provided, that the registrant includes in
the prospectus, by means of a post-effective amendment, financial
statements required pursuant to this paragraph and other information
necessary to ensure that all other information to the prospectus is at
least as current as the date of those financial statements.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
-II-3-
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors and
officers of Security Capital U.S. Realty, hereby constitutes and appoints
William D. Sanders, Jeffrey A. Cozad, W. Scott Hartman, Susan P.S. Liow and
Claude Kremer, his or her true and lawful attorneys-in-fact and agents, for him
or her and in his or her name, place and stead, in any and all capacities, with
full power to act alone, to sign any and all amendments and post-effective
amendments to this registration statement, to sign a registration statement
filed with the Securities and Exchange Commission pursuant to Rule 462(b)
promulgated under the Securities Act and any and all amendments and post-
effective amendments thereto, and to file each such registration statement or
amendment or post-effective amendment with all exhibits thereto, and any and all
documents in connection therewith, with the Securities and Exchange Commission,
hereby granting unto said attorneys-in-fact and agents, and each of them, full
power and authority to do and perform any and all acts and things requisite and
necessary to be done in and about the premises, as fully and to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.
-II-4-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form F-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorised, in the city of Luxembourg, Country of Luxembourg, on the 4th day of
April, 2000.
SECURITY CAPITAL U.S. REALTY
By: /s/ Jeffrey A. Cozad*
-------------------------------
Name: Jeffrey A. Cozad
Title: Managing Director
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- -------------------------- ----------------------------- ------------
/s/ William D. Sanders* Non-Executive Chairman and Director 4 April 2000
- --------------------------
William D. Sanders
/s/ Jeffrey A. Cozad Managing Director and Director 4 April 2000
- -------------------------- (Principal Executive Officer)
Jeffrey A. Cozad
/s/ W. Scott Hartman Senior Vice President (Principal 4 April 2000
- -------------------------- Financial Officer)
W. Scott Hartman
/s/ Susan P. S. Liow Vice President (Principal 4 April 2000
- -------------------------- Accounting Officer
Susan P. S. Liow
/s/ Erich Coenen Director 4 April 2000
- --------------------------
Erich Coenen
/s/ Claude Kremer Director 4 April 2000
- --------------------------
Claude Kremer
/s/ Jay O. Light Director 4 April 2000
- --------------------------
Jay O. Light
/s/ Francois Moes Director 4 April 2000
- --------------------------
Francois Moes
/s/ William D. Sanders U.S. Authorised Representative 4 April 2000
- --------------------------
William D. Sanders
-II-5-
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, each guarantor
listed below certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form F-1 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorised, in the city of Luxembourg, Country of Luxembourg, on the 4th
day of April, 2000.
SECURITY CAPITAL HOLDINGS S.A.
SECURITY CAPITAL STORAGE PORTFOLIO SARL
SECURITY CAPITAL OFFICE PORTFOLIO SARL
ALSTON HOLDINGS SARL
BARCELONA HOLDINGS SARL
COVENTRY HOLDINGS SARL
DUBLIN HOLDINGS SARL
EDINBURGH HOLDINGS SARL
FRANKFURT HOLDINGS SARL
GENEVA HOLDINGS SARL
HELSINKI HOLDINGS SARL
ISTANBUL HOLDINGS SARL
JOHNSTONE HOLDINGS SARL
KIRKWALL HOLDINGS SARL
LISBON HOLDINGS SARL
MADRID HOLDINGS SARL
SHEFFIELD HOLDINGS SARL
ARDEN SQUARE HOLDINGS SARL
BLOSSOM VALLEY HOLDINGS SARL
COOPER STREET PLAZA HOLDINGS SARL
DALLAS HOLDINGS SARL
EL CAMINO HOLDINGS SARL
FRIARS MISSION HOLDINGS SARL
REDONDO VILLAGE HOLDINGS SARL
By: /s/ Jeffrey A. Cozad*
---------------------------------------
Name: Jeffrey A. Cozad
Title: Managing Director of Each Guarantor
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------- ------------------------------------ ------------------
<S> <C> <C>
/s/ Jeffrey A. Cozad Managing Director and Director of each 4 April 2000
- ------------------------- guarantor (Principal Executive Officer)
Jeffrey A. Cozad
/s/ Mark P. Duke (Principal Financial and Accounting Officer) 4 April 2000
- -------------------------
Mark P. Duke
/s/ Peter N. James Director of each guarantor 4 April 2000
- -------------------------
Peter N. James
/s/ Claude Kremer Director of each guarantor 4 April 2000
- -------------------------
Claude Kremer
/s/ William D. Sanders U.S. Authorised Representative of each guarantor 4 April 2000
- -------------------------
William D. Sanders
</TABLE>
-II-6-
<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 (incorporated by reference to Exhibit 4.2 of
the Company's Registration Statement on Form 20-F, file no. 0-25815
(the "Form 20-F"))
4.3 First Supplemental Indenture dated as of 22 May 1998 between the
Company and State Street Bank and Trust Company (incorporated by
reference to Exhibit 4.3 of the Form 20-F)
4.4* Second Supplemental Indenture dated as of 2000 between the
Company and State Street Bank and Trust Company, including form of
guaranties
4.5 Form of the Convertible Notes due 2003 (incorporated by reference to
Exhibit 4.4 of the Form 20-F)
4.6 Registration Rights Agreement, dated as of May 28, 1998, by and among
the Company and Goldman, Sachs & Co. and J.P. Morgan Securities Ltd.
(incorporated by reference to Exhibit 4.5 of the Company's
Registration Statement on Form F-1, file no. 333-81919 (the "Form F-
1"))
5* Opinion of Arendt & Medernach
8.1* Opinion of Mayer, Brown & Platt
8.2* Opinion of PricewaterhouseCoopers SARL (Luxembourg)
8.3* Opinion of PricewaterhouseCoopers (United Kingdom)
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)
-II-7-
<PAGE>
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)
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. (incorporated by
reference to Exhibit 10.15 of the Form 20-F)
10.16 Second Amended and Restated Facility Agreement dated as of December
30, 1999 among Holdings, the Company, the companies listed as
guarantors, Commerzbank Aktiengesellschaft, as arranger and
administrative agent, the financing institutions listed and Bank of
America, N.A., as syndication agent
12* Statement re: Computation of Ratios
21. Subsidiaries of the Registrant (incorporated by reference to Exhibit
21 of the Form F-1)
23.1 Consent of Arendt & Medernach (included in Exhibit 5)
23.2 Consent of Mayer, Brown & Platt (included in Exhibit 8.1)
23.3 Consent of PricewaterhouseCoopers SARL (Luxembourg) (included in
Exhibit 8.2)
23.4 Consent of PricewaterhouseCoopers SARL (United Kingdom) (included in
Exhibit 8.3)
-II-8-
<PAGE>
23.5 Consent of Price Waterhouse Sarl
24. Power of Attorney (filed on page II-4)
______________________
* To be filed by amendment.
-II-9-
<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 anomyme) qualifying as a
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 securities.
Page 1
<PAGE>
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 of 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 of the law dated
10 August 1915 on commercial companies).
Page 2
<PAGE>
Article 6.--Form of Share
(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 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 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
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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.
(5) In the event that a Share is registered in the name of more than one
person, the board of directors may decide that 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 June 30, 2004; 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 Document) 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
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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 11 hereof as of such Valuation Day (as defined in
Article 12 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 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 or ADR's representing such 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 or ADR's representing such 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
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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 (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 and to be in the best
interest of the relevant shareholders.
(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 interest 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 or ADR's
representing such 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.
(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) without object
(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.--Preferred Shares
Subject to the provisions of this Article 8, within the limit of the
authorized capital of the Company, the board of directors of the Company is
hereby authorized to issue, from time to time as the board of directors may
determine in its discretion, additional Shares of the Company with limited
voting rights as Cumulative Convertible Redeemable Preferred Shares or
Cumulative Redeemable Preferred Shares, as the case may be (the "Preferred
Shares"). The board of directors may, in its discretion, designate a portion of
the Preferred Shares as separate classes upon any issuance of Preferred Shares
from time to time. The following sets forth the general terms of the Preferred
Shares, including the preferences, conversion and other rights, voting powers,
restrictions,
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limitations as to dividends, qualifications and terms and conditions of
redemption thereof. The board of directors is authorized to cause a notary to
update these Articles to reflect any issuance of Preferred Shares as permitted
hereunder including with respect to each class of Preferred Shares as to the
dividend rate determined by the board of directors, the Original Contribution
Amount (as defined in section 2) and the terms of any redemption right of the
Company (as set forth in section 3). The Company may issue its Preferred Shares
for subscription, from time to time, at a price which the Company is permitted
to issue its Shares as provided in Article 7. The Company shall in all cases
issue Share certificates to the holders of Preferred Shares for their
inscription in the register of Shares, as permitted by Article 6 hereof.
Section 1. Dividends.
---------
The holders of Preferred Shares shall be entitled to receive, when, as and
if declared by the shareholders of the Company at a general meeting of the
shareholders, out of funds legally available for the payment of dividends,
cumulative preferential dividends payable in cash in an amount per share equal
to an annual percentage rate multiplied by the sum of the par value of a
Preferred Share plus the Issue Premium of that class of Preferred Shares, which
percentage rate shall be equal to the United States 30-Year Treasury Rate (as
defined below), plus a percentage rate of not more than 5% (five percent) per
anum, and shall be determined by the board of directors in its sole discretion
as of a date (the "Rate Determination Date") which is not later than the date
the shares of the relevant class of Preferred Shares are first issued (the
"Issue Date"). "Issue Premium" as used herein means, with respect to any
Preferred Shares, the Original Contribution Amount applicable to such class of
Preferred Shares less the par value of a Preferred Share. Such dividends shall
begin to accrue and shall be fully cumulative from the applicable Issue Date for
each class of Preferred Shares, whether or not in any period there shall be
funds of the Company legally available for the payment of such dividends, and
shall be payable not less than annually, when, as and if declared by the general
meeting of shareholders for the Preferred Shares existing at the time of such
decision, in arrears on each dividend payment date ("Dividend Payment Date") set
by the board of directors on an annual basis (a "Dividend Period"). Each such
dividend shall be payable in arrears to the holders of record of Preferred
Shares as they appear in the records of the Company at the close of business on
such record dates, not less than 10 nor more than 50 days preceding such
Dividend Payment Dates thereof, as shall be fixed by the board of directors.
Accrued and unpaid dividends for any past Dividend Periods may be declared and
paid at any time and for such interim periods, without reference to any regular
Dividend Payment Date, to holders of record on such date, not less than 10 nor
more than 50 days preceding the payment date thereof, as may be fixed by the
board of directors in accordance with Article 72-2 of the Law of 1915 on
commercial companies. Any dividend payment made on Preferred Shares shall first
be credited against the earliest accrued but unpaid dividend due with respect to
Preferred Shares which remains payable. "United States 30-Year Treasury Rate"
means, with respect to any Rate Determination Date, the rate for the auction
held on such Rate Determination Date of direct obligations of the United States
("Treasury bills") having a 30 year maturity as published in H.15 (519) under
the heading "U.S. Government Securities Treasury bill auction average
(investment)" or, if not so published by 9:00 a.m., New York City time, on the
Rate Determination Date, the auction average rate (expressed as a bond
equivalent, on the basis of a year
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of 365 or 366 days, as applicable, and applied on a daily basis) as otherwise
announced by the United States Department of the Treasury. In the event that
the results of the auction of Treasury bills having a 30 year maturity are not
published or reported as provided above by 3:00 p.m. New York City time, on such
Rate Determination Date or if no such auction is held in a particular week, then
the United States 30-Year Treasury Rate shall be calculated by the Company and
shall be a yield to maturity (expressed as a bond equivalent, on the basis of a
year of 365 or 366 days, as applicable, and applied on a daily basis) of the
arithmetic mean of the secondary market bid rates, as of approximately 3:30
p.m., New York City time, on such Rate Determination Date, of three leading
primary United States government securities dealers selected by the Company for
the issue of Treasury bills with a remaining maturity closest to a 30 year
maturity.
The initial Dividend Period for any Preferred Shares will commence from the
applicable Issue Date for these Preferred Shares. The amount of dividends
payable for such period, or any other period shorter than a full Dividend
Period, on the Preferred Shares shall be computed on the basis of a 360 day year
of twelve 30 day months. Holders of Preferred Shares shall not be entitled to
any dividends, whether payable in cash, property or shares, in excess of
cumulative dividends, as herein provided (including dividends, paid pursuant to
Section 4(c) hereof), on the Preferred Shares. No interest, or sum of money in
lieu of interest, shall be payable in respect of any dividend payment or
payments on the Preferred Shares which may be in arrears unless the payment of
such amount is specifically approved by the general meeting of shareholders.
So long as more than one class of Preferred Shares is outstanding, no
dividends, except as described in the immediately following sentence, shall be
declared by a general meeting of shareholders or paid or set apart for payment
by the Company on a class of Preferred Shares for any period unless full
cumulative dividends have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for such payment
on each other outstanding class of Preferred Shares for all Dividend Periods
terminating on or prior to the dividend payment date on such class of Preferred
Shares. When dividends are not paid in full or a sum sufficient for such
payment is not set apart, as aforesaid, all dividends declared upon Preferred
Shares shall be paid or set apart for payment ratably in proportion to the
respective amounts of dividends accumulated and unpaid on the respective classes
of Preferred Shares. As used herein, the term "set apart for payment" shall be
deemed to include, without any action other than the following, the recording by
the Company in its accounting ledgers of any accounting or bookkeeping entry
which indicates, pursuant to a declaration of dividends or other distribution by
the general meeting of shareholders, the allocation of funds to be so paid on
any class of shares of the Company; provided, however, that if any funds for any
class of Junior Shares (as defined below) or any class of Preferred Shares as to
the payment of dividends are placed in a separate account of the Company or
delivered to a disbursing, paying or other similar agent, then "set apart for
payment" with respect to the other classes of Preferred Shares shall mean
placing such funds in a separate account or delivering such funds to a
disbursing, paying or other similar agent. As used in this Article 8, "Junior
Shares" means the Shares of the Company and any other class of shares of the
Company over which the Preferred Shares have preference or priority in the
payment of dividends and in the distribution of assets on liquidation or
dissolution of the Company.
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So long as any Preferred Shares are outstanding, no dividends (other than
dividends or distributions paid solely in shares of, or options, warrants or
rights to subscribe for or purchase shares of, Junior Shares) shall be declared
or paid or set apart for payment or other distribution shall be declared or made
or set apart for payment upon Junior Shares, nor shall any Junior Shares be
redeemed, purchased or otherwise acquired (other than a redemption, purchase or
other acquisition of Shares made for purposes of an employee incentive or
benefit plan of the Company or any subsidiary) for any consideration (or any
moneys be paid to or made available for a "sinking fund" (as defined below) for
the redemption of any Junior Shares) by the Company, directly or indirectly
(except by conversion into or exchange for Junior Shares), unless in each case
(i) the full cumulative dividends on all outstanding Preferred Shares of the
Company shall have been or contemporaneously are declared and paid or declared
and set apart for payment for all past Dividend Periods with respect to the
Preferred Shares and (ii) sufficient funds shall have been or contemporaneously
are declared and paid or declared and set apart for the payment of the dividend
for the current Dividend Period with respect to the Preferred Shares. "Sinking
Fund" shall mean a fund established by the Company with cash or other assets
which, together with any earnings thereon, are to be used for the redemption or
retirement of securities of the Company.
No distributions on Preferred Shares shall be declared by the general
meeting of shareholders or paid or set apart for payment by the Company at such
time as the terms and provisions of any agreement of the Company, including any
agreement relating to its indebtedness, prohibits such declaration, payment or
setting apart for payment or provides that such declaration, payment or setting
apart for payment would constitute a breach thereof or a default thereunder, or
if such declaration or payment shall be restricted or prohibited by law.
Section 2. Liquidation Preference.
----------------------
In the event of any liquidation or dissolution of the Company, whether
voluntary or involuntary, before any payment or distribution of the assets of
the Company (whether capital or surplus) shall be made to or set apart for the
holders of Junior Shares, each holder of the Preferred Shares shall be entitled
to receive, out of funds legally available for payment thereof, the Original
Contribution Amount applicable to the class of each such Preferred Share owned
by that holder plus an amount equal to all dividends (whether or not earned or
declared) accrued and unpaid thereon to the date of final distribution to such
holders with respect to such class of Preferred Shares; but such holders shall
not be entitled to any further payment. "Original Contribution Amount" as used
herein means the price per Preferred Share (expressed in United States dollars)
at which the applicable class of Preferred Shares has been first issued by the
Company, as determined by the board of directors of the Company as permitted
hereunder; provided, however, that the Original Contribution Amount may be
adjusted as follows: in the event the outstanding Shares shall be subdivided
into a greater number of Shares, the Original Contribution Amount in effect at
the opening of business on the day following the day upon which such subdivision
becomes effective shall be proportionately reduced, and, conversely, in the
event the outstanding Shares shall each be combined into a smaller number of
Shares, the Original Contribution Amount in effect at the opening of business on
the day following the day upon which such combination becomes effective shall be
proportionately
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increased, such reduction or increase, as the case may be, to become effective
immediately after the opening of business on the day following the day upon
which such subdivision or combination becomes effective. If, upon any
liquidation or dissolution of the Company, the assets of the Company, or
proceeds thereof, distributable among the holders of the Preferred Shares shall
be insufficient to pay in full the preferential amount aforesaid, then such
assets, or the proceeds thereof, shall be distributed among the holders of
Preferred Shares ratably in accordance with the respective amounts that would be
payable on each class of Preferred Shares if all amounts payable thereon were
paid in full. For the purposes of this Section 2, (i) a merger of the Company
(including by creation of a new company through a consolidation) with one or
more corporations, or other entities, (ii) a demerger of the Company, (iii) a
sale, lease or conveyance of all or substantially all of the Company's property
or business or (iv) a share exchange, shall not be deemed to be a liquidation or
dissolution, voluntary or involuntary, of the Company.
After payment shall have been made in full to the holders of the Preferred
Shares, as provided in this Section 2, any other class or classes of Junior
Shares shall, subject to the respective terms and provisions (if any) applying
thereto, be entitled to receive any and all assets remaining to be paid or
distributed, and the holders of the Preferred Shares shall not be entitled to
share therein.
Section 3. Redemption at the Option of the Company.
---------------------------------------
Subject to Section 7 of this Article 8, the board of directors in its
discretion may determine on a Rate Determination Date whether, and at what
times, the relevant class of Preferred Shares may be redeemable by the Company.
If the Preferred Shares (or any class thereof) are made redeemable by the
Company, the Company, at the discretion of the board of directors, may redeem
the applicable class of Preferred Shares, in whole at any time or from time to
time pro rata in part at the option of the Company, at a redemption price equal
to the Original Contribution Amount applicable to such Preferred Share (with
respect to each class of Preferred Share), plus the amounts indicated in Section
3(b). On a Rate Determination Date, the board of directors may determine,
provided such determination is in the best interest of the Company, that the
relevant class of Preferred Shares may not be redeemed prior to any date it may
set.
Upon any redemption of Preferred Shares (or any class thereof) pursuant to
this Section 3, the Company shall pay all accrued and unpaid dividends, if any,
thereon to the Call Date (as defined in Section 3(d) below), without interest.
If the Call Date falls after a dividend payment record date and prior to the
corresponding Dividend Payment Date, then each holder of such Preferred Shares
at the close of business on such dividend payment record date shall be entitled
to the dividend payable on such shares on the corresponding Dividend Payment
Date notwithstanding the redemption of such shares before such Dividend Payment
Date. Except as provided above, the Company shall make no payment or allowance
for unpaid dividends, whether or not in arrears, on Preferred Shares called for
redemption.
If full dividends accrued on the Preferred Shares (or any class thereof)
have not been declared and paid or declared and set apart for payment, Preferred
Shares may not be redeemed under this
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Section 3 in part and the Company may not purchase or acquire Preferred Shares,
otherwise than pursuant to a purchase or exchange offer made on the same terms
to all holders of Preferred Shares or pursuant to Article 10.
Notice of the redemption of any Preferred Shares under this Section 3 shall
be given to each holder of record of such Preferred Shares to be sent by
registered mail to the address of each such holder as shown on the Company's
records, not less than 30 nor more than 90 days prior to the Call Date. Any
notice which was mailed in the manner herein provided shall be conclusively
presumed to have been duly given on the date mailed. Each such mailed notice
shall state, as appropriate: (1) the Call Date; (2) the number of Preferred
Shares to be redeemed and, if fewer than all the shares held by such holder are
to be redeemed, the number of such shares to be redeemed from such holder; (3)
the redemption price (per class of Preferred Shares, if applicable); (4) the
place or places at which certificates, if applicable, for such shares are to be
surrendered; and (5) that dividends on the shares to be redeemed shall cease to
accrue on such Call Date except as otherwise provided herein. Notice having
been mailed as aforesaid, from and after the Call Date (unless the Company shall
fail to make available an amount of cash necessary to effect such redemption),
(i) except as otherwise provided herein, dividends on the Preferred Shares so
called for redemption shall cease to accrue, (ii) such shares shall no longer be
deemed to be outstanding, and (iii) all rights of the holders thereof as holders
of Preferred Shares of the Company shall cease (except the rights to convert and
to receive cash payable upon such redemption, without interest thereon, upon
surrender and endorsement of their certificates if so required and to receive
any dividends payable thereon). The Company's obligation to provide cash in
accordance with the preceding sentence shall be deemed fulfilled if, on or
before the Call Date, the Company shall deposit with a bank or trust company or
savings institution which is subject to the jurisdiction of Luxembourg (which
bank or trust company or savings institution may utilize a correspondent bank
for payments which has an office in the Borough of Manhattan, City of New York,
and that has, or is an affiliate of a bank or trust company that has, capital
and surplus of at least U.S. $50,000,000), an amount in cash necessary for such
redemption, in trust, with irrevocable instructions that such cash be applied to
the redemption of the Preferred Shares so called for redemption. No interest
shall accrue for the benefit of the holders of Preferred Shares to be redeemed
on any cash so set aside by the Company. Subject to applicable escheat laws,
any such cash for redemptions unclaimed at the end of two years from the Call
Date shall revert to the general funds of the Company, after which reversion the
holders of such shares so called for redemption shall look only to the general
funds of the Company for the payment of such cash.
As promptly as practicable after the surrender in accordance with such
notice of the certificates, if applicable, for any such shares so redeemed
(properly endorsed or assigned for transfer, if the Company shall so require and
if the notice shall so state), such shares shall be exchanged for any cash
(without interest thereon) for which such shares have been redeemed. If fewer
than all the outstanding Preferred Shares of the applicable class are to be
redeemed, shares to be redeemed shall be selected by the Company from
outstanding Preferred Shares of such class not previously called for redemption
pro rata (as nearly as may be) among all holders of such Preferred Shares based
upon the number of such Preferred Shares owned by each holder. To the extent
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applicable, if fewer than all the Preferred Shares represented by any
certificate are redeemed, then new certificates relating to the unredeemed
shares shall be issued without cost to the holder thereof.
Promptly following the Call Date, the Company shall publish a notice of the
redemption in the Memorial, Recveil Special des Societes et Associations.
Section 4. Conversion.
----------
If the board of directors determines to issue Cumulative Convertible
Redeemable Preferred Shares, holders of such Preferred Shares shall have the
right to convert all or a portion of such shares into Shares other than
Preferred Shares on a one-for-one basis, as follows:
Subject to and upon compliance with the provisions of this Section 4, a
holder of convertible Preferred Shares shall have the right, at his or her
option, at any time to convert each such Preferred Share into one fully paid and
non-assessable Share by surrendering such shares to be converted, such surrender
to be made in the manner provided in paragraph (b) of this Section 4; provided,
however, that the right to convert Preferred Shares called for redemption
pursuant to Section 3 shall terminate at the close of business on the fifth
Business Day prior to the Call Date fixed for such redemption, unless the
Company shall default in making payment of the cash payable upon such redemption
under Section 3.
In order to exercise the conversion right, the holder of each Preferred
Share to be converted shall surrender the certificate, if applicable, relating
to such share, duly endorsed or assigned to the Company, at the office of the
Company or at the office of the Company's agent designated for that purpose by
written notice to the holders of such Preferred Shares (such applicable office,
for purposes of this Article 8, to be known as the "Transfer Agent"),
accompanied by written notice to the Company that the holder thereof elects to
convert such Preferred Shares, and together with such other instruments or
documents as the Company may request to evidence the election of the holder of
Preferred Shares to convert. Unless the shares issuable on conversion are to be
issued in the same name as the name in which such Preferred Share is registered,
each share surrendered for conversion shall be accompanied by instruments of
transfer, in form satisfactory to the Company, duly executed by the holder or
such holder's duly authorized attorney and an amount sufficient to pay any
transfer or similar tax (or evidence reasonably satisfactory to the Company
demonstrating that such taxes have been paid).
Holders of Preferred Shares (except shares converted after the issuance of
notice of redemption with respect to a Call Date during such period, such
Preferred Shares being entitled to such dividend or the Dividend Payment Date)
at the close of business on a dividend payment record date whose Preferred
Shares are surrendered for conversion following such dividend payment record
date and prior to the corresponding Dividend Payment Date shall not be entitled
to receive the dividend payable on such shares on such corresponding Dividend
Payment Date. A holder of Preferred Shares on a dividend payment record date who
(or whose transferee) tenders any such shares for conversion into Shares on the
corresponding Dividend Payment Date will receive the
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dividend payable by the Company on such Preferred Shares on such date. Except
as provided above, the Company shall make no payment or allowance for unpaid
dividends, whether or not in arrears, on converted shares or for dividends on
the Shares issued upon such conversion. As promptly as practicable after the
surrender of certificates, if applicable, for Preferred Shares as aforesaid, the
Company shall issue and shall deliver at such office to such holder, or on his
or her written order, a certificate or certificates, if applicable, for the
number of Shares issuable upon the conversion of such shares in accordance with
provisions of this Section 4.
Each conversion shall be deemed to have been effected immediately prior to
the close of business on the date on which the certificates, if applicable, for
Preferred Shares shall have been surrendered and such notice shall have been
received by the Company as aforesaid, and the person or persons in whose name or
names any certificate or certificates, if applicable, for Shares shall be
issuable upon such conversion shall be deemed to have become the holder or
holders of record of the Shares represented thereby at such time on such date
and such conversion shall be in effect at such time on such date unless the
share transfer books of the Company shall be closed on that date, in which event
such person or persons shall be deemed to have become such holder or holders of
record at the close of business on the next succeeding day on which such share
transfer books are open.
Any adjustment of the par value of Shares, including as a result of any
action by the Company to (i) subdivide its outstanding Shares into a greater
number of shares, or (ii) combine its outstanding Shares into a smaller number
of shares shall include an equal and automatic adjustment in the par value of
the Preferred Shares (including, without limitation, any such subdivision or
combination of Shares). In addition, in the event of any action by the Company
to (I) pay a dividend or make a distribution on its Junior Shares in Shares or
(II) issue any shares by reclassification of its Shares, each Preferred Share
shall be entitled to receive the same dividend, distribution or issuance as each
Share.
If the Company shall be a party to any transaction, including without
limitation a merger (including by creating a new company through consolidation),
a demerger, share exchange, a repurchase by the Company of all or substantially
all Junior Shares, sale of all or substantially all of the Company's assets or
recapitalization of the Shares (each of the foregoing being referred to herein
as a "Transaction"), in each case as a result of which all or substantially all
Shares are converted into the right to receive shares, securities or other
property (including cash or any combination thereof), each convertible Preferred
Share which is not redeemed or converted into the right to receive shares,
securities or other property prior to such Transaction shall thereafter be
convertible into the kind and amount of shares, securities and other property
(including cash or any combination thereof) receivable upon the consummation of
such Transaction by a holder of one Junior Share, assuming such holder of Junior
Shares (i) is not a Person with which the Company consolidated or into which the
Company merged or which merged into the Company or to which such sale or
transfer was made, as the case may be ("Constituent Person"), or an affiliate of
a Constituent Person and (ii) failed to exercise his rights of election, if any,
as to the kind or amount of shares, securities and other property (including
cash) receivable upon such Transaction (provided that if the kind or amount of
shares,
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securities and other property (including cash) receivable upon such Transaction
is not the same for each Share held immediately prior to such Transaction by
other than a Constituent Person or an affiliate thereof and in respect of which
such rights of election shall not have been exercised ("Non-Electing Share"),
then for the purpose of this paragraph (d) the kind and amount of shares,
securities and other property (including cash) receivable upon such Transaction
by each Non-Electing Share shall be deemed to be the kind and amount so
receivable per share by a plurality of the Non-Electing Shares). The Company
shall not be a party to any Transaction unless the terms of such Transaction are
consistent with the provisions of this paragraph (d), and it shall not consent
or agree to the occurrence of any Transaction until the Company has entered into
an agreement with the successor or purchasing entity, as the case may be, for
the benefit of the holders of the convertible Preferred Shares that will contain
provisions enabling the holders of such Preferred Shares that remain outstanding
after such Transaction to convert into the consideration received by holders of
Shares. The provisions of this paragraph (d) shall similarly apply to
successive Transactions.
If:
--
the Company shall declare a dividend (or any other distribution) on the
Junior Shares (other than cash dividends or distributions paid with respect to
the Shares not in excess of the sum of the Company's cumulative undistributed
EBDADT (as defined below) minus the cumulative amount of dividends accrued or
paid in respect of all classes of Preferred Shares after the Issue Date); or
the Company shall authorize the granting to the holders of Junior Shares of
rights, options or warrants to subscribe for or purchase any shares of any class
or any other rights, options or warrants; or
there shall be any reclassification of the Shares or any merger or demerger
to which the Company is a party and for which approval of any shareholders of
the Company is required, or a share exchange, or a repurchase by the Company for
all or substantially all of its outstanding Shares or the sale or transfer of
all or substantially all of the assets of the Company as an entirety; or
there shall occur the voluntary or involuntary liquidation or dissolution
of the Company; then, to the extent not then provided for in a substantially
similar requirement under Luxembourg law (and in addition to any other
requirement under Luxembourg law), the Company shall cause to be filed with the
Transfer Agent and shall cause to be mailed to the holders of convertible
Preferred Shares at their addresses as shown on the records of the Company, as
promptly as possible, but at least 10 days prior to the applicable date
hereinafter specified, a notice stating (A) the date on which a record is to be
taken for the purpose of such dividend, distribution or granting of rights,
options or warrants, or, if a record is not to be taken, the date as of which
the holders of Junior Shares of record to be entitled to such dividend,
distribution or rights, options or warrants are to be determined or (B) the date
on which such reclassification, merger, share exchange, sale, transfer,
liquidation or dissolution is expected to become effective, and the date as of
which it is expected that holders of Junior Shares of record shall be entitled
to exchange their Junior Shares for securities or other property, if any,
deliverable upon such reclassification, merger, share exchange, sale, transfer,
liquidation or
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dissolution. Failure to give or receive such notice or any defect therein shall
not affect the legality or validity of the proceedings described in this Section
4. For purposes of this Article 8, "EBDADT" shall mean earnings before
depreciation, amortization and deferred taxes, as each item is reflected on the
Company's consolidated statement of operations prepared in accordance with
generally accepted accounting principles.
Prior to the delivery of any securities that the Company shall be obligated
to deliver upon conversion of Preferred Shares, the Company shall endeavor to
comply with all laws and regulations of the Grand Duchy of Luxembourg, and of
any other applicable jurisdiction requiring the registration of such securities
with, or any approval of or consent to the delivery thereof by, any governmental
authority.
The Company will pay any and all documentary stamp or similar issue or
transfer taxes payable in respect of the issue or delivery of Shares or other
securities or property on conversion of Preferred Shares pursuant hereto;
provided, however, that the Company shall not be required to pay any tax that
may be payable in respect of any transfer involved in the issue or delivery of
Shares or other securities or property in a name other than that of the holder
of the Preferred Shares to be converted, and no such issue or delivery shall be
made unless and until the person requesting such issue or delivery has paid to
the Company the amount of any such tax or established, to the reasonable
satisfaction of the Company, that such tax has been paid.
Section 5. Ranking.
-------
Any class of Shares of the Company other than Preferred Shares shall be
deemed to rank junior to the Preferred Shares, as to the payment of dividends
and as to the distribution of assets upon liquidation or dissolution, if such
class shall be Junior Shares.
Section 6. Voting; Limitations on Actions.
------------------------------
If and whenever (i) dividends payable on any class of Preferred Shares
shall be in arrears (which shall, with respect to any such dividend, mean that
any such dividend has not been paid in full) for a period of one year, whether
or not earned or declared, (ii) dividends have been declared and distributed in
respect of Shares in breach of the preferential rights of Preferred Shares, or
(iii) Preferred Shares represent more than 50% of the issued Share capital of
the Company, then the holders of Preferred Shares shall be entitled to vote at
each general meeting of shareholders, together with the holders of all Shares,
in accordance with the requirements of Luxembourg company law. Whenever (i) all
arrears in dividends on the Preferred Shares then outstanding shall have been
paid and dividends thereon for the current period shall have been paid or
declared and set apart for payment and (ii) Preferred Shares shall not then
represent more than 50% of the issued share capital of the Company, then the
right of the holders of the Preferred Shares to vote together with all holders
of Shares shall cease (but subject always to the same provision for the vesting
of such voting rights in the case of any similar future arrearages or in the
event Preferred Shares represent more than 50% of the issued share capital of
the Company).
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So long as any Preferred Shares are outstanding, the Company shall not
cause any amendment, alteration or repeal of any of the provisions of the
Company's Articles of Incorporation to be effected that materially and adversely
affects the voting powers, rights or preferences of the holders of any Preferred
Shares; provided, however, that the amendment of the provisions of the Articles
of Incorporation so as to authorize or create or to increase the authorized
amount of, any Junior Shares that are not senior in any respect to the Preferred
Shares, or any Preferred Shares shall not be deemed to materially adversely
affect the voting powers, rights or preferences of the holders of any Preferred
Shares.
The Company shall not cause to be effected any share exchange, a merger of
the Company into another entity, or a merger of another entity into the Company
(or a merger creating a new company through consolidation), unless in each such
case each Preferred Share (i) shall remain outstanding without a material and
adverse change to its terms and rights or (ii) shall be converted into or
exchanged for convertible or non-convertible preferred shares, as applicable, of
the surviving entity having preferences, conversion, if applicable, or other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms or conditions of redemption thereof identical to that of the
applicable Preferred Share (except for changes that do not materially and
adversely affect the holders of such Preferred Shares).
Notwithstanding clauses (b) and (c) of this Section 6, no such action
identified therein shall be restricted if, at or prior to the time when such
amendment, alteration or repeal is to take effect, or when the issuance of any
such prior shares or convertible or non-convertible security, as applicable, is
to be made, as the case may be, provision is made for the redemption of all
Preferred Shares at the time outstanding.
Notwithstanding any other provision of this Article 8, the holders of the
Preferred Shares shall be entitled to vote, together with the holders of all
Shares, in accordance with the requirement of Luxembourg company law, at any
general meeting of shareholders convened in order to act upon any resolution
concerning any of the following matters: (i) the issuance of new Shares
entitled to preferential rights otherwise than as permitted by these Articles of
Incorporation within the authorized capital; (ii) the modification of the
preferred dividend attached to Preferred Shares; (iii) the reduction of the
Share capital of the Company; (iv) the modification of the corporate objective
of the Company; (v) the issuance of convertible notes otherwise than as
permitted by these Articles of Incorporation within the authorized capital; (vi)
the liquidation, merger or consolidation of the Company; (vii) the change of the
corporate form of the Company; (viii) the election of directors of the Company;
and (ix) the conversion of Preferred Shares into any class of voting shares.
Section 7. Limitation on Ownership.
-----------------------
The restrictions on ownership of Shares and the other provisions set forth
in Article 9 shall apply separately to each class of Preferred Shares except to
the extent otherwise determined by the board of directors consistent with the
requirements of Article 9.
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Section 8. Record Holders.
--------------
The Company and the Transfer Agent may deem and treat the record holder of
any Preferred Shares as the true and lawful owner thereof for all purposes, and
neither the Company nor the Transfer Agent shall be affected by any notice to
the contrary.
Section 9. Sinking Fund.
------------
The Preferred Shares shall not be entitled to the benefits of any sinking
fund.
Section 10. Exchange.
--------
The Company shall be entitled to offer to each holder of a class of
Preferred Shares, as selected by the board of directors of the Company, the
right (without the requirement of making such offer to holders of other classes
of Shares) to exchange the Preferred Shares of that class on any Dividend
Payment Date for Debentures of the Company, which may or may not be convertible
into Shares (the "Debentures") and such other terms as to be determined by the
board of directors at the time of such offer. In addition, the Company shall be
entitled to mandate the exchange on any Dividend Payment Date of any class of
Preferred Shares, as selected by the board of directors (without the requirement
of the mandatory exchange of any other classes of Shares), in whole but not in
part, for an aggregate principal amount of Debentures of not less than the
number of outstanding Preferred Shares of that class multiplied by the Original
Contribution Amount for a Preferred Share of that class, with such other terms
as to be determined by the board of directors at the Issue Date of such class of
Preferred Shares. Any such mandatory exchange may not occur unless all
accumulated dividends on all Preferred Shares through the Dividend Payment Date
established as the exchange date have been paid or set aside for payment, and
any such mandatory exchange shall be effected in the same manner, and upon the
same notice, as a redemption of Preferred Shares, as aforesaid. Upon any
exchange, the Preferred Shares being exchanged shall (provided such exchange is
duly and properly effected) be deemed to cease to be outstanding as of the close
of business on the date established for such exchange, and all rights of any
holder thereof shall be extinguished except the right to receive Debentures in
exchange therefor and the right to receive accrued and unpaid dividends on such
Preferred Shares to the date established for such exchange. As in the case of a
redemption of Preferred Shares, holders of Preferred Shares being exchanged must
surrender, if applicable, the certificates relating to such Preferred Shares in
order to receive the Debentures for which such Preferred Shares have been
exchanged, but upon such surrender such holders will be entitled to receive all
interest accrued on such Debentures from the date of exchange at the time and in
the manner that such interest would be paid in the ordinary course pursuant to
the Indenture pursuant to which such Debentures shall be issued. Dividends due
on the Preferred Shares being exchanged on the Dividend Payment Date on which
the exchange is effected will be mailed to holders in the regular course.
No exchange of any class of Preferred Shares for Debentures may be effected
unless prior to such exchange the Company causes to be delivered to the Trustee
under the Indenture establishing
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such Debentures: (i) a certificate of any Managing Director, Senior Vice
President or Vice President of the Company, reasonably satisfactory to the
Trustee, to the effect that the Debentures are valid and binding obligations of
the Company in accordance with their terms, subject to bankruptcy, insolvency,
reorganization, fraudulent transfer, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles, whether considered in a proceeding at law or in equity, and that all
necessary corporate and governmental approvals, including without limitation any
securities registrations, for the issuance of the Debentures have been obtained;
and (ii) an opinion of counsel to the Company, reasonably satisfactory to the
Trustee, to the same effect as the foregoing certificate. Such certificate and
opinion shall be available for inspection during normal business hours by the
holders of the Preferred Shares being exchanged upon request to the Trustee.
Article 9.--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 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 per Share, other than a Preferred Share, shall be the
net asset value per Share determined in accordance with the provisions of
Article 11 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 or ADR's representing such
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<PAGE>
Shares), reported on such trading day as specified by the board of directors in
their discretion, provided further, however, that if redemptions initiated by
the board of directors are effected in privately negotiated transactions with
the consent of the relevant shareholders as to the price and the number of
Shares to be redeemed, the redemption price may be lower than such last
available sales price.
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 such number of business days
from the date fixed for redemption as the board of directors may fix, provided
that the Share certificates, if any, and the transfer documents have been
received by the Company, subject to the provision of Article 12 hereof.
The redemption price per Preferred Share shall be as described in Article 8
hereof.
To the extent Shares redeemed by the Company remain in existence they 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 average
daily volume in Shares or ADR's representing such 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 10.--Restrictions on Ownership of Shares
Section 1. Definitions.
-----------
For the purposes of this Article 10, the following terms shall have the
following meanings:
"Beneficial Ownership", when used with respect to any ownership of Shares
by any Person, shall initially mean, without duplication, all Shares which are
(i) directly owned by such Person, (ii) constructively owned by such Person
taking into account the constructive ownership rules of Section 544 of the Code
as modified by Section 856(h)(1)(B) of the Code, and (iii) owned (directly,
indirectly, or beneficially) within the meaning of Section 13(d) of the
Securities Exchange Act of 1934 as amended by such Person (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).
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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)(1)(A) (other than clauses (vii) or (viii) thereof)
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 or any corresponding provisions of any
amended or successor statute.
"Event" shall have the meaning given to such term in Section 3(A) of this
Article 10.
"Excess Shares" shall mean Shares resulting from an exchange or Event
described in Section 3 of this Article 10.
"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 and any Person (an "Indirect Excluded Holder") who Beneficially Owns
Shares that are also Beneficially Owned by an Excluded Holder ("Overlapping
Shares") but limited in the case of each such Indirect Excluded Holder to the
Overlapping Shares. However, an affiliate, successor, or assignee (other than a
direct or indirect wholly owned subsidiary of Security Capital Group
Incorporated) will be treated as an Excluded Holder 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 or any corresponding provisions of any amended or
successor statute.
"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.
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<PAGE>
"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 or
ADR's representing such 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.
"Ownership Limit" shall initially mean 9.5% of the (i) value of (a) the
Company's outstanding Shares or, (b) if Shares are issued in more than one
class, the outstanding Shares of any class of Shares or (ii) voting power of all
Shares entitled to vote. The value and voting power 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.
"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 the Code or any corresponding provisions of any amended or successor
statute.
"Purported Beneficial Transferee" shall mean, with respect to any purported
Transfer or Event which results in Excess Shares, the beneficial holder of the
Shares, if such Transfer had been valid under Section 2 of this Article 10 or
such Event had not occurred.
"Purported Record Transferee" shall mean, with respect to any purported
Transfer or Event which results in Excess Shares, the record holder of the
Shares, if such Transfer had been valid under Section 2 of this Article 10 or
such Event had not occurred.
"Settlement Amount" shall have the meaning given to such term in Section 14
of this Article 10.
"Shares" shall mean all of the shares of the Company, including common and
preferred, as may be authorised and issued from time to time pursuant to Article
7 and Article 8.
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"Transfer" (as a noun) 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 "Transfer" (as a verb), "Transfers" and
"Transferred" shall have the correlative meanings.
"United States Shareholder" shall mean any United States person (as defined
in section 957(c) of the Code) that would be treated as a "United States
shareholder" (within the meaning of section 95 1 (b)) with respect to the
Company.
Section 2. Ownership Limitations and Transfer Restrictions.
-----------------------------------------------
(A) Subject to Section 11 of this Article 10, no Person (other than an
Excluded Holder) shall Beneficially Own Shares in excess of the Ownership Limit.
(B) Subject to Section 11 of this Article 10, 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) Subject to Section 11 of this Article 10, 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) Subject to Section 11 of this Article 10, 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 unenforceable
against the Company.
(E) Nothing contained in this Article 10 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 10 and any transferee in such
a transaction shall be subject to all of the provisions and limitations set
forth in this Article 10.
(F) Subject to Section 11 of this Article 10, any Transfer that would
result in any Person (other than an Excluded Holder) becoming a United States
Shareholder shall be unenforceable
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against the Company as to the Transfer of those Shares that results in such
Person becoming a United States Shareholder.
(G) Subject to Section 11 of this Article 10, any Transfer that would
result in the Company becoming a PHC shall be unenforceable against the Company
as to the Transfer of those Shares that results in the Company becoming a PHC.
(H) Subject to Section 11 of this Article 10, any Transfer that would
result in the Company becoming a FPHC shall be unenforceable against the Company
as to the Transfer of those Shares that results in the Company becoming a FPHC.
Section 3. Excess Shares.
-------------
(A) If in event, including a purported Transfer (an "Event"), occurs that
would cause any Person (other than in Excluded Holder) to Beneficially Own
Shares in excess of the Ownership Limit, then (i) except as provided in Section
11 of this Article 10 if the event is a Transfer, the Shares that would be
otherwise acquired by the Purported Beneficial Transferee (or in the case of an
Event that is not a Transfer, Shares held by the Person holding record title to
the Shares Beneficially Owned by such Person) in excess of the Ownership Limit
(rounded up to the nearest whole Share) shall be exchanged for an equal number
of Excess Shares to the extent necessary to eliminate such excess ownership,
(ii) such Excess Shares shall be transferred to the Excess Shares Fiduciary as
provided in Section 13 hereof, and (iii) the prohibited owner of the Shares
exchanged for Excess Shares shall return Share certificates to the Company.
Such exchange shall be effective as of the close of business on the business day
prior to the date of the Event even if the certificates for the Shares exchanged
for Excess Shares are returned to the Company at a later date. In determining
which Shares arc exchanged, Shares directly owned by any Person who caused the
Event to occur shall be exchanged before any other Person's Shares. Where
several Persons exist or where such Person owns Shares constructively through
one or more Persons and the Shares so constructively held must be exchanged, the
board of directors shall determine in good faith which particular Shares are to
be exchanged pursuant to the foregoing provisions.
(B) If an Event occurs that would cause the Company to become a PHC or a
FPHC, then (i) except as provided in Section 11 of this Article 10 if the Event
is a Transfer the Shares that would be otherwise acquired by the Purported
Beneficial Transferee (or in the case of an Event that is not a Transfer, Shares
held by a Person holding record title to the Shares that would have caused the
Company to become a PHC or FPHC) (rounded up to the nearest whole Share) shall
be exchanged for an equal number of Excess Shares to the extent necessary to
eliminate such status, (ii) such Excess Shares shall be transferred to the
Excess Shares Fiduciary as provided in Section 13 hereof, and (iii) the owner of
the Shares exchanged for Excess Shares shall return Share certificates to the
Company. Such exchange shall be effective as of the close of business on the
business day prior to the date of the Event even if the certificates for the
Shares exchanged for Excess Shares are returned to the Company at a later date.
If, after the exchange of any such Shares, the Company would still be a PHC or
FPHC, any Individual or Individuals whose ownership of Shares in the Company
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increased as a 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 other Shares not
directly owned are exchanged. The board of directors shall determine in good
faith which particular Shares are to be exchanged pursuant to the foregoing
provisions.
(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.
(D) If an Event occurs that would cause a Person (other than an Excluded
Holder) to become a United States Shareholder then (i) except as provided in
Section 11 of this Article 10, Shares that would cause the Person to become such
a United States Shareholder (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 (ii) such Excess Shares shall be transferred to the Excess
Shares Fiduciary as provided in Section 13 hereof, and (iii) the owner of the
Shares exchanged for Excess Shares shall return Share certificates to the
Company. Such exchange shall be effective as of the close of business on the
business day prior to the date of the Event even if the certificates for the
Shares exchanged for Excess Shares are returned to the Company at a later date.
The board of directors shall determine in good faith which particular Shares are
to be exchanged pursuant to the foregoing provisions.
Section 4. Prevention of Transfer.
----------------------
Any Transfers or purported Transfers in violation of Section 2 herein and any
Event or purported Event that would result in a violation of Section 2 herein
shall, in each case, 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 a 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 or participant in an Event such that
Excess Shares result under Section 3 herein, shall immediately give written
notice thereof to the Company. Persons required to give notice under this
Section 5 shall provide the Company such other information as the Company may
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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 any class 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 10.
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.
Section 8. Ambiguities.
-----------
In the case of an ambiguity in the meaning or application of any of the
provisions of this Article 10, including any definition contained in Section 1,
the board of directors shall have the power to determine the application of the
provisions of this Article 10 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) Notwithstanding any contrary provision contained in this Article 10,
the board of directors may exempt a Person or Event from the Ownership Limit or
the German Ownership Limit on such terms and conditions as the board of
directors may deem appropriate.
(B) Notwithstanding any contrary provision contained in this Article 10,
if an Event occurs that would cause German Tax Residents collectively to
directly or indirectly (whether through a subsidiary, trust arrangement or
otherwise) own Shares in excess of the German Ownership Limit
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or would cause the Company to become a CFC, PHC or an FPHC, the board of
directors may exempt such Event or the Persons involved or both from the
application of Sections 2 and 3 and any other applicable sections of this
Article 10 on such terms and conditions as the board of directors may deem
appropriate.
Section 11. Waivers by the Board.
--------------------
(A) Notwithstanding any contrary provision contained in this Article 10,
the board of directors may exempt a Person or Event from the Ownership Limit or
the German Ownership Limit on such terms and conditions as the board of
directors may deem appropriate.
(B) Notwithstanding any contrary provision contained in this Article 10,
if an Event occurs that would cause German Tax Residents collectively to
directly or indirectly (whether through a subsidiary, trust arrangement or
otherwise) own Shares in excess of the German Ownership Limit or would cause the
Company to become a CFC, PHC or an FPHC, the board of directors may exempt such
Event or the Persons involved or both from the application of Sections 2 and 3
and any other applicable sections of this Article 10 on such terms and
conditions as the board of directors may deem appropriate.
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 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
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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.
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 11.--Calculation of Net Asset Value per Share
The net asset value per Share, other than a Preferred Share, in the Company
shall be expressed in United States Dollars and shall be determined as of any
Valuation Day. It shall be the number obtained in dividing (i) the net assets
of the Company, being the value of the assets less the liabilities, decreased by
the Original Contribution Amount of all outstanding Preferred Shares and by all
dividends accrued and unpaid thereon, on any such Valuation Day, (ii) by the
number of Shares, other than Preferred 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 my 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
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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, other than a Preferred 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 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.
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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).
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 properties and property rights registered in
the name of the Company, and in privately-held real estate companies in which
the Company holds more than 50% of the outstanding voting stock, the Company
shall appoint an independent real estate appraiser to value such interest. Any
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 which requires new
valuations to be carried out under the same conditions as the annual valuations.
The Company may deviate from such valuation if deemed in the interest of the
Company and its shareholders.
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.
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;
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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);
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.
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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;
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).
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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.
Article 12.--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
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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.
Title III
ADMINISTRATION AND SUPERVISION
Article 13.--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 1 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 14.--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).
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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 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 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.
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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 director.
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 communication. All such resolutions shall form the record that
proves that such decision has been taken.
Article 15.--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 16.--Corporate Signature
Vis-a-vis third parties, the Company is validly bound by the sole signature of
any director or by the single or joint signature(s) of any person(s) to whom
authority has been delegated by the board of directors.
Article 17.--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, 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.
The board may also confer other special powers of attorney by notarial or
private proxy.
Article 18.--Investment Advisor
The board of directors of the Company have appointed as advisor Security Capital
U.S. Realty 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 19 hereof, in particular for identifying and selecting
investment opportunities, advising on their purchase and sale and actively
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monitoring the progress of the Company's portfolio. The board of directors
shall have the right to replace the Advisor or appoint additional advisors.
Article 19.--Investment Policies and Restrictions
The board of directors 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 Document 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 20.--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 terms "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 in its discretion.
Article 21.--Indemnification of Directors and Officers
The Company shall indemnify any director or officer, and his heirs, executors
and 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
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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 22.--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.
Ttile IV
GENERAL MEETINGS-ACCOUNTING YEAR -- DISTRIBUTIONS
Article 23.--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.
Article 24.--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 in compliance with
applicable law.
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.
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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, in which case no publications shall be necessary.
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 seventy-five
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.
Article 25.--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 of the shareholders present or represented and
voting.
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Article 26.--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 27.--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 pay, 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 in lieu of cash dividends, or declare or authorize
the board of directors to pay, dividends and distributions in kind.
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 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.
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Title V
FINAL PROVISIONS
Article 28.--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 fulfill 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
endeavors 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 29.--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 EUR 1,240,000.-, 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 EUR 1,240,000.-;
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.
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Article 30.--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 31.--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 32.--Statements
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 33.--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.
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Exhibit 10.16
[Execution Copy]
SECOND AMENDED AND RESTATED
FACILITY AGREEMENT
DATED AS OF DECEMBER 30, 1999
$ 350,000,000
REVOLVING CREDIT AND SWINGLINE FACILITY
for
SECURITY CAPITAL HOLDINGS S.A.
and
COMMERZBANK AKTIENGESELLSCHAFT
as Arranger
and
COMMERZBANK AKTIENGESELLSCHAFT
as Administrative Agent
and
BANK OF AMERICA, N.A.
as Syndication Agent
<PAGE>
SECOND AMENDED AND RESTATED FACILITY AGREEMENT, dated as of December 30, 1999,
among SECURITY CAPITAL HOLDINGS S.A., a company incorporated in Luxembourg with
a registered office located at 69, route d' Esch, L-1470 Luxembourg (the
"Borrower"), SECURITY CAPITAL U.S. REALTY, a company incorporated in Luxembourg
with a registered office located at 69, route d' Esch, L-1470 Luxembourg (the
"Company"), THE COMPANIES listed in Part I of Schedule 1 as guarantors
(collectively, the "Guarantor Parties"), COMMERZBANK AKTIENGESELLSCHAFT, New
York Branch, as arranger (in this capacity, the "Arranger"), THE FINANCIAL
INSTITUTIONS listed in Parts II and III 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
BANK OF AMERICA, 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 Arranger, the Administrative
Agent, the Syndication Agent and the Lenders (as defined below) have previously
entered into an Amended and Restated Facility Agreement, dated as of December 8,
1998, as amended, supplemented and modified through the date hereof and in
effect immediately prior to the effectiveness hereof, the "Existing Facility
Agreement");
WHEREAS, the Borrower, the Company, the Lenders and the Guarantor
Parties have previously entered into a Guarantor Joinder Agreement dated as of
February 3, 1999 (the "Existing Joinder Agreement"); and
WHEREAS, the Borrower, the Company, the Guarantor Parties, the
Arranger, the Administrative Agent, the Syndication 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
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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.
"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.
"Adjusted Unsecured Liabilities" means, as of any date of
determination, an amount equal to (i) the sum of (a) Total Outstandings and (b)
all Unsecured Liabilities (excluding Total Outstandings) minus (ii) any Excluded
Unfunded Obligations.
"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 October 1, 1999.
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"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 0.175%
Level III 0.350%
Level IV 0.475%
Level V 0.600%
Level VI 0.850%.
"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 1.000%
Level II 1.175%
Level III 1.350%
Level IV 1.475%
Level V 1.600%
Level VI 1.850%.
"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 Company (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
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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 A2 A A
Level II A3 A- A-
Level III Baa1 BBB+ BBB+
Level IV Baa2 BBB BBB
Level V Baa3 BBB- BBB-
Level VI (Baa3 (BBB- (BBB-
For purposes of the foregoing, (i) "" means a rating equal to or more favorable
than; (ii) "(" means a rating less favorable than; (iii) if ratings for the
senior unsecured long-term debt of the Company 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
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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 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.
"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 sum of
(x) the Market Value of all Qualifying Collateral and (y) the aggregate amount
of all Unfunded Obligations (other than Excluded Unfunded Obligations), 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
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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.
"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 Company for the four fiscal
quarter period ending as of the date of determination, the Company'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).
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"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
------------------- ---------
$175,000,000 or less 0.15%
Greater than $175,000,000 0.20%.
"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.
"Company" has the meaning set forth in the introductory paragraph.
"Company Fixed Charge Coverage Ratio" means, with respect to the
Company and for any period, the ratio of Cash Flow to Fixed Charges of the
Company for such period on a Consolidated basis.
"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.
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<PAGE>
"Debt" of any Person means, without duplication, all indebtedness of
such Person, or any partnership of which such Person or any of its Subsidiaries
is a general partner, 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.
"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
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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).
"Excluded Unfunded Obligations" means, as of any date falling within
the period commencing on the Effective Date and ending on the earlier of (a) the
date on which the Borrower shall have consummated a sale of all of its equity
interest in City Center Retail Trust to any Person other than the Company or any
of its other Consolidated Subsidiaries and (b) the date that is the numerically
corresponding day in the twelfth month following the Effective Date, all
Unfunded Obligations.
"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 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
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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 30, 1999 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 1, 2001.
"Final Repayment Date" means, subject to Clause 2.6 (Term-Out Option),
the date falling two 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 Company and its Consolidated Subsidiaries for the
time being and from time to time.
"Guarantee" or "guarantee" of any Person means any agreement or
undertaking (other than a direct or primary obligation of such Person to
purchase stock under stock purchase or similar agreements) pursuant to which
such Person guarantees, assumes or otherwise becomes secondarily, contingently
or otherwise liable for any
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obligation of any other Person (other than by virtue of endorsement of
instruments in the ordinary course of deposit or collection). For the avoidance
of doubt, a "Guarantee" or "guarantee" includes, without limitation, an
agreement or undertaking of any Person pursuant to which such Person guarantees,
assumes or otherwise becomes secondarily, contingently or otherwise liable for
the obligation of any other Person to purchase stock under stock purchase or
similar agreements.
"Guarantor" means the Company, the Guarantor Parties and each
Additional Guarantor (collectively, the "Guarantors").
"Guarantor Joinder Agreement" means the Existing Joinder Agreement and
any other agreement substantially in the form of Part I of Schedule 6 made
pursuant to Clause 28.1 (Additional Guarantors) (collectively, the "Guarantor
Joinder Agreements").
"Guarantor Parties" has the meaning set forth in the introductory
paragraph.
"Intangible Assets" means, with respect to the Company, the amount (to
the extent reflected in determining stockholders' equity of the Company) of all
items which in accordance with GAAP would be properly classified as intangible
Assets of the Company 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.
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"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).
"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
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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 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 Company 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 Company 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:
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(A) the Total Liabilities of such Person;
from
----
(B) 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 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);
multipled by
------------
(2) the percentage of the Securities of such Person
owned by the Company and/or any of its Consolidated Subsidiaries;
and
(iv) all cash and Cash Equivalent Investments of the Company
and its Consolidated Subsidiaries on and as of such date,
minus
-----
(b) the Total Liabilities (excluding deferred taxes on unrealized
gains) of the Company and its Consolidated Subsidiaries as of such date.
"Market Value" means, on the date of determination thereof:
(a) with respect to cash, the book value of such cash; and
(b) with respect to a Security (i) 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
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product of (A) 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 (B) the number of shares held by the
Borrower or a Guarantor, or (ii) if such Security is not listed on any such
national securities exchange or not so quoted or reported, an amount equal
to the product of (A) the difference obtained by subtracting (x) the Total
Liabilities of the issuer of such Security from (y) the quotient obtained
by dividing (1) 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
(2) 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) and (B) the percentage equity
interest held by the Company and/or any of its Consolidated Subsidiaries in
the issuer of such Security.
"Material Adverse Effect" means a materially adverse effect on (a) the
business, assets, liabilities, financial condition, or results of operations of
the Company 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
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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.
"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
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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 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
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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 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
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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 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
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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 II 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 II 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.
"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.
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"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 Company, any Person
(other than the Borrower or a Guarantor (other than the Company)) of which the
Company 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.
"Super Majority Lenders" means, at any time, Lenders whose
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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 Eighth Supplemental Agreement dated
December 30, 1999 among the Company, the Borrower, the Guarantor Parties, the
Arranger, the Administrative Agent, the Lenders and the Retiring Lenders (as
defined therein).
"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 III 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 III of Schedule 1 in its capacity as a participant in the
Swingline Facility.
"Swingline Note" means a promissory note executed by the Borrower
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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.
"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
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(without duplication) the following: (a) all Debt of such Person and its
Consolidated Subsidiaries, (b) all Unfunded Obligations of such Person and its
Consolidated Subsidiaries, (c) all Securities of such Person and its
Consolidated Subsidiaries that are convertible into Debt of such Person and/or
its Consolidated Subsidiaries, (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 $350,000,000 at the date of
this Agreement.
"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
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of all outstanding Swingline Advances for such day after giving effect to all
reductions, advances, repayments and prepayments made on such day.
"Unfunded Obligation" means, as to any Person as of a given date, any
purchase obligation, repurchase obligation, forward commitment, unfunded
obligation or guarantee of such Person and its Consolidated Subsidiaries,
including without limitation any obligation of such Person and its Consolidated
Subsidiaries under an agreement to acquire a quantity of a Security.
"United States" or "U.S." means the United States of America.
"Unsecured Liabilities" means, as to any Person as of a given date,
all liabilities of such Person and its Consolidated Subsidiaries which would, in
conformity with GAAP, be properly classified as a liability on the Consolidated
balance sheet of such Person that are not secured in any manner by a Lien on any
property of such Person or its Consolidated Subsidiaries, and shall in any event
include (without duplication) the following as each relates to such Person and
its Consolidated Subsidiaries: (a) all unsecured Debt, (b) all Unfunded
Obligations, (c) all Securities that are convertible into Debt, (d) all accounts
payable, (e) all Guarantees of Unsecured Liabilities of other Persons and (f)
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
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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 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
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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, 1998. 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
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
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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.
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
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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.
(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.
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(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, 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.
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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 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
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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 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
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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 any applicable extension fees payable
to the extending Lenders 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
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
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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 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).
(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
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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 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
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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 Adjusted Unsecured Liabilities to
exceed the Borrowing Base or otherwise cause Clause 2.2
(Facility Limits) to be contravened;
(iv) a Borrowing Base 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
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with a Term of seven days may be outstanding at any one time.
(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 Adjusted Unsecured Liabilities 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;
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(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;
(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.
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(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 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.
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(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.
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
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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 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.
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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.
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
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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.
(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.
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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 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
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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 made) in full in twelve 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
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beginning of the Term-Out Period and each of the remaining
installments shall have a principal amount equal as nearly as
possible to 10 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
Adjusted Unsecured Liabilities 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)
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 Adjusted Unsecured Liabilities as of the
date of such certificate.
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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 Administrative Agent notifies the Borrower that the
event specified in the Suspension Notice no longer prevails,
which the
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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
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<PAGE>
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 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:
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(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 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):
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(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;
(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;
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(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 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
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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, 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):
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(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 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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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
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(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 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.
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<PAGE>
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 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.
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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:
(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.
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(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 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.
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(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, 1998,
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, 1999 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, 1999, 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 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
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<PAGE>
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.
(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.
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(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.
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
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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
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Borrower or any Guarantor or the Investment Adviser has 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;
(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;
(k) on or before December 1 of each year, an annual plan of the Company
and its Consolidated Subsidiaries which plan shall include projected
statements of earnings before depreciation, amortization and deferred
taxes, balance sheets, sources and uses of cash and compliance with
the financial
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<PAGE>
covenants set forth in the Compliance Certificates for each quarter in
the next succeeding Fiscal Year; and
(l) together with the financial statements delivered pursuant to Clause
15.1(c) hereof, statements of sources and uses of cash for the Company
and its Consolidated Subsidiaries for the period commencing at the end
of the previous Fiscal Year and ending with the close of such quarter
and a revised projection for the statements of changes in financial
position for the Company and its Consolidated Subsidiaries for the
remaining quarters of such Fiscal Year.
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.
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:
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(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.
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 Company will ensure that the value of Consolidated gross Assets of the
Borrower and the Guarantors (other than the Company) comprise no less than
90 percent of the value of Consolidated gross Assets of the Company
computed in accordance with GAAP.
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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 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 Company and its Consolidated Subsidiaries that is secured by such
Security Interests exceed the level set forth in Clause 15.10(b)(iv)
(Financial Condition).
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15.10 Financial Condition.
-------------------
(a) Neither the Borrower nor any 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 or the Company by
any Guarantor or the Borrower 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 the Borrower or such Guarantor, as the case may be;
(b) The Company will:
(i) not permit its Adjusted Unsecured Liabilities to exceed the
Borrowing Base at any time;
(ii) ensure that its Shareholders' Equity at all times exceeds the
sum of (A) the greater of (x) 75 percent of its Shareholders'
Equity calculated as of the Effective Date and (y)
$1,500,000,000 and (B) 75 percent of the net proceeds, if
any, received by the Company from the public sale of any of
its equity securities;
(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 Company or
any of its Consolidated Subsidiaries, and (y) "Market
Net Worth" shall be deemed to include (i) the Market
Value of all
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Securities of such Strategic Investee or unconsolidated
Subsidiary which are owned by the Company 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 Company or any of its Consolidated Subsidiaries.
(B) the Company Fixed Charge Coverage Ratio is not less than
1.5:1.0;
(C) its Interest Coverage Ratio is not less than 2.1:1.0 and
(iv) ensure at all times that the aggregate principal amount of
all Debt of the Company and its Consolidated Subsidiaries
that is secured by a Security Interest encumbering any Asset
of the Company or any such Consolidated Subsidiary is equal
to or less than 10 percent of the Market Net Worth of the
Company and its Consolidated Subsidiaries.
(c) Neither the Company nor any of its Consolidated Subsidiaries will
incur any Unfunded Obligations (other than such Unfunded Obligations
which shall have been existing as of the Effective Date and
disclosed in writing to the Administrative Agent pursuant to Clause
5(a)(x) of the Supplemental Agreement).
15.11 Dividends, Stock Purchases.
--------------------------
(a) The Company 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 Company 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 the Company now or hereafter outstanding (or any
options or warrants issued by the Company with respect to its
capital stock) which, in the aggregate for any Fiscal Year, exceeds
50 percent of the
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Company'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
Company 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 Company to exceed the limitation set forth in the
preceding sentence.
(b) 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, 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 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), except that the Borrower may (i) pay dividends to the
Company, (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 Company.
(c) No Guarantor (other than the Company) 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 (other
than the Company) may (i) pay dividends to the Borrower, any wholly-
owned Subsidiary of the Borrower or any other Guarantor (other than
the Company), (ii) declare or pay dividends on shares of its
preferred stock, (iii) redeem any shares of its preferred stock,
(iv) purchase or otherwise
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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.
(d) 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 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.
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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.
15.16 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 Company shall not, and shall not permit the Borrower or any other
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 Company, 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
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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,
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;
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(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
(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
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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
(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
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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 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.
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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.
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
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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.
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
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(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.
(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.
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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 Document or any other document;
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(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:
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(a) rely on any notice or document reasonably believed by it to be
genuine and correct 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.
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(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.
(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
Base Certificate showing the occurrence of a Borrowing Base
Shortfall; 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:
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(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
(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
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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 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
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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 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.
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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 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 Reserved.
--------
19.5 Reserved.
--------
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
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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.
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
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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.
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
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(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 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
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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;
(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
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(c) The Borrower's address, telex number and facsimile number for notices
as at the Effective Date is:
Security Capital Holdings S.A.
69, Route D'Esch
L-1470 Luxembourg
Telex: 3636BIL
Fax: 352 4590 4243
For the attention of Managing Director
(d) The Company's address, telex number and facsimile number for notices
is:
Security Capital U.S. Realty
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.
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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 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
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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 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
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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 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.
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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, 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
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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 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;
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(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.
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
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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.
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.
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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, 111 Eighth Avenue, New York,
New York 10011.
(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 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 Borrower and/or the relevant
Guarantor at its address applying for the time being under Clause 23.1
(Notices).
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(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.
_____
SECURITY CAPITAL OFFICE PORTFOLIO SARL, SECURITY CAPITAL STORAGE PORTFOLIO SARL,
ALSTON HOLDINGS SARL, BARCELONA HOLDINGS SARL, COVENTRY HOLDINGS SARL, DUBLIN
HOLDINGS SARL, EDINBURGH HOLDINGS SARL, FRANKFURT HOLDINGS SARL, GENEVA HOLDINGS
SARL, HELSINKI HOLDINGS SARL, ISTANBUL HOLDINGS SARL, JOHNSTONE HOLDINGS SARL,
KIRKWALL HOLDINGS SARL, LISBON HOLDINGS SARL, MADRID HOLDINGS SARL, SHEFFIELD
HOLDINGS SARL, ARDEN SQUARE HOLDING SARL, BLOSSOM VALLEY HOLDING SARL, COOPER
STREET PLAZA HOLDING SARL, DALLAS HOLDING SARL, EL CAMINO HOLDING SARL, FRIARS
MISSION HOLDING SARL, REDONDO VILLAGE HOLDING SARL
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.
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IN WITNESS whereof the parties hereto have caused this Agreement to be duly
executed on the date first written above.
SECURITY CAPITAL HOLDINGS S.A.,
as Borrower
By:
Name:
Title:
SECURITY CAPITAL U.S. REALTY,
as Guarantor
By:
Name:
Title:
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<PAGE>
SECURITY CAPITAL OFFICE
PORTFOLIO SARL, SECURITY
CAPITAL STORAGE PORTFOLIO
SARL, ALSTON HOLDINGS SARL,
BARCELONA HOLDINGS SARL,
COVENTRY HOLDINGS SARL,
DUBLIN HOLDINGS SARL,
EDINBURGH HOLDINGS SARL,
FRANKFURT HOLDINGS SARL,
GENEVA HOLDINGS SARL,
HELSINKI HOLDINGS SARL,
ISTANBUL HOLDINGS SARL,
JOHNSTONE HOLDINGS SARL,
KIRKWALL HOLDINGS SARL,
LISBON HOLDINGS SARL,
MADRID HOLDINGS SARL,
SHEFFIELD HOLDINGS SARL,
ARDEN SQUARE HOLDING SARL,
BLOSSOM VALLEY HOLDING SARL,
COOPER STREET PLAZA HOLDING SARL,
DALLAS HOLDING SARL,
EL CAMINO HOLDING SARL,
FRIARS MISSION HOLDING SARL,
REDONDO VILLAGE HOLDING SARL, as
Guarantors
By:
Name:
Title:
By:
Name:
Title:
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<PAGE>
COMMERZBANK AKTIENGESELLSCHAFT,
New York Branch,
as Arranger and as
Administrative Agent
By:
Name:
Title:
By:
Name:
Title:
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<PAGE>
BANK OF AMERICA, N.A.,
as Syndication Agent and as a
Lender
By:
Name:
Title:
COMMERZBANK AKTIENGESELLSCHAFT,
New York and Grand Cayman
Branches,
as a Lender
By:
Name:
Title:
By:
Name:
Title:
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<PAGE>
BANQUE INTERNATIONALE A
LUXEMBOURG,
as a Lender
By:
Name:
Title:
By:
Name:
Title:
BANKBOSTON, N.A.,
as a Lender
By:
Name:
Title:
CHASE BANK TEXAS, N.A.,
as a Lender
By:
Name:
Title:
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<PAGE>
WELLS FARGO BANK,
NATIONAL ASSOCIATION,
as a Lender
By:
Name:
Title:
BANK OF MONTREAL,
as a Lender
By:
Name:
Title:
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<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this Registration Statement on Form F-1 of our
report dated 10 March 1999, except for note 13 which is as of 24 June 1999,
relating to the consolidated financial statements of Security Capital U.S.
Realty, which appear in such Registration Statement. We also consent to the
references to us under the headings "Experts" and "Selected Financial Data" in
such Prospectus.
Price Waterhouse Sarl Luxembourg 21 March 2000
