SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to ________
Commission File Number: 1-7921
SECURITY CAPITAL CORPORATION
(Exact name of registrant as specified in its charter.)
Delaware 13-3003070
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Pickwick Plaza, Suite 310
Greenwich, Connecticut 06830
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 625-0770
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Class A Common Stock, $.01 par value American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days: Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 24, 2000, 6,442,309 shares of the Registrant's voting stock were
outstanding, of which 5,321,313 shares were held by affiliates of the
Registrant. The aggregate market value of the remaining 1,120,996 shares of
voting stock held by non-affiliates (based upon the closing price of the
Registrant's Class A Common Stock on March 24, 2000 of $5.88) was approximately
$6,585,851.
Security Capital Corporation's definitive proxy statement to be filed with the
Securities and Exchange Commission before April 29, 2000 is incorporated by
reference into Part III of this Form 10-K.
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TABLE OF CONTENTS
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Item 1. Business.............................................................. 1
Item 2. Properties............................................................ 7
Item 3. Legal Proceedings..................................................... 7
Item 4. Submission of Matters to a Vote of Security Holders................... 7
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters................................................. 8
Item 6. Selected Financial Data............................................... 8
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 9
Item 7A. Quantitative and Qualitative Disclosures About Market Risk............ 12
Item 8. Financial Statements and Supplementary Data........................... 13
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................ 28
Item 10. Directors and Executive Officers of the Registrant.................... 29
Item 11. Executive Compensation................................................ 29
Item 12. Security Ownership of Certain Beneficial Owners and Management........ 29
Item 13. Certain Relationships and Related Transactions........................ 29
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...... 30
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PART I
ITEM 1. BUSINESS.
GENERAL
Security Capital Corporation ("Security Capital") operates three subsidiary
companies in two distinct industries, which it has purchased since 1996. Each
subsidiary company has a high degree of operating autonomy, with its own chief
executive officer and management. Management of each company has equity and
other incentives based primarily on the performance of their own subsidiary. The
parent company management of Security Capital is primarily focused on strategic,
financial and senior level managerial issues, as well as potential new related
or other acquisitions.
Currently, Security Capital has three portfolio subsidiary activities (together
with Security Capital, referred to as the "Company"). Security Capital owns,
through its 98% owned subsidiary, Primrose Holdings, Inc., 100% of the
outstanding shares of common stock of Primrose School Franchising Company,
Metrocorp Properties, Inc., and The Jewel I, Inc. d/b/a Primrose Country Day
School (together referred to as "Primrose"). Security Capital also owns, through
its 80% owned subsidiary, Pumpkin Masters Holdings, Inc., 100% of the
outstanding shares of Pumpkin, Ltd. (together referred to as "Pumpkin"). In
addition to Primrose and Pumpkin, Security Capital also owns, through its 90%
owned subsidiary, P.D. Holdings, Inc., 100% of the outstanding shares of
Possible Dreams, Ltd. (together referred to as "Possible Dreams").
The Company has educational and seasonal products segments. The educational
segment consists of Primrose and the seasonal products segment consists of
Pumpkin and Possible Dreams. Primrose is engaged in the franchising of
educational child care centers, with related activities in real estate
consulting and site selection services. Primrose also operates one educational
child care center. The Primrose activities are currently based in the southern,
central, and western United States. Pumpkin is engaged primarily in the business
of designing, out-sourcing and distributing pumpkin carving kits and related
Halloween accessories. Pumpkin's activities are centered in the United States.
Possible Dreams operates as a designer, importer, and distributor of fine
quality collectible Christmas figurines and a lesser extent, other specialty
seasonal giftware.
PRIMROSE
BACKGROUND
On April 6, 1999, the Company, through its subsidiary, Primrose Holdings Inc., a
newly formed Delaware corporation, acquired all the assets and assumed certain
liabilities of (i) Primrose School Franchising Company, Inc., a Georgia
corporation established in September 1988, engaged in the franchising of
educational child care centers (ii) Metrocorp Properties, Inc., a Georgia
corporation established in January 1990, engaged in the real estate and
development of educational child care centers, and (iii) The Jewel I, Inc.,
d/b/a Primrose Country Day School, a Georgia corporation established in April
1977, engaged in providing educational child care services. The consideration
paid in connection with the acquisition of the foregoing companies aggregated
$27,388,000.
OVERVIEW
Primrose Holdings Inc, consists of three affiliated companies: Primrose School
Franchising Company, Inc. is the exclusive franchiser of Primrose Schools, an
industry leader in educational child care services. Metrocorp Properties, Inc.
is a real estate development company that assists Primrose School franchisees in
the real estate and project development process. The Jewel I, Inc., d/b/a
Primrose Country Day School is the original Primrose School, and serves an
important role in testing new curricula and initiatives.
As of December 31, 1999, the Primrose consisted of 73 franchised locations in
the southern, central and western United States and one company owned facility.
Additionally, the Primrose had awarded 31 franchise units that were in various
stages of development and construction.
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EDUCATIONAL SERVICES
Primrose Schools has established a position as "The Leader In Educational Child
Care" in the upscale niche of the child care industry. Primrose is a franchised
system of private, curriculum-based preschools which provides half and full day
child care services for children six weeks to five years old and after school
programs for children five through twelve years old. The primary strategies all
strive to deliver a consistent, high quality educational product through all
schools. The overall franchise system and product are tightly controlled and
uniform.
Primrose provides proven early childhood curriculum and programming to its
franchisees. These include detailed monthly educational lesson plans, management
guidelines, and other collateral materials. Primrose integrates nationally
recognized packaged curriculums with its own copyrighted programs.
Primrose School Franchising Company, Inc. provides Primrose franchisees with
twenty four detailed manuals which cover all aspects of operating a Primrose
School. The Primrose Schools curriculum and operating systems have been approved
for national accreditation by the Commission on International and Trans-Regional
Accreditation, the Southern Associations of Schools and Colleges and the North
Central Association giving Primrose a "seal of approval" from nationally
recognized accrediting organizations. The Company maintains an Advisory Board
made up of credentialed specialists in early childhood education.
OPERATIONAL AND BUSINESS SERVICES
Primrose School Franchising Company, Inc. provides franchisees three weeks of
initial training, including training at corporate headquarters, mentoring in
existing franchised schools and pre-opening training. Ongoing operations support
infrastructure includes comprehensive business, operational and marketing plans
for franchisees. Operations Support Directors provide consulting services and
visit schools on a consistent basis to ensure that our quality standards are
maintained.
A complete internal and external equipment package is provided by Primrose
School Franchising Company, Inc. for franchisees use in proprietarily designed
schools. This package includes furniture, educational programs and materials,
playground equipment, school supplies, and custom child care management
software.
REAL ESTATE SERVICES
Metrocorp Properties Inc., will be merged into Primrose School Franchising
Company, Inc. in April 2000, and will be operated as the real estate &
development division. This division will continue its current function as a
provider of real estate services to Primrose franchisees including design based
on proprietary prototype building and site plans, site selection assistance and
development consulting.
MARKETING SERVICES
Primrose believes that its marketing efforts are successful due to an effective
sales and marketing strategy. Marketing efforts are directed in two areas: (i)
creating consumer demand for Primrose educational child care services at the
end-user level; and (ii) creating demand for Primrose School franchises among
potential franchisees. Primrose markets its franchise schools to households in
which both parents are working professionals that require more than just "day
care" through targeted marketing with numerous mediums including direct mail,
radio, newspapers, internet and various magazines. Its franchise opportunities
are targeted towards successful individuals with management experience and
entrepreneurial desires. Primrose receives favorable publicity generated by its
quality service and advertises in newspapers, trade publications, magazines,
presentations, and word of mouth.
FINANCING SERVICES
Primrose has alliances with national lending sources to provide competitive
financing package for franchisees. These strategic partnerships provide a degree
of familiarity and efficiency to the financing process for Primrose franchisees.
SOURCES OF REVENUE
The Company derives revenues through the delivery of several services. Primrose
School Franchising Company, Inc. derives revenues through the collection of
franchise fees, royalty income, and related areas such as licensing, and real
estate services and development fees. Jewel I, Inc., d/b/a/ Primrose Country Day
School, derives its revenues through the collection of educational child care
fees.
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TRADEMARKS AND OTHER PROPRIETARY RIGHTS
Primrose School Franchising Company, Inc. maintains trademarks and copyrights to
its programs, characters, and logos and building plans. Additionally, the
Company protects itself, franchisees, parents and children through a strong,
comprehensive franchise agreement that explicitly spells out the
responsibilities of both Primrose and the franchisee. This agreement gives
Primrose the ability to enforce its standards, ensuring system-wide quality and
consistency.
EMPLOYEES
Primrose School Franchising Company, Inc. and Metrocorp Properties, Inc.
combined employed 24 people. At December 31, 1999, all employees were salaried.
Primrose Country Day School employed 25 people, 10 of which are part time. None
of the employees of Primrose are represented by a labor union, and Primrose
considers its relationships with employees to be satisfactory.
COMPETITION AND MARKETS
Primrose Schools competes in the center-based for-profit sector of the child
care industry. The industry is highly fragmented with an estimated 100,000
licensed child care centers, of which only a small percentage consist of
national for-profit child care "chains" such as Primrose. Management believes
the fragmented nature of the industry, coupled with an increasing demand for
educational child care, provides growth opportunities for well-managed child
centers with professional, owner-operated child care providers.
Management believes that the principal elements defining competitiveness are
curriculum and total product quality and consistency, well-trained staffing,
strong customer service and good business center management. Although Primrose
competes favorably with respect to these factors, some of Primrose School's
competitors are larger and have greater financial resources, with a larger
number of facilities and a broader national presence.
PUMPKIN
BACKGROUND
On June 27, 1997, the Company, through its subsidiary, Pumpkin Masters Holdings,
Inc., a newly-formed Delaware corporation, and Pumpkin Ltd., a newly-formed
Delaware corporation and a subsidiary of Pumpkin Masters Holdings, Inc.,
acquired substantially all of the assets and assumed certain liabilities of
Pumpkin Ltd. d/b/a Pumpkin Masters, Inc., a Colorado corporation established in
1986 and engaged in the design, manufacture and distribution of pumpkin and
watermelon carving kits (comprised primarily of tools and patterns) and related
accessories. The consideration paid in connection with the acquisition
aggregated $7,700,000.
OVERVIEW
Pumpkin is a leading designer, manufacturer and distributor of specialty
products and related accessories aimed at the Halloween and other seasonal
markets, including Easter and spring/summer. Pumpkin outsources all of its
manufacturing, assembling and packaging activities. Pumpkin distributes its
products throughout the United States and Europe in over 7,000 retail locations,
including mass merchandiser, craft, grocery, hardware, garden and drug stores,
and through mail order catalogues. Its business is highly seasonal in nature.
PRODUCTS
Pumpkin designs, markets and distributes specialty products for Halloween and
other seasonal markets. Pumpkin's core product is a patented pumpkin carving
kit. The Pumpkin Masters product line includes a variety of pumpkin carving kits
containing different combinations of tools, saws and patterns for different age
and designing levels. Additional carving tools and patterns are sold as
accessories. The tools include patented saws, a patented Scraper Scoop for
cleaning out the inside of a pumpkin, and a patented Candle Planter for drilling
a hole in the bottom of a pumpkin to hold a candle. In addition, Pumpkin also
currently sells and distributes other Halloween items, including a Safe Pumpkin
Light (a battery-operated light), Spooky Sidewalks (a sidewalk chalk and stencil
kit), a Pumpkin Sculpting Kit, a Pumpkin Painting Kit, and a Lighted Safety
Trick-or-Treat Bucket. In 1999, Pumpkin also introduced a home decor line of
window and door decorations for Halloween. For the Easter market, Pumpkin is
test-marketing egg decorating kits, and is scheduled to begin full production
for Easter 2001.
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The pumpkin carving kit consists of two slender carving saws, a poker, a drill
and eight ready-to-use patterns and instructions. Patterns are transferred onto
pumpkins by poking along the design lines with the poker. Carving is as simple
as sawing from dot-to-dot. Pumpkin has patents for the entire kit, as well as
the additional tools which are sold separately. The oldest patent does not
expire until 2006. Pumpkin also distributes a similar carving kit designed
specifically for younger children, for which a patent is currently pending. The
patterns are protected by copyright or are used under license.
The Our Kids product line consists of creative art products, including sidewalk
chalk, all purpose chalk, chalk paint, finger paint and poster paint. Patents
are pending for two new items: a combination jump rope and sidewalk chalk holder
toy, and a writing chalk toy with an eraser lid.
Pumpkin also markets and distributes a nylon fabric throwing toy called ZoJo
under exclusive license from the inventors.
DESIGN
Creative design and product innovation are critical to the long-term success of
Pumpkin. Pumpkin maintains a creative team which is responsible for developing
new products and designing patterns for each new Halloween season. Pumpkin
invests up to 10% of its total annual revenue on the development of new
products, patterns and innovative packaging techniques.
DISTRIBUTION AND SUPPLIERS
Pumpkin has a retail customer base of approximately 1,600 retailers and mail
order houses. Its products are sold in the United States, Canada and Europe
through a network of independent manufacturers' representatives and
distributors. The independent manufacturers' representatives sell to various
mass market, supermarket drug, variety, hobby and craft, party and home
improvement chain customers.
Pumpkin also sells directly to smaller accounts through direct mail catalogs.
Distributors are sold both directly and through the independent manufacturers'
representatives. Pumpkin has appointed two exclusive distributor representatives
in Canada and works with an exclusive distributor in Europe.
All of Pumpkin's manufacturing and shipping activities are conducted by third
party vendors. Since 1988, Pumpkin has utilized the same core of domestic
vendors to provide substantially all of its materials and to assemble, warehouse
and ship its products. Pumpkin utilizes vendors that are experienced in their
respective fields and each product is manufactured to Pumpkin's specifications.
For example, the vendor supplying saw blades manufactures the blades and ships
them to the plater. After plating, the plater forwards the blades to the
injection molder for handles. The finished tools (along with the printed
materials) are all shipped to the assembler, which assembles the product,
warehouses it and ships it to Pumpkin's customers.
Pumpkin owns all of its molds, tools and dies, and all other crucial pieces of
machinery that are used by its vendors. In addition, Pumpkin has identified
back-up and secondary sources for all major materials and services; however, the
sudden loss or interruption of supply or service from one of the major vendors
could have an adverse effect on Pumpkin's results of operations and financial
condition. Most of the products or services used by Pumpkin would be available
from other sources. Pumpkin currently splits some of its production between
primary and back-up vendors. In addition, Pumpkin manufactures a small amount of
its product in China. In 1999, Pumpkin purchased approximately 20% of its goods
from China. Pumpkin's import operations may be adversely affected by, among
other things, political instability resulting in the disruption of trade from
exporting countries, regulatory changes, increases in transportation costs or
delay, any significant fluctuation in the value of the United States dollar
against foreign currencies and restrictions on the transfer of funds.
Pumpkin begins manufacturing operations in January for the following Halloween
season, based upon forecasted customer demand. The investment in inventory
buildup is considerable, requiring Pumpkin to forecast customer demand
accurately. To date, Pumpkin has been successful in forecasting demand with few
write-downs of excess inventory or write-offs of obsolete inventory.
PATENTS AND OTHER PROPRIETARY RIGHTS
Pumpkin owns several registered U.S. patents covering the pumpkin carving kit,
the Scraper Scoop, the Candle Planter, the FlexSaw and the hand-held cutting
saw. The patents will expire at various times between 2006 and 2015. Two foreign
patents are pending. It also owns various registered trademarks, including
Pumpkin Masters, Scraper Scoop, Durasaw, Power Tools for Pumpkins, Candle
Planter, Our Kids and OK. Currently, Pumpkin owns 13 patents pending for
Halloween and chalk products; 5 of these 13 were filed during 1999. No new
patents were issued during 1999.
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Pumpkin believes that its proprietary products, protected by patents and other
intellectual property rights, are integral to its success, and accordingly,
vigorously pursues intellectual property protection of its products and any
perceived infringements of its intellectual property rights. If Pumpkin were to
lose its patent protection prior to the expiration of the patents, it could have
a material adverse effect on Pumpkin's results of operations and financial
condition.
Pumpkin also holds copyrights to numerous pumpkin carving designs and uses other
patterns under license from the artist. New designs are added to the list
yearly, being developed by Pumpkin or freelance artists under contract with
Pumpkin or acquired in connection with pumpkin carving contests sponsored by
Pumpkin. In connection with the annual contest entries, Pumpkin pays prize fees
to the winners. In addition, Pumpkin pays publication fees to the entrants whose
designs are selected to be included in a retail product. The publication fees
range from $100 to $500.
EMPLOYEES
Pumpkin employed 29 people as of December 31, 1999, 17 of which were salaried
employees, and 12 of whom were hourly employees, 6 of the hourly employees were
part-time, and 3 of the hourly employees were temporary, part-time, employees.
None of the employees are represented by a labor union, and Pumpkin considers
its relationship with employees to be satisfactory.
COMPETITION AND MARKETS
Within the market for pumpkin carving products, Pumpkin currently enjoys a
substantial market share. Pumpkin believes that its ownership of patents on its
pumpkin carving kits is a significant barrier to entry into its market niche.
Pumpkin believes it has three primary competitors in the pumpkin carving product
market and that the principal elements defining competitiveness are product
design, patents, brand-identity and distribution. Although Pumpkin believes that
it competes favorably with respect to these factors, particularly with respect
to product design, some of Pumpkin's competitors are larger than Pumpkin and
have greater financial resources, with a wider range of non-Halloween products
and broader distribution channels.
POSSIBLE DREAMS
BACKGROUND
On May 17, 1996, the Company, through its subsidiary, P.D. Holdings, Inc., a
newly-formed Delaware corporation, and Possible Dreams, Ltd., a newly-formed
Delaware corporation and a subsidiary of P.D. Holdings, Inc., acquired
substantially all of the assets and assumed certain liabilities of Possible
Dreams, Ltd., a Massachusetts corporation established in 1988 and engaged in the
design, importation and distribution of fine quality collectible and other
specialty seasonal giftware, and Columbia National Corporation, a Massachusetts
corporation established in 1957 and engaged in the design, importation and
distribution of religious giftware and statuary.
OVERVIEW
Possible Dreams is a leading designer, importer and distributor of fine quality
collectibles and other specialty seasonal giftware. Possible Dreams is known for
its hand-crafted collectible series of Clothtique items. Possible Dreams'
products include the Clothtique Santa Collection, Clothtique Coutoure, The
Clothtique Fine Arts Collection, Clothtique Champions, Clothtique Snowmen and
Clothtique Historical Figures as well as a variety of Angels and ornaments.
Other branded and recognizable lines include Crinkle Claus, Flights of Fancy,
Spring Surprises, and Cagey Critters. Possible Dreams distributes its products
throughout the United States to approximately 15,000 independent gift retailers,
as well as to department stores, mail order houses and large card and gift
chains.
PRODUCTS
Possible Dreams designs, imports and distributes more than 3,000 products.
Possible Dreams' leading product line is Clothtique. Blending stiffened cloth,
ceramic and resin, the process was first utilized by Possible Dreams for a
series of angels and Santas. Clothtique is now used in a variety of both holiday
and year round collections. It has the ability to mimic the look and feel of
real wardrobes.
One of Possible Dreams' earliest Clothtique collections is entitled the Santa
Claus Collection. This line is known for presenting a traditional Santa
character yet contemporizing its appeal through style and theme. Many are now
retired and have become more valuable as product availability decreases. Since
the inception of the program, hundreds of original figurines, including
approximately 250 Santas, have been created through the design talents of many
artisans.
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There are new introductions each year to the Possible Dreams product line,
beyond those to Clothtique. Flights of Fancy, an engineered line of mobiles, was
first introduced in 1997. This collection of whimsical mobiles that are powered
by a battery operated motor have increased in sales and customer recognition
each year. In addition, the Company designs a range of seasonal and non occasion
Figurines, Musical Waterdomes, Stocking Holders, Ornaments and Decorative
Accessories.
Possible Dreams takes various steps to enhance the collectibility of its
products. In particular, Possible Dreams limits the availability of certain
styles and retires other styles that are still selling well. While these actions
sometimes cause Possible Dreams to forego sales, the Company believes they tend
to provide recurring product demand, increase access to retailer shelf space and
enhance the long-term value of Possible Dreams' products. Possible Dreams also
attempts to improve collectibility by the regular introductions of product line
extensions and new series additions.
Possible Dreams further enhances collectibility and improves sales through the
creation of Collector Clubs. These clubs can stimulate interest in particular
product lines, strengthen retail relationships and provide helpful consumer
preference data. For example, in addition to the Crinkle Claus Collectors Club
that was formed in 1998, the success of Possible Dreams' Santa line led to the
establishment in 1992 of the Santa Claus Network, a Clothtique Santa Collectors
Club. This Club has approximately 15,000 members worldwide, each paying a $25
annual membership fee and receiving quarterly newsletters.
DESIGN AND PRODUCTION
Possible Dreams' in-house creative team, together with outside artists, have
frequently developed new products that have established trends within the
giftware industry. The team regularly attends trade shows and seminars, and
travels extensively throughout the world for ideas. All catalog design and
preparation, excluding some photograph and printing, are done in-house.
The design and manufacture of Possible Dreams' many product lines is a complex
process. Once a product is conceived, it can take up to a year before it is
introduced into the market. First, detailed and scaled drawings are made for
each piece. A prototype is then produced and reviewed by creative directors and
management. Samples of the various designs are then made by the manufacturer for
review by Possible Dreams and, often, prospective buyers. Typically, only about
40% of new designs created each year will be produced for its markets.
Possible Dreams endeavors to use first-rate craftsmanship at affordable prices.
This strategy limits the possible sources of manufacturers and, accordingly,
helps to achieve more controlled growth of product lines. Possible Dreams has
long-standing relationships with overseas manufacturers, which to date have
provided reliable delivery of goods.
DISTRIBUTION AND SYSTEMS
As noted above, Possible Dreams has a retail customer base of approximately
15,000 independent gift shops, department stores and mail order houses. Its
products are primarily sold by approximately 25 sales groups with over 222 sales
representatives operating out of 24 showrooms nationwide located in each of the
major giftware markets in the United States. Possible Dreams opened its own
showrooms in New York, New York in February 1998 and in Atlanta, Georgia in
January 2000.
Possible Dreams also has a preferred dealer network consisting of some of its
best retail customers. These customers agree to certain product display and
other requirements. In return, they are entitled to sell certain limited pieces
not available through non-network channels.
Products sold by Possible Dreams in the United States are generally shipped by
ocean freight from abroad and then by rail and/or common carrier to the
company's warehouse and distribution center in Foxboro, Massachusetts. Shipments
from Possible Dreams to its customers are handled by Roadway Package System,
United Parcel Service or commercial trucking lines.
Possible Dreams utilizes computer systems and internally developed software to
help maintain efficient order processing from the time a product enters the
company's system through shipping and ultimate payment collection from its
customers. Possible Dreams has developed software for the processing and
shipment of orders from its warehouse and believes that this has played a
significant role in allowing it to maintain customer satisfaction.
TRADEMARKS AND OTHER PROPRIETARY RIGHTS
Possible Dreams owns several federal trademark registrations and copyrights. In
addition, Possible Dreams from time to time registers certain of its trademarks
in foreign countries. The registrations for the trademarks are currently
scheduled to expire or be canceled at various times between 2000 and 2005, but
Possible Dreams believes that the marks can be maintained and renewed provided
that they are still in use for the goods and services covered by such
registrations.
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EMPLOYEES
Possible Dreams employed 77 people at December 31, 1999, 10 of whom were
salaried employees, with the remainder being hourly employees. None of the
employees is represented by a labor union, and Possible Dreams considers its
relationship with employees to be satisfactory.
COMPETITION AND MARKETS
Possible Dreams competes with other producers of fine quality collectibles,
specialty giftware and home decorative accessory products. The giftware industry
is highly fragmented and competitive, with a substantial number of both large
and small participants. Possible Dreams believes that the principal elements
defining competitiveness are product design and quality, product brand name
loyalty, product display and price. Although Possible Dreams believes it
generally competes favorably with respect to these factors, some of Possible
Dreams' competitors are larger than Possible Dreams and have greater financial
resources and a wider range of products.
IMPORTS; MAJOR SUPPLIERS
Possible Dreams does not own or operate any manufacturing facilities and, like
most of its competitors, imports most of its products as finished goods from the
Pacific Rim, primarily mainland China and, to a lesser extent, Taiwan and the
Philippines. Possible Dreams' ability to import products and thereby satisfy
customer orders is affected by the availability of, and demand for, quality
production capacity abroad. Possible Dreams competes with other importers of
specialty giftware products for a limited number of foreign manufacturing
sources that can produce detailed, high quality products at affordable prices.
The loss of any of these suppliers could have an adverse effect on Possible
Dreams' results of operations and financial condition. In addition, Possible
Dreams' import operations may be adversely affected by political instability
resulting in the disruption of trade from exporting countries, regulatory
changes, increases in transportation costs or delays, any significant
fluctuation in the value of the United States dollar against foreign currencies
and restrictions on the transfer of funds.
Substantially all of Possible Dreams' products are subject to United States
Customs Service duties and regulations pertaining to the importation of goods,
including requirements for the marking of certain information regarding the
country of origin on its products. The United States and the countries in which
Possible Dreams' products are manufactured may, from time to time, impose new
quotas, duties, tariffs or other charges or restrictions, or adjust presently
prevailing quotas, duty, or tariff levels, which could adversely affect Possible
Dreams' financial condition or results of operations or its ability to continue
to import products at current or increased levels.
ITEM 2. PROPERTIES.
Primrose School Franchising Company leases a 4,500 square foot building in
Cartersville, Georgia where it maintains all its operations, sales and
administrative facilities. The Company also leases 2,000 square feet in an
adjacent building where it maintains its real estate and development facilities.
Primrose Country Day School leases a campus consisting of three sets of building
with a total of 8,000 square feet located in Georgia where it maintains its
educational child care operations.
Pumpkin leases 10,671 square feet of office space in Denver, Colorado for its
sales and administrative activities.
Possible Dreams owns a 55,000 square feet building in Foxboro, Massachusetts
where it maintains all its distribution, sales and administrative facilities.
Possible Dreams currently utilizes approximately 48,000 square feet as
distribution space and approximately 7,000 square feet as sales and
administrative offices. Substantially all of the properties and other assets of
Possible Dreams are pledged to Possible Dreams' principal lender as security for
a line of credit and related loans.
The Company believes its owned and leased properties are adequate for its
current needs.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Class A Common Stock of Security Capital is traded on the American Stock
Exchange (the "AMEX") under the symbol SCC. The following table states the high
and low sales prices for the Class A Common Stock on the AMEX and the Pacific
Stock Exchange prior to April 1999, for the quarterly periods indicated:
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1999 PRICE RANGE 1998 PRICE RANGE
---------------- ----------------
QUARTER HIGH LOW QUARTER HIGH LOW
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<S> <C> <C> <C> <C>
First -- ended March 31 $4 3/8 $3 3/4 First -- ended March 31 $4 3/4 $3 1/4
Second -- ended June 30 $9 $3 7/8 Second -- ended June 30 $5 $4 1/4
Third -- ended September 30 $8 3/4 $6 1/2 Third -- ended September 30 $4 3/8 $3 1/8
Fourth -- ended December 31 $6 7/8 $5 7/8 Fourth -- ended December 31 $4 1/2 $2 1/2
</TABLE>
As of March 20, 2000, there were approximately 2,100 stockholders of record of
the Class A Common Stock and 6,442,309 shares outstanding, and 54 stockholders
of record of the Common Stock and 380 shares outstanding. On such date, the
closing price of the Class A Common Stock on the AMEX was $5.875.
The Company has not paid any dividends to common stockholder in the last two
fiscal years and does not intend to pay any dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth certain selected consolidated financial data for
the Company. This selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto
included in Item 8 of this Form 10-K and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included in Item 7 of this
Form 10-K.
<TABLE>
<CAPTION>
TWELVE TWELVE TWELVE THREE TWELVE TWELVE
MONTHS MONTHS MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED
12/31/99 12/31/98 12/31/97 12/31/96 9/30/96 9/30/95
-------- -------- -------- -------- -------- --------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C>
Net revenues ................................................ $ 37,345 $ 30,018 $ 25,723 $ 5,073 $ 9,854 --
Income (loss) from continuing operations .................... 1,935 2,149 2,145 233 777 (46)
Income (loss) from discontinued operations .................. -- -- 66 (108) 236 290
Gain on disposal of discontinued operations ................. -- -- 1,149 -- -- --
Net income (loss) ........................................... 1,935 2,149 3,360 125 1,013 244
Less preferred stock accretion .............................. (206) -- -- -- -- --
Less preferred stock dividends .............................. -- -- (450) (113) (450) (450)
-------- -------- -------- -------- -------- --------
Net income (loss) available to common stockholders .......... $ 1,729 $ 2,149 $ 2,910 $ 12 $ 563 $ (206)
======== ======== ======== ======== ======== ========
Earnings (loss) per common share:
Income (loss) from continuing operations .................... $ 0.28 $ 0.41 $ 0.39 $ 0.03 $ 0.08 $ (0.12)
Income (loss) from discontinued operations .................. -- -- 0.01 (0.03) 0.06 0.07
Gain on disposal of discontinued operations ................. -- -- 0.26 -- -- --
-------- -------- -------- -------- -------- --------
Earnings (loss) per common share ............................ $ 0.28 $ 0.41 $ 0.66 $ 0.00 $ 0.14 $ (0.05)
-------- -------- -------- -------- -------- --------
Dividends per share of common stock ......................... -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total assets ................................................ $ 55,320 $ 33,638 $ 32,550 $ 25,797 $ 34,502 $ 10,926
Long-term obligations ....................................... 19,870 11,266 12,383 10,047 11,710 --
Redeemable preferred stock .................................. 2,206 -- -- -- -- --
Class A preferred stock (redeemable) ........................ -- -- -- 4,537 4,425 3,975
Total stockholders' equity .................................. $ 23,672 $ 16,943 $ 14,794 $ 6,896 $ 6,884 $ 6,321
</TABLE>
8
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the financial
statements of the Company and the related notes thereto appearing in Item 8
"Financial Statements and Supplementary Data" in this Report on Form 10-K.
RESULTS OF OPERATIONS - 1999 COMPARED TO 1998
Security Capital reported net income of $1,935,000 for the year ended December
31, 1999. This compares to a net income of $2,149,000 for the year end December
31, 1998. The Company reported basic net income per common share of $0.28 for
the year ended December 31, 1999, as compared to basic net income per common
share of $0.41 for the year ended December 31, 1998.
Revenues increased by $7,327,000 to $37,345,000 for the year ended December 31,
1999. This represents an increase of 24% for the year ended December 31, 1999.
Without taking into consideration the acquisitions of Our Kids in September
1998, and Primrose, the educational segment, in April 1999, revenues increased
by $2,828,000 for the year ended December 31, 1999, as compared to the year
ended December 31, 1998. The increase was primarily attributable to demand for
the Company's seasonal products segment during the third and fourth quarters of
1999, which are that segment's traditionally strongest quarters. Educational
segment revenues were $4,228,000 for the year ended December 31, 1999. As a
measure of the increasing success of the educational segments concept, the
Company monitors the revenues generated by its franchisees. Total education
system revenue, or gross revenue of all educational based child care center
franchises increased $14,335,000, or 32%, for the year ended December 31, 1999,
as compared to the historical pre-acquisition records of that segment. Total
royalty revenue the educational segment earned from system revenues increased
$1,016,000, or 34%, for the year ended December 31, 1999, as compared to the
historical pre-acquisition records of the educational segment. These increases
were generated from an 18% increase in the number of educational based childcare
centers, which was 73 and 62 as of December 31, 1999 and 1998, respectively.
This segment has awarded 31 franchise agreements with associated unearned
revenue of $1,631,000 recorded on the Company's balance sheet as of December 31,
1999. This segment has recently increased its support staff to a level
sufficient to accommodate growth of up to 24 educational based childcare centers
per year.
Selling, general and administrative expense increased by $2,894,000 to
$13,473,000 for the year ended December 31, 1999. Without taking into
consideration the Primrose acquisition, selling, general and administrative
expense increased by $1,515,000 for the year ended December 31, 1999, as
compared to the year ended December 31, 1998. The increase was primarily due to
the seasonal products segment increasing its staff to accommodate growth and the
development of new products.
Depreciation and amortization increased by $998,000 for the year ended December
31, 1999. Without taking into consideration the educational segment acquisition,
depreciation and amortization increased by $17,000 for the year ended December
31, 1999, as compared to the year ended December 31, 1998.
Interest expense increased by $737,000 for the year ended December 31, 1999.
Without taking into consideration the educational segment acquisition, interest
expense decreased by $277,000 for the year ended December 31, 1999, as compared
to the year ended December 31, 1998. The decrease is primary due to reduced
average debt levels of the seasonal products segment.
The Company decreased the valuation allowance for the deferred tax asset by
$1,347,000 and $1,149,000 for the years ended December 31, 1999 and 1998,
respectively, attributable to the Company's expected utilization of its net
operating loss carry forward.
RESULTS OF OPERATIONS - 1998 COMPARED TO 1997
Security Capital reported net income of $2,149,000 for the year ended December
31, 1998 compared to net income of $3,360,000 for the year ended December 31,
1997. The net income per common share was $0.41 for the year ended December 31,
1998 compared to net income per common share (after accrual for Class A
Preferred Stock dividends) of $0.66 for the twelve month period ended December
31, 1997. The decrease in net income and net income per share was primarily
attributable to the sale of the Company's insurance agency affiliate, which
resulted in a $1,149,000 non-recurring gain (net of tax) in the prior calendar
year. The Company has recorded the disposal of its proprietary interest in its
insurance operations as a discontinued operation.
The Company's net product sales increased by $4,295,000, or 17%, to $30,018,000
for the year ended December 31, 1998 compared to $25,723,000 for the year ended
December 31, 1996. The increase in net product sales was primarily attributable
to increased demand for Pumpkin's new carving kits and related accessories;
Halloween falling on a Saturday also had a positive impact on product sales. The
Company's cost of goods sold increased by $2,137,000, or 17%, primarily due to
increased sales and development costs associated with new product sales.
9
<PAGE>
Selling, general and administrative expenses increased by $1,858,000, or 21% to
$10,579,000 for the year ended December 31, 1998 from $8,721,000 for the year
ended December 31, 1997. The acquisition of Pumpkin occurred during June 1997
and therefore the Company's prior year selling, general and administrative
expense was not representative of an entire twelve month period of the Company's
SG&A expense.
Depreciation and amortization increased by 32% to $888,000 for the year ended
December 31, 1998 from $671,000 for the year ended December 31, 1997. The
Company's 1998 depreciation and amortization expense was 32% greater than the
previous year as a result of Pumpkin's acquisition occurring during the middle
of the prior year.
Interest expense was also impacted by the timing of Pumpkin's acquisition.
Interest expense for calendar year 1998 was up slightly by $232,000 to
$2,385,000. The Company's increased interest cost in 1997 was due to the impact
of the timing of the Pumpkin acquisition in June 1997 of the prior year. In
1998, interest cost savings resulted from the payment during 1998 of $2,027,000
of the Company's term loans.
The Company decreased the valuation allowance for the deferred tax asset by
$1,149,000 and $1,444,000 for the years ended December 31, 1998 and 1997,
respectively, attributable to the Company's expected utilization of its net
operating loss carry forward.
DISCONTINUED OPERATIONS
On July 17, 1997 the Company sold, effective June 30, 1997, its beneficial
interest in FIS, a Texas corporation, to Bowen, Miclette, Descant and Britt for
consideration of $1,526,000 and recognized a gain of approximately $1,149,000
(net of tax). In an unrelated transaction, the Company in December 1997 sold
Foster Insurance Managers Inc. ("FIM") for $265,000 in cash to Tri-Star
Insurance Services, Ltd., a Kentucky corporation. The Company recognized no gain
as part of this transaction. The Company no longer has any interest in the
insurance brokerage business as a result of these two transactions.
SEASONALITY
The seasonal products segment consists of Possible Dreams and Pumpkin. This
segment experiences a significant seasonal pattern in its working capital
requirements and operating results. The seasonal segment historically received
orders representing approximately 34% and 42% of its annual bookings during the
first and second quarters, respectively. It ships products throughout the year,
with a majority of the shipping from July through November. Temporary employees
are hired to accommodate peak shipping periods. This segment provides extended
payment terms to some of its customers for seasonal merchandise and,
accordingly, collects a substantial portion of its accounts receivable in the
fourth calendar quarter. Due to the seasonal pattern, the seasonal product
segment has had greater working capital needs in its peak seasonality and has
experienced greater cash availability in its fourth calendar quarter. As a
result of this sales pattern, a substantial portion of its revenues is typically
recorded in the third and fourth calendar quarters. The Company expects this
seasonal pattern to continue for the foreseeable future. The seasonal products
segment has historically financed its operations through internally generated
cash flow and short term seasonal borrowings.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $7,320,000, from $9,133,000 at December
31, 1998 to $1,813,000 at December 31, 1999. Approximately $7,750,000 of the
decrease in cash and cash equivalents was primarily attributable to the net
effects of the common stock issuance and the Primrose acquisition. The remaining
$430,000 decrease in cash was primarily attributable to the seasonal products
segment for its working capital needs for the year ended December 31, 1999.
The Company's consolidated working capital decreased by $10,533,000, from
$14,399,000 at December 31, 1998 to $3,866,000 at December 31, 1999.
Approximately $10,650,000 of the decrease was primarily attributable to the
Primrose acquisition and an additional $460,000 used for its normal operating
expenses. The seasonal products segment's increase in working capital was
approximately $841,000 for the year ended December 31, 1999, which was primarily
due to its results from operations generated by its earnings in the third and
fourth quarters due to its seasonal pattern. The remaining decrease of $264,000
was primarily attributable to changes in the deferred tax asset at the holding
Company level.
The Company's education segment maintains a $2,500,000 revolving line of credit,
which had a balance of $500,000 outstanding and $2,000,000 available at December
31, 1999. The seasonal products segment, in aggregate, maintains a revolving
line of credit, which had a balance of $750,000 outstanding and $4,492,000
available at December 31, 1999. The low balance was due to its seasonal pattern.
Portions of the revolving lines of credit may be limited to a borrowing base as
defined in the note to these financial statements.
10
<PAGE>
Total term debt increased by $9,876,000 from $12,198,000 at December 31, 1998 to
$22,074,000 at December 31, 1999. Term debt increased by $13,150,000 due to the
Primrose acquisition and decreased by $3,272,000 due to payments on all term
debt. Term debt in aggregate has an approximate 9.87% interest rate and current
maturities of $3,617,000. Term debt also has certain covenants at the subsidiary
operating Company level, the more significant of which requires the subsidiary
operating Companies to maintain minimum earnings before interest, taxes,
depreciation and amortization ("EBITDA"), leverage ratio, interest coverage
ratio, fixed charge ratio and maximum lease expense. At December 31, 1999,
Primrose and Possible Dreams were not in compliance with their respective
minimum EBITDA and leverage and maximum lease expense covenants. Primrose and
Possible Dreams received waivers and amendments to their credit agreement.
Primrose and Possible Dreams estimate full compliance with their respective 2000
covenants.
In connection with the Primrose acquisition on April 6, 1999, the Company issued
500,000 shares of Zero Coupon Convertible Redeemable Preferred Stock with a
liquidation value of $10 per share and valued at $2,000,000. The Company also
sold 1,136,364 shares of Class A Common Stock in a private placement for
$5,000,000 or $4.40 per share, which used the proceeds for the Primrose
acquisition.
At this time Security Capital does not have reserves of internal funds on hand
available for new acquisitions. However, the Company believes it has the ability
to acquire such funds if and when the Company deems it necessary to compete for
possible future acquisitions. As of March 20, 2000, Security Capital had
approximately $2,196,000 of cash and cash equivalents on hand. The Company's
subsidiaries all have sufficient cash and cash equivalents on hand or available
through their respective revolving lines of credit at March 20, 2000, to meet
their respective working capital and operating expenditure requirements for the
remainder of calendar year 2000.
The Company had no major capital expenditures during the calendar year 1999 and
expects no major capital expenditures during the calendar year 2000.
The Company's quarterly and annual revenues and other operating results have
been and will continue to be affected by a wide variety of factors that could
have a material adverse effect on the Company's financial performance during any
particular quarter or year. Such factors include, but are not limited to, the
level of orders that are received and shipped by the Company in any given
quarter, the rescheduling and cancellation of orders by customers, availability
and cost of materials, the Company's ability to enhance its existing products
and to develop, manufacture, and successfully introduce and market new products,
new product developments by the Company's competitors, market acceptance of
products of both the Company and its competitors, competitive pressures on
prices, the ability to attract and maintain qualified personnel, significant
damage to or prolonged delay in operations at the Company's suppliers'
manufacturing facility, and interest rate and foreign exchange fluctuations,
political stability in the Pacific Rim, and its ability to attract qualified
franchisees. The Company has introduced a number of new products in its target
markets in 1999 and 1998, and plans to introduce additional products in 2000
which are expected to enhance future revenues and liquidity of the Company.
However, there can be no assurance that the Company will be able to implement
its plans to introduce such products in a timely fashion, or that such products
will meet the expectations of the Company for either revenues or profitability.
The Company believes that cash flows from operating activities and the
successful introduction of its new products and continued growth of its
franchises, as well as its available borrowings under the revolving credit
facilities, will be adequate to meet the Company's debt service obligations,
working capital needs and planned capital expenditures for the foreseeable
future, although there can be no assurance in this regard.
YEAR 2000
The Company has assessed the impact of the Year 2000 on its business by
conducting a review of the computer systems with date-related functionality used
in its business. The Company has experienced no material adverse effects from
Year 2000 issues. Incremental spending for hardware upgrades and software
modifications and testing required for Year 2000 compliance was approximately
$120,000, which was capitalized.
FORWARD LOOKING STATEMENTS
This Annual Report on form 10-K contains "forward-looking" statements within the
meaning of the "safe harbor" provision of the Private Litigation Reform Act of
1995. Such statements are base on managements current expectations and are
subject to a number of factors and uncertainties which could cause actual
results to differ materially from those described in the forward looking
statements. Such factors and uncertainties include, but are not limited to: the
level of orders that are received and shipped by the Company in any given
quarter, the rescheduling and cancellation of orders by customers, availability
and cost of materials, the Company's ability to enhance its existing products
and to develop, manufacture, and successfully introduce and market new products,
new product developments by the Company's competitors, market acceptance of
products of both the Company and its competitors, competitive pressures on
prices, the ability to attract and maintain qualified personnel, significant
damage to or prolonged delay in operations at the Company's suppliers'
manufacturing facility, and interest rate and foreign exchange fluctuations,
political stability in the Pacific Rim, and its ability to attract qualified
franchisees.
11
<PAGE>
QUARTERLY INFORMATION (UNAUDITED)
The following is a summary of operations by quarter (dollar amounts in
thousands, except per share amounts):
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1999:
Net revenues ..................................... $ 3,335 $ 6,456 $20,303 $ 7,251
Gross profit ..................................... 1,585 3,704 11,574 3,294
Net (loss) income ................................ (785) (994) 3,933 (219)
Basic (loss) earnings per common share ........... (0.15) (0.18) 0.61 (0.03)
1998:
Net revenues ..................................... $ 3,123 $ 5,870 $17,193 $ 3,832
Gross profit ..................................... 1,532 2,890 9,095 2,015
Net (loss) income ................................ (888) (46) 3,259 (176)
Basic (loss) earnings per common share ........... (0.17) (0.01) 0.61 (0.02)
</TABLE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risk represents the risk of loss that may impact the consolidated
financial position, results of operations or cash flows of the Company. The
Company is exposed to market risk associated with changes in interest rates.
The Company's notes payable and long-term debt bear interest primarily at
variable rates. The Company is subject to increases and decreases in interest
expense on its variable rate debt resulting from fluctuations in the interest
rates on such debt. The effect of a percentage point change in interest rates
would impact interest expense by approximately $320,000.
12
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FOOTNOTES
Independent Auditors' Report 14
Consolidated Financial Statements
Consolidated Statements of Income --
For the years ended December 31, 1999, 1998 and 1997 15
Consolidated Balance Sheets -
As of December 31, 1999 and 1998 16
Consolidated Statements of Cash Flows --
For the years ended December 31, 1999, 1998 and 1997 17
Consolidated Statements of Stockholders' Equity --
For the years ended December 31, 1999, 1998 and 1997 18
Notes to Consolidated Financial Statement 19
Supplementary Financial Information
13
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Security Capital Corporation
We have audited the accompanying consolidated balance sheets of Security Capital
Corporation and subsidiaries (the "Company") as of December 31, 1999 and 1998
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1999.
These 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 in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Security Capital Corporation and
subsidiaries at December 31, 1999 and 1998 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999 in conformity with accounting principles generally accepted in the
United States of America.
/s/ DELOITTE & TOUCHE LLP
Stamford, Connecticut
March 27, 2000
14
<PAGE>
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year ended December 31, 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net seasonal product sales ............................................ $ 33,117 $ 30,018 $ 25,723
Educational service revenues .......................................... 4,228 -- --
-------- -------- --------
Total revenues ........................................................ 37,345 30,018 25,723
-------- -------- --------
Seasonal products cost of sales ....................................... 16,110 14,486 12,349
Educational service cost of sales ..................................... 1,078 -- --
-------- -------- --------
Total cost of sales ................................................... 17,188 14,486 12,349
-------- -------- --------
Gross profit .......................................................... 20,157 15,532 13,374
Selling, general and administrative expenses .......................... 13,473 10,579 8,721
Depreciation and amortization ......................................... 1,886 888 671
-------- -------- --------
Operating income ...................................................... 4,798 4,065 3,982
Interest expense ...................................................... (3,122) (2,385) (2,153)
Other (expense) income ................................................ (236) 199 238
-------- -------- --------
Income from continuing operations before
benefit for income taxes and minority interest ...................... 1,440 1,879 2,067
Benefit for income taxes .............................................. 768 435 285
Minority interest ..................................................... (273) (165) (207)
-------- -------- --------
Income from continuing operations ..................................... 1,935 2,149 2,145
Income from discontinued operations (net of income taxes of $158) ..... -- -- 1,215
-------- -------- --------
Net income ............................................................ 1,935 2,149 3,360
Less preferred stock accretion ........................................ (206) -- --
Less preferred stock dividends ........................................ -- -- (450)
-------- -------- --------
Net income available to common stockholders ........................... $ 1,729 $ 2,149 $ 2,910
======== ======== ========
Basic earnings per share:
Income from continuing operations ..................................... $ 0.28 $ 0.41 $ 0.39
Income from discontinued operations ................................... -- -- 0.27
-------- -------- --------
Net income per common share ........................................... $ 0.28 $ 0.41 $ 0.66
======== ======== ========
Diluted earnings per share:
Income from continuing operations ..................................... $ 0.28 $ 0.41 $ 0.39
Income from discontinued operations ................................... -- -- 0.27
-------- -------- --------
Net income per common share ........................................... $ 0.28 $ 0.41 $ 0.66
======== ======== ========
Basic and diluted weighted average shares outstanding ................. 6,150 5,306 4,382
======== ======== ========
</TABLE>
The accompanying notes to are an integral part of these
consolidated financial statements.
15
<PAGE>
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................................. $ 1,813 $ 9,133
Account receivable (net of allowance for doubtful accounts
of $213 and $214) .................................................... 4,982 3,416
Inventories ................................................................ 4,193 5,339
Deferred tax assets ........................................................ 287 418
Other current assets ....................................................... 946 828
-------- --------
Total current assets ....................................................... 12,221 19,134
Property and equipment, at cost - net ............................................ 1,781 1,507
Goodwill and intangible assets - net ............................................. 38,841 12,044
Deferred tax asset ............................................................... 1,875 757
Other assets ..................................................................... 602 196
-------- --------
Total assets .............................................................. $ 55,320 $ 33,638
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and other obligations .................... $ 3,617 $ 1,757
Accounts payable ........................................................... 891 1,265
Accrued expenses and other liabilities ..................................... 966 713
Unearned revenue ........................................................... 1,631 --
Notes payable .............................................................. 1,250 1,000
-------- --------
Total current liabilities .................................................. 8,355 4,735
-------- --------
Long-term debt ................................................................... 17,304 10,196
Other long-term obligations ...................................................... 2,566 1,070
Minority interest ................................................................ 1,217 694
Redeemable preferred stock (liquidation value - $5,000) .......................... 2,206 --
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 7,500 shares authorized; 539 shares issued; 380
shares outstanding
Class A common stock, $.01 par value, 10,000,000 shares authorized; 6,760,725
shares issued (5,624,361 in 1998), 6,442,309 shares
outstanding (5,305,945 in 1998) ............................................ 68 56
Additional paid-in capital ....................................................... 72,302 67,520
Accumulated deficit .............................................................. (43,483) (45,418)
Less: treasury stock, at cost, 318,575 shares ................................... (5,215) (5,215)
-------- --------
Total stockholders' equity ................................................. 23,672 16,943
-------- --------
Total liabilities and stockholders' equity ................................. $ 55,320 $ 33,638
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
16
<PAGE>
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Year ended December 31 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income .......................................................... $ 1,935 $ 2,149 $ 3,360
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Deferred taxes ................................................. (887) (636) (539)
Warrant expense ................................................ 290 180 149
Depreciation and amortization .................................. 2,321 1,071 950
Gain on disposal of discontinued operations .................... -- -- (1,149)
Minority interest in income of consolidated subsidiaries ....... 273 165 207
Changes in operating assets and liabilities, net of effects
from acquired businesses:
Accounts receivable ............................................ (856) (670) 724
Inventories .................................................... 1,146 (910) 1,653
Other current assets ........................................... 240 (278) (338)
Accounts payable and other accrued expenses .................... (1,553) 710 (1,395)
-------- -------- --------
Net cash provided by operating activities ........................... 2,909 1,781 3,622
-------- -------- --------
Cash flows from investing activities:
Capital expenditures ........................................... (324) (323) (137)
Payments for acquired businesses ............................... -- -- --
(net of acquired cash of $838 - 1999,
$0 - 1998, and $444 - 1997) ............................. (25,033) (250) (5,945)
Proceeds from divestitures ..................................... -- -- 1,791
-------- -------- --------
Net cash used in investing activities ............................... (25,357) (573) (4,291)
-------- -------- --------
Cash flows from financing activities:
Issuance of common stock ....................................... 5,000 -- --
Additional long-term borrowings ................................ 13,150 -- --
Repayment of long-term borrowings .............................. (3,272) (2,116) (1,796)
Borrowing on lines of credit ................................... 6,065 -- --
Repayment of lines of credit ................................... (5,815) -- --
Repayment of debt to affiliate ................................. -- -- (504)
-------- -------- --------
Net cash (used in) provided by financing activities ............ 15,128 (2,116) 2,700
-------- -------- --------
(Decrease) increase in cash and cash equivalents .................... (7,320) (908) 2,031
Cash and cash equivalents, beginning of period ...................... 9,133 10,041 8,010
-------- -------- --------
Cash and cash equivalents, end of period ............................ $ 1,813 $ 9,133 $ 10,041
======== ======== ========
Interest paid ....................................................... $ 2,727 $ 2,385 $ 2,153
======== ======== ========
Income taxes paid ................................................... $ 131 $ 55 $ 73
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
17
<PAGE>
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands except shares)
<TABLE>
<CAPTION>
ADDITIONAL
NUMBER OF COMMON PAID-IN ACCUMULATED TREASURY
SHARES ISSUED* STOCK* CAPITAL DEFICIT STOCK TOTAL
-------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 ..................... 4,378,025 $ 44 $ 62,544 $ (50,477) $ (5,215) $ 6,896
Net income .............................. 3,360 3,360
Dividends in arrears on
preferred stock ..................... (450) (450)
Conversion of 30,000 shares of
Class A. preferred stock into
1,246,875 Class A common
stock ............................... 1,246,875 12 4,976 4,988
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1997 ................... 5,624,900 56 67,520 (47,567) (5,215) 14,794
Net income .............................. 2,149 2,149
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1998 ................... 5,624,900 56 67,520 (45,418) (5,215) 16,943
Net income .............................. 1,935 1,935
Accretion of convertible/redeemable
preferred stock ..................... (206) (206)
Sale of 1,136,364 shares of
Class A common
stock ............................... 1,136,364 12 4,988 5,000
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1999 ................... 6,761,264 $ 68 $ 72,302 $ (43,483) $ (5,215) $ 23,672
========== ========== ========== ========== ========== ==========
</TABLE>
* Includes both Common Stock and Class A Common Stock
The accompanying notes are an integral part of these
consolidated financial statements.
18
<PAGE>
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Security Capital Corporation ("Security Capital") operates as a financial buyer
of established companies as portfolio investments. Primarily, Security Capital
participates in the management of its portfolio companies at the board level,
and encourages operating autonomy and preservation of entrepreneurial
environments. Currently, Security Capital has three portfolio subsidiary
activities (together with Security Capital, referred to as the "Company"), known
as Primrose, Pumpkin, and Possible Dreams. Primrose is a 98%-owned subsidiary
involved in the franchising of educational child care centers, with related
activities in real estate consulting and site selection services. Primrose also
operates one child care center. The Primrose activities are primarily based in
the southern, central and western United States. Pumpkin is an 80%-owned
subsidiary in the business of manufacturing and distributing pumpkin and
watermelon carving kits and related accessories, and has a business line of
sidewalk chalk. Pumpkin's activities are centered in the United States. Possible
Dreams is a 90%-owned subsidiary that operates as an importer, designer, and
distributor of collectible Christmas figurines and ornaments and, to a lesser
extent, religious articles, primarily in the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Security Capital and its subsidiaries. All significant intercompany balances
have been eliminated in consolidation. Certain prior year amounts have been
reclassified to conform to the current year presentation.
USE OF MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.
Significant estimates included within the financial statements include sales
return and discount reserves, allowance for doubtful accounts, inventory
obsolescence reserves, the fair value of carryforward tax benefits, and the fair
value and economic lives of intangible assets.
REVENUE RECOGNITION
Revenues from product sales are recognized in the period in which the
merchandise is shipped. Customers who purchase certain minimum quantities
receive extended payment terms.
Primrose recognizes royalties based on the monthly revenues of the franchisees.
Franchise fees are collected at various intervals prior to the opening of a
school and are deferred until the franchised school has commenced operations.
Real estate service fees are recognized as earned. Assignment fee revenue is
recognized in two intervals: a portion of this revenue is recognized at the date
of contract and the other portion is deferred until the franchised school has
commenced operations. School tuition revenue is recognized as earned over the
school year.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less when purchased to be cash equivalents.
RECEIVABLES
A summary of the changes in the allowance for doubtful accounts at December 31
is as follows:
1999 1998 1997
----- ----- -----
Balance at beginning of year ....... $ 214 $ 119 $ 70
Provisions ......................... 182 200 104
Deductions ......................... (183) (105) (55)
----- ----- -----
Balance at end of year ............. $ 213 $ 214 $ 119
===== ===== =====
19
<PAGE>
INVENTORIES
Inventories, comprised of finished goods are stated at the lower of cost or
market, using the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, which range
from 3 to 27 years.
GOODWILL, INTANGIBLE ASSETS, AND OTHER
Goodwill relates to the cost in excess of the fair value of the assets acquired
in the purchase business combinations of Possible Dreams, Pumpkin, and Primrose.
Goodwill is being amortized over periods of 20 to 25 years. Patent rights,
acquired in such acquisitions, are being amortized over the 9 to 12 year
remaining life of the patent. Deferred financing costs are amortized over the
term of the related debt. Franchise agreements, curriculum, and non-compete
agreements related to Primrose are being amortized over periods of 21, 10 and 3
years, respectively. All such assets are being amortized on a straight-line
basis.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments consist of current assets (except inventories), current
liabilities, notes payable, additional payment obligations and long-term debt.
Current assets and current liabilities are carried at cost, which approximates
fair value. Notes payable, the additional payment obligations and long-term debt
bear interest at current market rates and, accordingly, the carrying value of
the debt approximates fair value.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets, including intangible assets, for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability is determined
based on future undiscounted net cash flows from the use and ultimate
disposition of the asset. Impairment loss is calculated as the difference
between the carrying amount of the asset and its fair value. Fair value is
determined primarily by using the anticipated cash flows discounted at a rate
commensurate with the risk involved. As of December 31, 1999, the Company had
not recognized any impairment losses.
WARRANT OBLIGATIONS
Warrants to acquire subsidiary shares issued in connection with the acquisitions
of the subsidiaries can be settled in cash at the option of the holders.
Accordingly, the estimated fair value of the warrants have been recorded as
liabilities and changes in the estimated fair value of the warrants are recorded
as income or expense in the respective statements of income.
PREFERRED SHARE ACCRETION
Differences between the carrying value of redeemable preferred shares and their
redemption value are accreted using the interest method over the remaining
estimated period to redemption, by charges to additional paid-in capital.
DEBT DISCOUNT AMORTIZATION
Differences between the carrying value and the face amount of the debt are
amortized over the life of the debt using the effective interest method.
STOCK OPTIONS
The Company measures compensation cost for stock options issued to employees
using the intrinsic value method of accounting for stock options under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees."
EARNINGS PER SHARE
Basic earnings per common share amounts are based on the weighted average number
of Common and Class A Common shares outstanding. The sum of Common Stock and
Class A Common Stock is used because the two classes are identical except for
certain transfer restrictions. Diluted earnings per common share are based on
the weighted average shares outstanding and the dilutive effect, if any, of
outstanding stock options, warrants and convertible securities.
20
<PAGE>
INCOME TAXES
The Company computes income taxes using the asset and liability method, under
which deferred income taxes are provided for the temporary differences between
the financial reporting basis and the tax basis of the assets and liabilities,
using presently enacted rates.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities." This statement is effective
for the Company on January 1, 2001, and addresses the accounting for derivative
instruments and hedging activities. The Company has not entered into such types
of transactions in the past, and does not believe that the adoption of this new
statement will have a material effect on the Company's financial statements.
3. ACQUISITIONS
PRIMROSE
In April 1999, the Company purchased a 98% interest in Primrose. The results of
operations of Primrose have been included in the financial statements and
results of operations from the date of acquisition. The Company paid $26,225 in
cash, issued 500,000 shares of zero coupon redeemable convertible preferred
stock valued at $2,000, and issued a warrant to a bank to purchase shares of
Primrose. The acquisition has been accounted for as a purchase, with the
purchase price, net of cash acquired of $838 allocated as follows:
Goodwill ................................................ $ 18,937
Intangibles, principally franchise agreements ........... 9,522
Other assets ............................................ 1,773
Unearned revenue ........................................ (1,600)
Accrued liabilities ..................................... (1,244)
--------
$ 27,388
========
In connection with the financing of the acquisition, the Company sold 1,136,364
shares of Class A Common Stock for $5,000 in a private placement transaction
with an affiliate of the Company's controlling shareholder, and borrowed funds
under bank credit agreements. Under terms of the bank credit agreements, the
borrowings are secured by a pledge of all assets of the Primrose businesses, and
by the capital stock of Primrose held by the Company.
The following unaudited pro forma financial information presents the combined
results of the Company and Primrose as if the acquisition had taken place on
January 1, 1998. The pro forma amounts give effect to certain adjustments
including the amortization of goodwill and intangibles, increased interest
expense and income tax effects. This pro forma information does not necessarily
reflect the results of operations as they would have been if the business had
been managed by the Company during these periods and is not indicative of
results that may be obtained in the future:
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
Pro-forma: (unaudited) (unaudited)
Revenue ....................... $ 40,655 $ 37,806
Net income .................... 1,396 1,794
Basic earnings per share ...... .22 .28
Diluted earnings per share .... $ .22 $ .28
PUMPKIN, LTD.
In June 1997, the Company purchased an 80% interest in the assets and assumed
liabilities of Pumpkin, Ltd. (Pumpkin). The results of operations of Pumpkin
have been included in the consolidated financial statements from the date of
acquisition. The purchase agreement contains earnout sections requiring
additional purchase price to be paid if future operating results exceed certain
defined formula-based thresholds. One such earnout section relates to average
operating results from 1997 through 2000, and a second earnout section relates
to annual operating results through 2001. The range of the possible additional
purchase price payments under both sections at December 31, 1999 is from $-0- to
$2,080. Based upon such formulas through December 31, 1999, and the expected
operating results in the year 2000, management believes that it is probable that
the full $2,080 amount of additional purchase price will become payable in 2002;
payment may be extended under the agreement until 2004 if the payment of such
amount could cause a default in Pumpkin's senior debt agreements. If extended to
2004, interest would be payable quarterly at an annual rate of 8%. If the
thresholds are met, the Company would record additional goodwill related to the
acquisition. In both 1999 and 1998, Pumpkin paid $40 in additional purchase
price based on these formulas, which was recorded as additional goodwill.
21
<PAGE>
The following unaudited pro forma financial information presents the combined
results of the Company and Pumpkin as if the acquisition had taken place on
January 1, 1997. The pro forma amounts give effect to certain adjustments
including the amortization of goodwill and intangibles, increased interest
expense and income tax effects. This pro forma information does not necessarily
reflect the results of operations as they would have been if the business had
been managed by the Company during these periods and is not indicative of
results that may be obtained in the future.
YEAR ENDED
DECEMBER 31, 1997
Pro-forma: (unaudited)
Revenue .................................................. $ 26,239
Net income from continuing operations .................... 1,179
Basic earnings per share from continuing operations ...... .27
Diluted earnings per share from continuing operations .... $ .27
4. DIVESTITURE OF DISCONTINUED OPERATIONS
In 1997, the Company sold its beneficial interest in two insurance-related
businesses in two separate transactions, recognizing a gain upon sale of
approximately $1,149 after tax, and net income from operations of $66 prior to
divestiture. These businesses were classified as discontinued operations in the
statement of income.
5. INVENTORIES
DECEMBER 31,
1999 1998
-------- --------
Finished goods ........................... $ 782 $ 600
Raw materials ............................ 3,411 4,739
-------- --------
Total .................................... $ 4,193 $ 5,339
======== ========
6. PROPERTY AND EQUIPMENT
DECEMBER 31,
1999 1998
-------- --------
Land and improvements .................... $ 370 $ 370
Buildings and improvements ............... 909 828
Machinery and equipment .................. 681 515
Furniture and fixtures ................... 299 104
-------- --------
2,259 1,817
Less accumulated depreciation ............ (478) (310)
-------- --------
Total .................................... $ 1,781 $ 1,507
======== ========
7. GOODWILL AND INTANGIBLE ASSETS
DECEMBER 31,
1999 1998
-------- --------
Goodwill ................................. $ 31,141 $ 12,164
Patents .................................. 1,033 960
Deferred financing costs ................. 1,403 881
Franchise agreements ..................... 8,750 --
Curriculum ............................... 250 --
Non-compete agreement .................... 89 --
-------- --------
42,666 14,005
Less accumulated amortization ............ (3,825) (1,961)
-------- --------
Total .................................... $ 38,841 $ 12,044
======== ========
22
<PAGE>
8. NOTES PAYABLE
Primrose, Pumpkin and Possible Dreams each have short-term borrowing facilities
under bank credit agreements (the "agreements"). Each such agreement contains
restrictive covenants which prohibit or limit certain actions, including levels
of capital expenditures, investments, incurrance of additional debt, and the
maintenance of defined levels of profitability and tangible net worth. In March
2000, the agreements for Possible Dreams and Primrose were amended to waive
technical violation of certain covenants which existed as of December 31, 1999,
and to change the covenant thresholds on a prospective basis. Based upon the
amendments, management expects to be in compliance with the covenants in the
foreseeable future. Borrowings under the agreements are secured by a pledge of
substantially all of the Company's assets as well as a pledge of the Company's
share ownerships in the subsidiary.
Possible Dreams' agreement is a $10,000 line of credit, under which borrowing
capacity is limited to a defined borrowing base, of which $750 and $1,000 was
borrowed at December 31, 1999 and 1998, respectively, at the commercial paper
rate of interest plus 4% (9.52% at December 31, 1999). Additional borrowing
capacity at December 31, 1999 was $ 2,750. The agreement expires in 2003.
Pumpkin's agreement is a $3,500 line of credit, under which borrowing capacity
is be limited to a defined borrowing base. Interest is calculated at the
commercial paper rate plus 4.25% (9.77% at December 31, 1999). There were no
borrowings outstanding at either balance sheet date. Borrowing capacity under
the line was $1,742 at December 31, 1999. The agreement expires in 2003 or upon
the repayment of the Pumpkin Tranche A and B term loans, if earlier.
Primrose' agreement is a $2,500 line of credit, under which $500 was borrowed at
December 31, 1999 at the greater of the bank's prime rate or federal funds
rates, plus 0.5% (10.5% at December 31, 1999). Additional borrowing capacity
under the line was $2,000 at December 31, 1999. The agreement expires in 2005.
9. LONG-TERM DEBT AND OTHER OBLIGATIONS
DECEMBER 31,
1999 1998
-------- --------
Possible Dreams Tranche A Term Loan, payable
in twenty quarterly installments through
July 1, 2001; interest payable monthly at
the commercial paper rate plus 4% (9.52 %
at December 31, 1999) ................................ $ 1,800 $ 3,363
Possible Dreams Tranche B Term Loan, payable
in seven annual installments commencing upon
the repayment of Tranche A Term Loan, is due
no later than April 1, 2003; interest payable
monthly at the commercial paper rate plus 6%
(11.52 % at December 31, 1999) ....................... 3,500 3,500
Possible Dreams Subordinated promissory notes,
interest rates from 10 - 14% (10% at
December 31, 1999), principal due on
May 31, 2003; interest payable
semi-annually on May 1 and November 1 ................ 1,960 1,960
Pumpkin Tranche A Term Loan, payable in 16
quarterly installments ranging from
$150 to $225 through December 2001;
interest payable monthly at the commercial
paper rate plus 4.5% (10.52% at December 31, 1999) ... 817 1,117
Pumpkin Tranche B Term Loan, payable in
eight quarterly installments commencing
upon repayment of the Tranche A Term Loan
but no later than October 1, 2001;
interest payable monthly at the commercial
paper rate plus 6.5% (approximately
12.52% at December 31, 1999) ......................... 2,000 2,000
Primrose Tranche A Term loan, payable
in twenty-four quarterly installments
ranging from $438 to $688 through
March 31, 2005; interest payable quarterly
at the Eurodollar rate plus the applicable
margin as defined in the credit
agreement (8.95% at December 31, 1999) ............... 11,837 --
Pumpkin additional earnout payment
obligations (see Note 3) ............................. 160 258
-------- --------
22,074 12,198
Less unamortized debt discount ......................... (1,153) (245)
Less current portion ................................... (3,617) (1,757)
-------- --------
Total long term debt ................................... $ 17,304 $ 10,196
======== ========
23
<PAGE>
Maturities of long-term debt and other obligations for the next five years are
as follows: $ 3,617 - 2000; $ 4,158 -2001; $ 5,288 - 2002; $ 6,423 - 2003; and
$ 2,113 - 2004.
Consistent with the bank lines of credit, most of the Company's long-term
obligations carry restrictive covenants which prohibit or limit certain actions,
including levels of capital expenditures, investments, incurrance of additional
debt, and the maintenance of defined levels of profitability and tangible net
worth. Most borrowings are secured by a pledge of substantially all assets at
the subsidiary level, as well as by a pledge of the Company's share ownerships
in the subsidiary.
The maturities of the Possible Dreams Tranche A and Tranche B term loans are
subject to acceleration if defined cash flow thresholds are achieved. Such
borrowings are also subject to prepayment penalties.
The Company has a tax sharing agreement with its subsidiaries, under which
income tax liabilities at each subsidiary are determined on a stand-alone basis,
with amounts payable to Security Capital as the consolidated taxpayer. With
respect to Possible Dream's, Primrose's and Pumpkin's term loan and bank credit
arrangements, any amounts remitted to Security Capital in excess of amounts
approved by the lender are required to be set aside, and are pledged to the
lenders as additional collateral for the borrowings at such subsidiaries. At
December 31, 1999, no such amounts were set aside and pledged as collateral
under such arrangements.
Warrants to acquire shares of Possible Dreams, Pumpkin and Primrose are
redeemable at the election of the warrant holders for cash. The estimated fair
value of the warrants are recorded as liabilities and changes in the estimated
fair value of the warrants during a period are included in the results of
operations. Warrant expense, classified as "Other (expense) income" was $290,
$180 and $149 in the years ended December 31, 1999, 1998 and 1997, respectively.
Warrant liabilities, included in "other long-term obligations," were $2,466 and
$1,070 at December 31, 1999 and 1998, respectively.
10. STOCKHOLDERS' EQUITY
The authorized capital of the Company consists of Common Stock and Class A
Common Stock. The Class A Common Stock shares are identical in rights to the
Common Stock shares, except that transfer of shares of the Class A Common Stock
is prohibited to a person who is, or would thereby become, a holder of 4.75% or
more of the fair market value of the Common Stock and the Class A Common Stock.
The Company has issued and outstanding 500,000 shares of zero coupon,
redeemable, preferred stock, that have a stated liquidation value of $10 per
share. Such preferred shares are convertible into Class A common stock on a 1:1
basis. The preferred shares are redeemable at their liquidation value upon the
earlier of (1) the date of Primrose' earnings before interest, income taxes,
depreciation and amortization ("EBITDA") exceeds $8,500 on a latest twelve month
basis on or after April, 2002, or (2) on April 6, 2006.
During 1997, all shares of the Company's then-outstanding Class A, redeemable,
convertible, preferred shares were converted by the holder into Class A common
stock.
The Company has 2,500,000 shares of authorized preferred shares, $.01 par value,
of which 2,000,000 shares remain issuable at December 31, 1999.
MINORITY INTEREST OWNERSHIPS
The owners of the minority interests in Possible Dreams, Pumpkin and Primrose
have each entered into agreements with the Company providing for restrictions on
the transfer of the such shares, and other related share rights. The minority
shareholders of Pumpkin have the right to put their shares of Pumpkin to the
Company for cash and the Company has the right to call the shares for cash upon
earlier of (1) June, 2003, (2) payment in full of the acquisition indebtedness
or (3) anytime after Pumpkin's average EBITDA exceeds $2,500 for a four year
period commencing in 1997. The put and call price is determined by using a
formula of EBITDA. At the mutual agreement of the parties settlement can occur
in Security Capital Common Stock. If the lender objects to settlement in cash
the Company may issue a subordinate note. Future cash settlement of such puts
and calls would result in additional purchase price consideration payable to the
former owners of Pumpkin and would result in the recording of additional
goodwill relating to the acquisition.
SUBSIDIARY OPTIONS AND WARRANTS
Possible Dreams - Options to acquire 175 shares of Possible Dreams at
approximately $1,900 per share were granted in 1996, of which 88 and 175 were
outstanding at December 31, 1999 and 1998, respectively. Such options expire in
2006. The Company, but not the holder, has the right to settle the options in
cash. In addition, warrants to purchase 250 shares of Possible Dreams Class B
common shares were issued in 1996 and remain outstanding at December 31, 1999.
The warrants are exercisable at the earlier of (1) May 17, 2001 or (2) repayment
in full of the acquisition note and any related interest, at price of $.01 per
share and expire in 2006. Such Class B common shares would be non-voting, but
would be convertible at the option of the holder into Class A voting common
shares. The holder may exercise the warrants for cash. If all such outstanding
options and warrants had been exercised for Possible Dream's shares at December
31, 1999, the Company's ownership share of Possible Dreams would have been 76%.
24
<PAGE>
Pumpkin - Options to acquire a total of 39 Class A common shares of Pumpkin at
$1,754 per share were issued in 1997 and 1998. Such options are exercisable in
2000 and 2001, and expire in 2007 and 2008. The holder, has the right to settle
the options in cash at the earlier of (1) three years of employment (2) June 27,
2003 (3) repayment in full of the acquisition note and any related interest or
(4) any time after average EBITDA exceeds $2,500 for a four year period
commencing in 1997. In addition, warrants to purchase 100 shares of Pumpkin's
Class B common stock at $.01 per share were issued in 1997 and remain
outstanding at December 31, 1999. Class B common shares would be non-voting, but
would be convertible into Class A voting shares at the option of the holder. The
warrants are exercisable at the earlier of (1) June 27, 2002 or (2) repayment in
full of the acquisition note and any related interest. Such warrants expire in
2007. The holder may exercise the warrants for cash. If all such outstanding
options and warrants had been exercised for Pumpkin shares at December 31, 1999,
the Company's ownership share of Pumpkin would have been 69%.
Primrose - Options to acquire 2,311 common shares of Primrose at $500 per share
were issued in 1999 and expire in 2009. 231 options are currently exercisable.
The holder has the right to settle the options in cash. Warrants to acquire
2,415.3 shares of Primrose at $.01 per share were issued in connection with the
acquisition in 1999. The holder may exercise the warrants at the earlier of (1)
April 6, 2004 (2) any public offering of Primrose pursuant to a registration
statement, a private placement or otherwise or (3) any private sale of
representing 20% or more of Primrose stock, for shares of Primrose, exchange
value of the warrants for an equivalent value of shares of Security Capital, or
be paid for the value of the warrants in cash. If all such outstanding options
and warrants had been exercised for Primrose shares at December 31, 1999, the
Company's ownership share of Primrose would have been 84%.
11. OTHER INCOME (EXPENSE)
YEAR ENDED DECEMBER 31
-----------------------------------
1999 1998 1997
----- ----- -----
Interest income ............ $ 33 $ 347 $ 368
Warrant expense ............ (290) (180) (149)
Other ...................... 21 32 19
----- ----- -----
Total ...................... $(236) $ 199 $ 238
===== ===== =====
12. INCOME TAXES
The provision (benefit) for income taxes for the years ended December 31, is as
follows:
1999 1998 1997
----- ----- -----
Current:
Federal ................. $ 17 $ 57 $ 74
State ................... 106 167 339
----- ----- -----
123 224 413
----- ----- -----
Deferred:
Federal ................. (872) (665) (655)
State ................... (19) 6 (43)
----- ----- -----
(891) (659) (698)
----- ----- -----
Total ...................... $(768) $(435) $(285)
===== ===== =====
At December 31, 1999, the Company had net operating loss carry-forwards for
Federal income tax purposes of approximately $25,447, the expiration dates of
which are as follows: 2003 - $645, 2004 - $21,702, 2005 - $2,430, 2007 - $397,
2008 - $133, 2009 and thereafter - $140.
25
<PAGE>
The items comprising the Company's net deferred tax assets, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets (liabilities):
Allowance for doubtful accounts and inventory differences ...... $ 218 $ 284
Operating loss carry-forwards .................................. 11,360 11,561
Alternative minimum tax carryover .............................. 179 141
Accelerated depreciation and other ............................. (242) (11)
-------- --------
11,515 11,975
Valuation allowance ............................................ (9,453) (10,800)
-------- --------
Net deferred tax asset ............................................ $ 2,062 $ 1,175
======== ========
Reconciliation to financial statements:
Current deferred tax asset ..................................... $ 287 $ 418
Long term deferred tax asset ................................... 1,875 757
Other long term obligations .................................... (100) --
-------- --------
Net deferred tax asset ......................................... $ 2,062 $ 1,175
======== ========
</TABLE>
The valuation allowance reduces the deferred tax assets to the amount that is
more likely than not to be realized. Reconciliations of the income tax benefit
to income taxes based on the 34% statutory rate are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C> <C>
Federal income taxes based on 34% of pre-tax income ................ $ 490 $ 581 $ 1,118
State income taxes, net of Federal benefit ......................... 57 88 198
Recognition of deferred tax asset for Federal net operating
loss carry-forwards ................................................ (1,347) (1,149) (1,444)
Other .............................................................. 32 45 (157)
------- ------- -------
Income tax benefit ................................................. $ (768) $ (435) $ (285)
======= ======= =======
</TABLE>
13. EARNINGS PER SHARE
At December 31, 1999, 500,000 shares of zero coupon redeemable convertible
preferred shares, which were convertible to 500,000 common shares, were excluded
from the computation of diluted earnings per share ("EPS") because their
inclusion would have had an antidilutive effect on EPS. In addition, subsidiary
options and warrants were also excluded from the computation of diluted EPS for
the years 1999, 1998 and 1997, because their inclusion would have had an
antidilutive effect on consolidated EPS.
14. RELATED PARTY TRANSACTIONS
In 1999, the Company sold 1,136,364 shares of Class A Common Stock for $5,000 in
a private placement to an affiliate of the Company's controlling stockholder.
The Company has an agreement with Capital Partners, Inc. ("CPI"), a shareholder
of the Company. CPI and its affiliates and principals owned 83%, and 79% of the
Company's common shares at December 31, 1999 and 1998, respectively. Under the
agreement, CPI provides certain advisory services and management services
related to investments, general administration, corporate development, strategic
planning, stockholder relations, financial matters and general business policy.
Fees paid by the Company to CPI are based upon the greater of either a fixed
dollar amount or 5% of earnings before income taxes, depreciation and
amortization, as defined. Subsequent to the acquisition of Primrose, the minimum
annual fixed dollar amount is $375. Fees paid to CPI are generally subordinate
to the rights of the lenders to the Company. In addition, the Company has agreed
to pay fees to CPI for acquisition opportunities presented to the Company by CPI
at a usual and customary rates for investment banking fees for transactions of
similar size and complexity. The agreement is renewable annually. Fees paid by
the Company to CPI were $ 1,092, $500, and $620 in the years ended December 31,
1999, 1998 and 1997, respectively.
26
<PAGE>
15. COMMITMENTS AND CONTINGENCIES
The Company rents showrooms, office space and certain equipment under operating
lease agreements. Certain office space and equipment, included in the following
table, is rented from the minority shareholders of Pumpkin for which the annual
rent is $45. Certain office space, also included in the following table, is
rented from Security Capitals redeemable preferred stockholder for which the
annual rent will be $174, $125 and $27 for 2000, 2001 and 2002, respectively.
Future minimum rental commitments at December 31, 1999 are as follows:
2000 $ 465
2001 403
2002 298
2003 208
2004 115
Thereafter -
-------
Total $ 1,489
=======
CONCENTRATIONS
Possible Dreams purchased approximately 88% and 48% of its supplies from two
companies during 1999 and 1998, respectively. The loss of either supplier could
have an adverse effect on Possible Dreams' results of operations and financial
condition.
CONTINGENCIES
The Company is party to several legal actions arising in the ordinary course of
business. In management's opinion, the Company has adequate legal defences to
these actions, such that the resolution of such matters will not have a material
effect on the financial position or results of operations of the Company.
27
<PAGE>
16. SEGMENT DISCLOSURE
Following the 1999 acquisition of Primrose, the Company has two segments. The
educational segment consists of Primrose and the seasonal products segment
consists of the Company's activities principally in the design importing and
manufacturing of Halloween and Christmas products. Management evaluates
performance of its segments based upon adjusted EBITDA, defined for the purposes
of the segment disclosures as earnings before interest, taxes, depreciation,
amortization, minority interest expense and non-recurring charges or gains. The
accounting policies of the segments are the same as those described in Note 1.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues from external customers:
Educational services ........................ $ 4,228 $ -- $ --
Seasonal products ........................... 33,117 30,018 25,723
-------- -------- --------
Total revenue .................................. 37,345 30,018 25,723
Segment income:
Educational services ........................ 1,770 -- --
Seasonal products ........................... 5,852 5,772 5,453
-------- -------- --------
Total segment income ........................... $ 7,622 $ 5,772 $ 5,453
Reconciliation to net income:
Depreciation and amortization expense ....... (1,886) (888) (671)
Interest expense ............................ (3,122) (2,385) (2,153)
Income tax benefit .......................... 768 435 285
Minority interest expense ................... (273) (165) (207)
Management fees ............................. (692) (500) (500)
Income from discontinued operation .......... -- -- 1,215
Other expense (income) ...................... (236) 199 238
Corporate and other expenses ................ (243) (319) (300)
-------- -------- --------
Net income .................................. $ 1,935 $ 2,149 $ 3,360
======== ======== ========
DECEMBER 31
1999 1998
-------- --------
Segment assets:
Educational services ........................ $ 29,303 $ --
Seasonal products ........................... 23,850 25,394
Corporate and other ............................ 2,167 8,244
-------- --------
Total assets ................................... $ 55,320 $ 33,638
======== ========
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable
28
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 is incorporated by reference to the
definitive proxy statement to be filed with the Securities and Exchange
Commission before April 29, 2000 pursuant to Regulation 14A of the Securities
and Exchange Act of 1934.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is incorporated by reference to the
definitive proxy statement to be filed with the Securities and Exchange
Commission before April 29, 200 pursuant to Regulation 14A of the Securities and
Exchange Act of 1934.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 12 is incorporated by reference to the
definitive proxy statement to be filed with the Securities and Exchange
Commission before April 29, 200 pursuant to Regulation 14A of the Securities and
Exchange Act of 1934.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 13 is incorporated by reference to the
definitive proxy statement to be filed with the Securities and Exchange
Commission before April 29, 200 pursuant to Regulation 14A of the Securities and
Exchange Act of 1934.
29
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements and Financial Statement Schedules
and (2)
See "Index to Financial Statements and Schedules" set
forth in Item 8 on page 11 of this Form 10-K.
(a) (3) Exhibits Required To Be Filed By Item 601 of Regulation S-K
The documents required to be filed as exhibits to this
Form 10-K are listed below. Each management contract
or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K pursuant to Item
14(c) of Form 10-K is marked with an asterisk.
EXHIBIT NO. DESCRIPTION OF DOCUMENT
3.1 -- Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 2 to the Registrant's
Form 8-K Current Report dated June 22, 1990), and amendment
thereto (incorporated by reference to Exhibit 1 to the
Registrant's Form 8-K Current Report dated February 23, 1994).
3.1A -- Certificate of Amendment dated March 27, 1996 to Restated
Certificate of Incorporation of the Registrant (incorporated
by reference to Exhibit 3.1A to the Registrant's Form 10-K
Annual Report for the fiscal year ended September 30, 1996).
3.1B -- Certificate of Amendment dated March 27, 1996 to Restated
Certificate of Incorporation of the Registrant (incorporated
by reference to Exhibit 3.1B to the Registrant's Form 10-K
Annual Report for the fiscal year ended September 30, 1996).
3.2 -- By-laws of the Registrant (incorporated by reference to
Exhibit 3 to the Registrant's Form 8-K Current Report dated
June 22, 1990).
4.2 -- Reference is made to Exhibit 3.1.
*10.1 -- Security Capital Corporation 1982 Incentive Stock Option
Plan, as amended through December 10, 1990 (incorporated by
reference to Exhibit (10)(A) to the Registrant's Form 10-K
Annual Report for the fiscal year ended September 30, 1990).
10.4 -- Stock Purchase Agreement between Security Capital
Corporation and FGS, Inc. dated January 26, 1990, as amended
May 14, 1990 (incorporated by reference to Exhibit(c) to the
Registrant's Form 8-K Current Report dated January 26, 1990
and Exhibit 10.7 to the Registrant's Registration Statement on
Form S-4 (Reg. 33-34324) as filed on May 17, 1990).
10.5 -- Agreement Regarding Adjustment of Purchase Price Pursuant
to Section 2 of Stock Purchase Agreement between Security
Capital Corporation and FGS, Inc., executed September 28,
1990, between and among the Corporation, FGS, Inc., CP
Acquisition, L.P. No. 1 and Mr. John A. Bogardus, Jr.
(incorporated by reference to Exhibit 1 to the Registrant's
Form 8-K Current Report dated September 28, 1990).
10.7 -- Advisory Services Agreement dated as of April 27, 1990 and
effective as of January 26, 1990, between Security Capital
Corporation and Capital Partners, Inc. (incorporated by
reference to Exhibit (10)(B) to the Registrant's Form 10-Q
Quarterly Report for the period ended March 31, 1991).
10.19 -- Subscription Agreement dated as of March 28, 1994 between
the Registrant and CP Acquisition, L.P. No. 1 ("CP
Acquisition") (incorporated by reference to Exhibit 10.19 to
the Registrant's Statement on Form S-1 (Reg. No. 33-74680)).
10.20 -- Registration Rights Agreement and Amendment to Stock
Purchase Agreement dated as of March 28, 1994 among the
Registrant, CP Acquisition and FGS, Inc. (incorporated by
reference to Exhibit 10.20 to the Registrant's Registration
Statement on Form S-1 (Reg. No. 33-74680)).
10.21 -- Undertaking dated March 28, 1994 from Brian D. Fitzgerald
to the Registrant (incorporated by reference to Exhibit 10.21
to the Registrant's Registration Statement on Form S-1 (Reg.
No. 33-74680)).
10.23 -- Asset Purchase Agreement dated as of May 17, 1996 by and
among Possible Dreams, Ltd., a Massachusetts corporation,
Columbia National Corporation, a Massachusetts corporation,
Leonard Miller, Richard L. Seegal, as trustee of the Samuel C.
Miller Trust u/d/t 8/5/85, Warren Stanley and Arnold Lee and
Possible Dreams, Ltd., a Delaware corporation ("Possible
Dreams") (incorporated by reference to Exhibit 1 to the
Registrant's Form 8-K Current Report dated May 17, 1996).
10.24 -- Subordinated Promissory Note dated May 17, 1996 in the
amount of $2,128,000 from Possible Dreams to Possible Dreams,
Ltd., a Massachusetts corporation (incorporated by reference
to Exhibit 2 to the Registrant's Form 8-K Current Report dated
May 17, 1996).
10.25 -- Corrective Amendment dated November 25, 1996 to
Subordinated Promissory Note dated May 17, 1996 in the amount
of $2,128,000 from Possible Dreams to Possible Dreams, Ltd., a
Massachusetts corporation (incorporated by reference to
Exhibit 10.25 to the Registrant's Form 10-K Annual Report for
the fiscal year ended September 30, 1996).
10.26 -- Subordinated Promissory Note dated May 17, 1996 in the
amount of $332,000 from Possible Dreams to Columbia National
Corporation (incorporated by reference to Exhibit 3 to the
Registrant's Form 8-K Current Report dated May 17, 1996).
10.27 -- Corrective Amendment dated November 25, 1996 to
Subordinated Promissory Note dated May 17, 1996 in the amount
of $332,000 from Possible Dreams to Columbia National
Corporation (incorporated by reference to Exhibit 10.27 to the
Registrant's Form 10-K Annual Report for the fiscal year ended
September 30, 1996).
30
<PAGE>
10.28 -- Credit Agreement dated as of May 17, 1996 among Possible
Dreams, P.D. Holdings, Inc., a Delaware corporation
("Holdings"), the Lenders referred to therein and
NationsCredit Commercial Corporation ("NationsCredit"), as
Agent (incorporated by reference to Exhibit 4 to the
Registrant's Form 8-K Current Report dated May 17, 1996).
10.29 -- Warrant dated May 17, 1996 from Possible Dreams to
NationsCredit (incorporated by reference to Exhibit 5 to the
Registrant's Form 8-K Current Report dated May 17, 1996).
10.30 -- Warrantholders Rights Agreement dated as of May 17, 1996
among Possible Dreams, Holdings, Security Capital Corporation
("Security Capital"), Warren Stanley and Arnold Lee and
NationsCredit (incorporated by reference to Exhibit 6 to the
Registrant's Form 8-K Current Report dated May 17, 1996).
10.31 -- Security Capital Pledge and Guarantee Agreement dated as of
May 17, 1996 between Security Capital and NationsCredit, as
Agent (incorporated by reference to Exhibit 7 to the
Registrant's Form 8-K Current Report dated May 17, 1996).
10.32 -- Holdings Pledge Agreement dated as of May 17, 1996 among
Holdings and NationsCredit, as Agent (incorporated by
reference to Exhibit 8 to the Registrant's Form 8-K Current
Report dated May 17, 1996).
10.33 -- Investors Subordination Agreement dated as of May 17, 1996
among Possible Dreams, the Subordinated Obligations Holders
(as defined therein) and NationsCredit, as Agent (incorporated
by reference to Exhibit 9 to the Registrant's Form 8-K Current
Report dated May 17, 1996).
10.34 -- Sellers Subordination Agreement dated as of May 17, 1996
among Possible Dreams, the Subordinated Obligations Holders
(as defined therein) and NationsCredit, as Agent (incorporated
by reference to Exhibit 10 to the Registrant's Form 8-K
Current Report dated May 17, 1996).
10.35 -- Stockholders' Agreement dated as of May 17, 1996 among
Holdings, Arnold Lee, Warren Stanley and Security Capital
(incorporated by reference to Exhibit 11 to the Registrant's
Form 8-K Current Report dated May 17, 1996).
*10.36 -- Employment, Consulting and Non-Competition Agreement dated
May 17, 1996 by and between Possible Dreams and Warren Stanley
(incorporated by reference to Exhibit 12 to the Registrant's
Form 8-K Current Report dated May 17, 1996).
*10.37 -- Employment, Consulting and Non-Competition Agreement dated
May 17, 1996 by and between Possible Dreams and Arnold Lee
(incorporated by reference to Exhibit 13 to the Registrant's
Form 8-K Current Report dated May 17, 1996).
10.38 -- First Amendment to Advisory Services Agreement dated as of
May 17, 1996 by and between Security Capital and Capital
Partners, Inc. (incorporated by reference to Exhibit 14 to the
Registrant's Form 8-K Current Report dated May 17, 1996).
10.39 -- Consolidated Income Tax Sharing Agreement dated as of May
17, 1996 among Possible Dreams, Holdings and Security Capital
(incorporated by reference to Exhibit 15 to the Registrant's
Form 8-K Current Report dated May 17, 1996).
10.40 -- Asset Purchase Agreement dated as of June 27, 1997 by and
among Pumpkin, Ltd. d/b/a Pumpkin Masters, Inc., a Colorado
corporation (the "Seller"), Pumpkin Ltd., a Delaware
corporation ("Pumpkin"), Pumpkin Masters Holdings, Inc., a
Delaware corporation ("Pumpkin Holdings"), and the Registrant
(incorporated by reference to Exhibit 1(c)(1) to the
Registrant's Form 8-K Current Report dated June 27, 1997).
10.41 -- Credit Agreement dated as of June 27, 1997 among Pumpkin,
Pumpkin Holdings, the Lenders referred to therein and
NationsCredit Commercial Corporation ("NationsCredit"), as
Agent (incorporated by reference to Exhibit 1(c)(2) to the
Registrant's Form 8-K Current Report dated June 27, 1997).
10.42 -- Warrant dated June 27, 1997 from Pumpkin to NationsCredit
(incorporated by reference to Exhibit 1(c)(3) to the
Registrant's Form 8-K Current Report dated June 27, 1997).
10.43 -- Warrantholders Rights Agreement dated as of June 27, 1997
among Pumpkin, Pumpkin Holdings, the Registrant, Seller and
NationsCredit (incorporated by reference to Exhibit 1(c)(4) to
the Registrant's Form 8-K Current Report dated June 27, 1997).
10.44 -- Company Security Agreement dated as of June 27, 1997
between Pumpkin and NationsCredit, as Agent (incorporated by
reference to Exhibit 1(c)(5) to the Registrant's Form 8-K
Current Report dated June 27, 1997).
10.45 -- Pumpkin Holdings Pledge Agreement dated as of June 27, 1997
between Pumpkin Holdings and NationsCredit, as Agent
(incorporated by reference to Exhibit 1(c)(6) to the
Registrant's Form 8-K Current Report dated June 27, 1997).
10.46 -- Security Capital Pledge and Guarantee Agreement dated as of
June 27, 1997 between the Registrant and NationsCredit, as
Agent (incorporated by reference to Exhibit 1(c)(7) to the
Registrant's Form 8-K Current Report dated June 27, 1997).
10.47 -- Security Capital Subordination Agreement dated as of June
27, 1997 among Pumpkin, the Subordinated Obligations Holders
(as defined therein) and NationsCredit, as Agent (incorporated
by reference to Exhibit 1(c)(8) to the Registrant's Form 8-K
Current Report dated June 27, 1997).
10.48 -- Investors Subordination Agreement dated as of June 27, 1997
among Pumpkin, the Subordinated Obligations Holders (as
defined therein) and NationsCredit, as Agent (incorporated by
reference to Exhibit 1(c)(9) to the Registrant's Form 8-K
Current Report dated June 27, 1997).
10.49 -- Seller Subordination Agreement dated as of June 27, 1997
among Pumpkin, Pumpkin Holdings, the Subordinated Obligations
Holders (as defined therein) and NationsCredit, as Agent
(incorporated by reference to Exhibit 1(c)(10) to the
Registrant's Form 8-K Current Report dated June 27, 1997).
10.50 -- Stockholders' Agreement dated as of June 27, 1997 among
Pumpkin, Pumpkin Holdings and Gay Burke (incorporated by
reference to Exhibit 1(c)(11) to the Registrant's Form 8-K
Current Report dated June 27, 1997).
*10.51 -- Employment Agreement dated June 27, 1997 by and between
Pumpkin and John Bardeen (incorporated by reference to Exhibit
1(c)(12) to the Registrant's Form 8-K Current Report dated
June 27, 1997).
*10.52 -- Employment Agreement dated June 27, 1997 by and between
Pumpkin and Kea Bardeen (incorporated by reference to Exhibit
1(c)(13) to the Registrant's Form 8-K Current Report dated
June 27, 1997).
*10.53 -- Employment Agreement dated June 27, 1997 by and between
Pumpkin and Gay Burke (incorporated by reference to Exhibit
1(c)(14) to the Registrant's Form 8-K Current Report dated
June 27, 1997).
*10.54 -- Stock Option Agreement dated June 27, 1997 by and between
Pumpkin and Gay Burke (incorporated by reference to Exhibit
1(c)(15) to the Registrant's Form 8-K Current Report dated
June 27, 1997).
10.55 -- Advisory Services Agreement dated June 27, 1997, by and
between Pumpkin and the Registrant (incorporated by reference
to Exhibit 1(c)(16) to the Registrant's Form 8-K Current
Report dated June 27, 1997).
31
<PAGE>
10.56 -- Second Amendment to Advisory Services Agreement dated June
27, 1997 by and between the Registrant and Capital Partners,
Inc. (incorporated by reference to Exhibit 1(c)(17) to the
Registrant's Form 8-K Current Report dated June 27, 1997).
10.57 -- Joinder Agreement dated June 27, 1997 among Pumpkin,
Pumpkin Holdings and the Registrant to Consolidated Income Tax
Sharing Agreement dated as of May 17, 1996 among Possible
Dreams, Holdings and the Registrant (incorporated by reference
to Exhibit 1(c)(18) to the Registrant's Form 8-K Current
Report dated June 27, 1997).
10.58 -- Purchase Agreement dated as of July 3, 1997 by and among
FIM, FIS, BMD&B, Inc., a Texas corporation, formerly known as
BMD&B, Inc., Larry M. Karren and Edward G. Britt, Jr.
(incorporated by reference to Exhibit 4 to the Registrant's
Form 8-K Current Report dated July 17, 1997).
10.59 -- Modification Agreement dated as of July 3, 1997 by and
among FIM, FIS, BMD, and BMD&B, Inc. and BMD&B, Inc.
(incorporated by reference to Exhibit 5 to the Registrant's
Form 8-K Current Report dated July 17, 1997).
10.60 -- Exchange Agreement among the Registrant, each holder of
Class A Preferred Stock and Brian D. Fitzgerald.
10.61 -- Stock Purchase Agreement, dated as of April 6th, 1999, by
and among Primrose Holdings, Inc., a Delaware corporation
("Holdings"), Security Capital Corporation, a Delaware
corporation ("Security Capital"), Paul L. Erwin Grantor
Retained Annuity Trust (together with Paul L. Erwin, the
"Shareholders") Registrant (incorporated by reference to
Exhibit 1(c)(1) to the Registrant's Form 8-K Current Report
dated April 6, 1999).
10.62 -- Credit Agreement, dated as of April 6th, 1997, among
Primrose School Franchising Company, ("Primrose"), Holdings,
the Lenders referred to therein and Canadian Imperial Bank of
Commerce ("CIBC"), as Agent (incorporated by reference to
Exhibit 1(c)(2) to the Registrant's Form 8-K Current Report
dated April 6, 1999).
10.63 -- Warrant Agreement, dated as of April 6th, 1999 between
Security Capital and CIBC (incorporated by reference to
Exhibit 1(c)(3) to the Registrant's Form 8-K Current Report
dated April 6, 1999).
10.64 -- Stockholders' Agreement, dated as of April 6th, 1999, among
Holdings, Jo Kirchner, Raymond Orgera, Robert Benowitz and
Security Capital (incorporated by reference to Exhibit 1(c)(4)
to the Registrant's Form 8-K Current Report dated April 6,
1999).
10.65 -- Management Advisory Services Agreement, dated as of April
6th, 1999, by and among Primrose, Metrocorp, Country Day and
Security Capital (incorporated by reference to Exhibit 1(c)(5)
to the Registrant's Form 8-K Current Report dated April 6,
1999).
10.66 -- Third Amendment to Advisory Services Agreement, dated April
6th, 1999, by and between Security Capital and Capital
Partners, Inc. (incorporated by reference to Exhibit 1(c)(6)
to the Registrant's Form 8-K Current Report dated April 6,
1999).
10.67 -- Tax Sharing Joinder Agreement, dated April 6th, 1999, among
Holdings, Primrose, Metrocorp, Country Day and Security
Capital to Consolidated Income Tax Sharing Agreement, dated as
of April 17th, 1996, among Possible Dreams, Ltd., P.D.
Holdings, Inc. and Security Capital (incorporated by reference
to Exhibit 1(c)(7) to the Registrant's Form 8-K Current Report
dated April 6, 1999).
10.68 -- Lease Agreement, dated April 6th, 1999 by and between Erwin
Family Partnership, LLLP and Primrose (incorporated by
reference to Exhibit 1(c)(8) to the Registrant's Form 8-K
Current Report dated April 6, 1999).
10.69 -- Lease Agreement, dated April 6th, 1999 by and between Paul
L. Erwin and country Day (incorporated by reference to Exhibit
1(c)(9) to the Registrant's Form 8-K Current Report dated
April 6, 1999).
21 -- Subsidiaries of the Registrant.
27 -- Financial Data Schedule.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be signed on its
behalf by the undersigned thereto duly authorized.
SECURITY CAPITAL CORPORATION
By /s/ A. GEORGE GEBAUER
A. George Gebauer
President
Date: March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE POSITION DATE
------------- -------------- ----------
<S> <C> <C>
/s/ A. GEORGE GEBAUER President, Secretary and Director March 30, 2000
A. George Gebauer (Principal Executive Officer)
/s/ WILLIAM R. SCHLUETER Vice President (Principal Financial March 30, 2000
William R. Schlueter and Accounting Officer)
/s/ BRIAN D. FITZGERALD Chairman of the Board March 30, 2000
Brian D. Fitzgerald
/s/ WILLIAM T. BOZARTH Director March 30, 2000
William T. Bozarth
/s/ THOMAS J. GOCHBERG Director March 30, 2000
Thomas J. Gochberg
</TABLE>
33
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF DOCUMENT
3.1 -- Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 2 to the Registrant's
Form 8-K Current Report dated June 22, 1990), and amendment
thereto (incorporated by reference to Exhibit 1 to the
Registrant's Form 8-K Current Report dated February 23, 1994).
3.1A -- Certificate of Amendment dated March 27, 1996 to Restated
Certificate of Incorporation of the Registrant (incorporated
by reference to Exhibit 3.1A to the Registrant's Form 10-K
Annual Report for the fiscal year ended September 30, 1996).
3.1B -- Certificate of Amendment dated March 27, 1996 to Restated
Certificate of Incorporation of the Registrant (incorporated
by reference to Exhibit 3.1B to the Registrant's Form 10-K
Annual Report for the fiscal year ended September 30, 1996).
3.2 -- By-laws of the Registrant (incorporated by reference to
Exhibit 3 to the Registrant's Form 8-K Current Report dated
June 22, 1990).
4.2 -- Reference is made to Exhibit 3.1.
*10.1 -- Security Capital Corporation 1982 Incentive Stock Option
Plan, as amended through December 10, 1990 (incorporated by
reference to Exhibit (10)(A) to the Registrant's Form 10-K
Annual Report for the fiscal year ended September 30, 1990).
10.4 -- Stock Purchase Agreement between Security Capital
Corporation and FGS, Inc. dated January 26, 1990, as amended
May 14, 1990 (incorporated by reference to Exhibit(c) to the
Registrant's Form 8-K Current Report dated January 26, 1990
and Exhibit 10.7 to the Registrant's Registration Statement on
Form S-4 (Reg. 33-34324) as filed on May 17, 1990).
10.5 -- Agreement Regarding Adjustment of Purchase Price Pursuant
to Section 2 of Stock Purchase Agreement between Security
Capital Corporation and FGS, Inc., executed September 28,
1990, between and among the Corporation, FGS, Inc., CP
Acquisition, L.P. No. 1 and Mr. John A. Bogardus, Jr.
(incorporated by reference to Exhibit 1 to the Registrant's
Form 8-K Current Report dated September 28, 1990).
10.7 -- Advisory Services Agreement dated as of April 27, 1990 and
effective as of January 26, 1990, between Security Capital
Corporation and Capital Partners, Inc. (incorporated by
reference to Exhibit (10)(B) to the Registrant's Form 10-Q
Quarterly Report for the period ended March 31, 1991).
10.19 -- Subscription Agreement dated as of March 28, 1994 between
the Registrant and CP Acquisition, L.P. No. 1 ("CP
Acquisition") (incorporated by reference to Exhibit 10.19 to
the Registrant's Statement on Form S-1 (Reg. No. 33-74680)).
10.20 -- Registration Rights Agreement and Amendment to Stock
Purchase Agreement dated as of March 28, 1994 among the
Registrant, CP Acquisition and FGS, Inc. (incorporated by
reference to Exhibit 10.20 to the Registrant's Registration
Statement on Form S-1 (Reg. No. 33-74680)).
10.21 -- Undertaking dated March 28, 1994 from Brian D. Fitzgerald
to the Registrant (incorporated by reference to Exhibit 10.21
to the Registrant's Registration Statement on Form S-1 (Reg.
No. 33-74680)).
10.23 Asset Purchase Agreement dated as of May 17, 1996 by and among
Possible Dreams, Ltd., a Massachusetts corporation, Columbia
National Corporation, a Massachusetts corporation, Leonard
Miller, Richard L. Seegal, as trustee of the Samuel C. Miller
Trust u/d/t 8/5/85, Warren Stanley and Arnold Lee and Possible
Dreams, Ltd., a Delaware corporation ("Possible Dreams")
(incorporated by reference to Exhibit 1 to the Registrant's
Form 8-K Current Report dated May 17, 1996).
10.24 -- Subordinated Promissory Note dated May 17, 1996 in the
amount of $2,128,000 from Possible Dreams to Possible Dreams,
Ltd., a Massachusetts corporation (incorporated by reference
to Exhibit 2 to the Registrant's Form 8-K Current Report dated
May 17, 1996).
10.25 -- Corrective Amendment dated November 25, 1996 to
Subordinated Promissory Note dated May 17, 1996 in the amount
of $2,128,000 from Possible Dreams to Possible Dreams, Ltd., a
Massachusetts corporation (incorporated by reference to
Exhibit 10.25 to the Registrant's Form 10-K Annual Report for
the fiscal year ended September 30, 1996).
10.26 -- Subordinated Promissory Note dated May 17, 1996 in the
amount of $332,000 from Possible Dreams to Columbia National
Corporation (incorporated by reference to Exhibit 3 to the
Registrant's Form 8-K Current Report dated May 17, 1996).
10.27 -- Corrective Amendment dated November 25, 1996 to
Subordinated Promissory Note dated May 17, 1996 in the amount
of $332,000 from Possible Dreams to Columbia National
Corporation (incorporated by reference to Exhibit 10.27 to the
Registrant's Form 10-K Annual Report for the fiscal year ended
September 30, 1996).
10.28 -- Credit Agreement dated as of May 17, 1996 among Possible
Dreams, P.D. Holdings, Inc., a Delaware corporation
("Holdings"), the Lenders referred to therein and
NationsCredit Commercial Corporation ("NationsCredit"), as
Agent (incorporated by reference to Exhibit 4 to the
Registrant's Form 8-K Current Report dated May 17, 1996).
10.29 -- Warrant dated May 17, 1996 from Possible Dreams to
NationsCredit (incorporated by reference to Exhibit 5 to the
Registrant's Form 8-K Current Report dated May 17, 1996).
34
<PAGE>
10.30 -- Warrantholders Rights Agreement dated as of May 17, 1996
among Possible Dreams, Holdings, Security Capital Corporation
("Security Capital"), Warren Stanley and Arnold Lee and
NationsCredit (incorporated by reference to Exhibit 6 to the
Registrant's Form 8-K Current Report dated May 17, 1996).
10.31 -- Security Capital Pledge and Guarantee Agreement dated as of
May 17, 1996 between Security Capital and NationsCredit, as
Agent (incorporated by reference to Exhibit 7 to the
Registrant's Form 8-K Current Report dated May 17, 1996).
10.32 -- Holdings Pledge Agreement dated as of May 17, 1996 among
Holdings and NationsCredit, as Agent (incorporated by
reference to Exhibit 8 to the Registrant's Form 8-K Current
Report dated May 17, 1996).
10.33 -- Investors Subordination Agreement dated as of May 17, 1996
among Possible Dreams, the Subordinated Obligations Holders
(as defined therein) and NationsCredit, as Agent (incorporated
by reference to Exhibit 9 to the Registrant's Form 8-K Current
Report dated May 17, 1996).
10.34 -- Sellers Subordination Agreement dated as of May 17, 1996
among Possible Dreams, the Subordinated Obligations Holders
(as defined therein) and NationsCredit, as Agent (incorporated
by reference to Exhibit 10 to the Registrant's Form 8-K
Current Report dated May 17, 1996).
10.35 -- Stockholders' Agreement dated as of May 17, 1996 among
Holdings, Arnold Lee, Warren Stanley and Security Capital
(incorporated by reference to Exhibit 11 to the Registrant's
Form 8-K Current Report dated May 17, 1996).
*10.36 -- Employment, Consulting and Non-Competition Agreement dated
May 17, 1996 by and between Possible Dreams and Warren Stanley
(incorporated by reference to Exhibit 12 to the Registrant's
Form 8-K Current Report dated May 17, 1996). *10.37 --
Employment, Consulting and Non-Competition Agreement dated May
17, 1996 by and between Possible Dreams and Arnold Lee
(incorporated by reference to Exhibit 13 to the Registrant's
Form 8-K Current Report dated May 17, 1996).
10.38 -- First Amendment to Advisory Services Agreement dated as of
May 17, 1996 by and between Security Capital and Capital
Partners, Inc. (incorporated by reference to Exhibit 14 to the
Registrant's Form 8-K Current Report dated May 17, 1996).
10.39 -- Consolidated Income Tax Sharing Agreement dated as of May
17, 1996 among Possible Dreams, Holdings and Security Capital
(incorporated by reference to Exhibit 15 to the Registrant's
Form 8-K Current Report dated May 17, 1996).
10.40 -- Asset Purchase Agreement dated as of June 27, 1997 by and
among Pumpkin, Ltd. d/b/a Pumpkin Masters, Inc., a Colorado
corporation (the "Seller"), Pumpkin Ltd., a Delaware
corporation ("Pumpkin"), Pumpkin Masters Holdings, Inc., a
Delaware corporation ("Pumpkin Holdings"), and the Registrant
(incorporated by reference to Exhibit 1(c)(1) to the
Registrant's Form 8-K Current Report dated June 27, 1997).
10.41 -- Credit Agreement dated as of June 27, 1997 among Pumpkin,
Pumpkin Holdings, the Lenders referred to therein and
NationsCredit Commercial Corporation ("NationsCredit"), as
Agent (incorporated by reference to Exhibit 1(c)(2) to the
Registrant's Form 8-K Current Report dated June 27, 1997).
10.42 -- Warrant dated June 27, 1997 from Pumpkin to NationsCredit
(incorporated by reference to Exhibit 1(c)(3) to the
Registrant's Form 8-K Current Report dated June 27, 1997).
10.43 -- Warrantholders Rights Agreement dated as of June 27, 1997
among Pumpkin, Pumpkin Holdings, the Registrant, Seller and
NationsCredit (incorporated by reference to Exhibit 1(c)(4) to
the Registrant's Form 8-K Current Report dated June 27, 1997).
10.44 -- Company Security Agreement dated as of June 27, 1997
between Pumpkin and NationsCredit, as Agent (incorporated by
reference to Exhibit 1(c)(5) to the Registrant's Form 8-K
Current Report dated June 27, 1997).
10.45 -- Pumpkin Holdings Pledge Agreement dated as of June 27, 1997
between Pumpkin Holdings and NationsCredit, as Agent
(incorporated by reference to Exhibit 1(c)(6) to the
Registrant's Form 8-K Current Report dated June 27, 1997).
10.46 -- Security Capital Pledge and Guarantee Agreement dated as of
June 27, 1997 between the Registrant and NationsCredit, as
Agent (incorporated by reference to Exhibit 1(c)(7) to the
Registrant's Form 8-K Current Report dated June 27, 1997).
10.47 -- Security Capital Subordination Agreement dated as of June
27, 1997 among Pumpkin, the Subordinated Obligations Holders
(as defined therein) and NationsCredit, as Agent (incorporated
by reference to Exhibit 1(c)(8) to the Registrant's Form 8-K
Current Report dated June 27, 1997).
10.48 -- Investors Subordination Agreement dated as of June 27, 1997
among Pumpkin, the Subordinated Obligations Holders (as
defined therein) and NationsCredit, as Agent (incorporated by
reference to Exhibit 1(c)(9) to the Registrant's Form 8-K
Current Report dated June 27, 1997).
10.49 -- Seller Subordination Agreement dated as of June 27, 1997
among Pumpkin, Pumpkin Holdings, the Subordinated Obligations
Holders (as defined therein) and NationsCredit, as Agent
(incorporated by reference to Exhibit 1(c)(10) to the
Registrant's Form 8-K Current Report dated June 27, 1997).
35
<PAGE>
10.50 -- Stockholders' Agreement dated as of June 27, 1997 among
Pumpkin, Pumpkin Holdings and Gay Burke (incorporated by
reference to Exhibit 1(c)(11) to the Registrant's Form 8-K
Current Report dated June 27, 1997).
*10.51 -- Employment Agreement dated June 27, 1997 by and between
Pumpkin and John Bardeen (incorporated by reference to Exhibit
1(c)(12) to the Registrant's Form 8-K Current Report dated
June 27, 1997).
*10.52 -- Employment Agreement dated June 27, 1997 by and between
Pumpkin and Kea Bardeen (incorporated by reference to Exhibit
1(c)(13) to the Registrant's Form 8-K Current Report dated
June 27, 1997).
*10.53 -- Employment Agreement dated June 27, 1997 by and between
Pumpkin and Gay Burke (incorporated by reference to Exhibit
1(c)(14) to the Registrant's Form 8-K Current Report dated
June 27, 1997).
*10.54 -- Stock Option Agreement dated June 27, 1997 by and between
Pumpkin and Gay Burke (incorporated by reference to Exhibit
1(c)(15) to the Registrant's Form 8-K Current Report dated
June 27, 1997).
10.55 -- Advisory Services Agreement dated June 27, 1997, by and
between Pumpkin and the Registrant (incorporated by reference
to Exhibit 1(c)(16) to the Registrant's Form 8-K Current
Report dated June 27, 1997).
10.56 -- Second Amendment to Advisory Services Agreement dated June
27, 1997 by and between the Registrant and Capital Partners,
Inc. (incorporated by reference to Exhibit 1(c)(17) to the
Registrant's Form 8-K Current Report dated June 27, 1997).
10.57 -- Joinder Agreement dated June 27, 1997 among Pumpkin,
Pumpkin Holdings and the Registrant to Consolidated Income Tax
Sharing Agreement dated as of May 17, 1996 among Possible
Dreams, Holdings and the Registrant (incorporated by reference
to Exhibit 1(c)(18) to the Registrant's Form 8-K Current
Report dated June 27, 1997).
10.58 -- Purchase Agreement dated as of July 3, 1997 by and among
FIM, FIS, BMD&B, Inc., a Texas corporation, formerly known as
BMD&B, Inc., Larry M. Karren and Edward G. Britt, Jr.
(incorporated by reference to Exhibit 4 to the Registrant's
Form 8-K Current Report dated July 17, 1997).
10.59 -- Modification Agreement dated as of July 3, 1997 by and
among FIM, FIS, BMD, and BMD&B, Inc. and BMD&B, Inc.
(incorporated by reference to Exhibit 5 to the Registrant's
Form 8-K Current Report dated July 17, 1997).
10.60 -- Exchange Agreement among the Registrant, each holder of
Class A Preferred Stock and Brian D. Fitzgerald.
10.61 -- Stock Purchase Agreement, dated as of April 6th, 1999, by
and among Primrose Holdings, Inc., a Delaware corporation
("Holdings"), Security Capital Corporation, a Delaware
corporation ("Security Capital"), Paul L. Erwin Grantor
Retained Annuity Trust (together with Paul L. Erwin, the
"Shareholders") Registrant (incorporated by reference to
Exhibit 1(c)(1) to the Registrant's Form 8-K Current Report
dated April 6, 1999).
10.63 -- Credit Agreement, dated as of April 6th, 1997, among
Primrose School Franchising Company, ("Primrose"), Holdings,
the Lenders referred to therein and Canadian Imperial Bank of
Commerce ("CIBC"), as Agent (incorporated by reference to
Exhibit 1(c)(2) to the Registrant's Form 8-K Current Report
dated April 6, 1999).
10.63 -- Warrant Agreement, dated as of April 6th, 1999 between
Security Capital and CIBC (incorporated by reference to
Exhibit 1(c)(3) to the Registrant's Form 8-K Current Report
dated April 6, 1999).
10.64 -- Stockholders' Agreement, dated as of April 6th, 1999, among
Holdings, Jo Kirchner, Raymond Orgera, Robert Benowitz and
Security Capital (incorporated by reference to Exhibit 1(c)(4)
to the Registrant's Form 8-K Current Report dated April 6,
1999).
10.65 -- Management Advisory Services Agreement, dated as of April
6th, 1999, by and among Primrose, Metrocorp, Country Day and
Security Capital (incorporated by reference to Exhibit 1(c)(5)
to the Registrant's Form 8-K Current Report dated April 6,
1999).
10.66 -- Third Amendment to Advisory Services Agreement, dated April
6th, 1999, by and between Security Capital and Capital
Partners, Inc. (incorporated by reference to Exhibit 1(c)(6)
to the Registrant's Form 8-K Current Report dated April 6,
1999).
10.67 -- Tax Sharing Joinder Agreement, dated April 6th, 1999, among
Holdings, Primrose, Metrocorp, Country Day and Security
Capital to Consolidated Income Tax Sharing Agreement, dated as
of April 17th, 1996, among Possible Dreams, Ltd., P.D.
Holdings, Inc. and Security Capital (incorporated by reference
to Exhibit 1(c)(7) to the Registrant's Form 8-K Current Report
dated April 6, 1999).
10.68 -- Lease Agreement, dated April 6th, 1999 by and between Erwin
Family Partnership, LLLP and Primrose (incorporated by
reference to Exhibit 1(c)(8) to the Registrant's Form 8-K
Current Report dated April 6, 1999).
10.69 -- Lease Agreement, dated April 6th, 1999 by and between Paul
L. Erwin and country Day (incorporated by reference to Exhibit
1(c)(9) to the Registrant's Form 8-K Current Report dated
April 6, 1999).
21 -- Subsidiaries of the Registrant.
27 -- Financial Data Schedule.
36
EXHIBIT 21
SUBSIDIARIES OF SECURITY CAPITAL CORPORATION
JURISDICTION OF
NAME INCORPORATION
---------- ----------------
Security Capital Insurance Group, Delaware
Inc.
Possible Dreams, Ltd. Delaware
P.D. Holdings, Inc. Delaware
Pumpkin Masters Holdings, Inc. Delaware
Pumpkin, Ltd. Delaware
Primrose Holdings, Inc. Delaware
Primrose School Franchising Company Georgia
Metrocorp Properties, Inc. Georgia
The Jewel I, Inc. Georgia
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM SECURITY CAPITAL CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,813
<SECURITIES> 0
<RECEIVABLES> 4,982
<ALLOWANCES> 213
<INVENTORY> 4,193
<CURRENT-ASSETS> 12,221
<PP&E> 1,781
<DEPRECIATION> 478
<TOTAL-ASSETS> 55,320
<CURRENT-LIABILITIES> 8,355
<BONDS> 0
0
2,206
<COMMON> 68
<OTHER-SE> 23,604
<TOTAL-LIABILITY-AND-EQUITY> 55,320
<SALES> 37,345
<TOTAL-REVENUES> 37,345
<CGS> 17,188
<TOTAL-COSTS> 17,188
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,122
<INCOME-PRETAX> 1,440
<INCOME-TAX> (768)
<INCOME-CONTINUING> 1,935
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,729
<EPS-BASIC> .28
<EPS-DILUTED> .28
</TABLE>
