<PAGE>
FILED PURSUANT TO RULE NO. 424(b)(4)
REGISTRATION NO. 33-99548
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED DECEMBER 28, 1995)
LOGO
2,036,342 COMMON SHARES OF BENEFICIAL INTEREST
----------------
Security Capital Industrial Trust ("SCI") is the largest publicly held owner
and operator of distribution properties in the United States based on equity
market capitalization. SCI is a national operating company focused exclusively
on meeting the distribution space needs of national, regional and local
industrial real estate users through the SCI National Operating System(TM).
See "Business." SCI has elected to be taxed as a real estate investment trust
(a "REIT") for federal income tax purposes and pays regular quarterly
distributions to its shareholders. The last reported sale price of SCI's
common shares of beneficial interest, par value $.01 per share (the "Common
Shares"), on the New York Stock Exchange ("NYSE") on September 24, 1996 was
$17 3/4. See "Price Range of Common Shares and Distributions."
The Common Shares offered hereby are being offered for cash to third party
subscribers to SCI's recent Rights Offering (see "Introduction--Rights
Offering") whose subscriptions were not accepted in whole or in part due to
demand in excess of Common Shares offered. See "The Offering." No minimum
number of Common Shares is required to be sold as a condition to the
consummation of this offering.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR
THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) SCI(2)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Common Share................. $17 1/4 None $17 1/4
- ------------------------------------------------------------------------------------------
Total(3)......................... $35,126,900 None $35,126,900
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) SCI has agreed to indemnify the placement agent against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "The Offering."
(2) Before deducting estimated expenses payable by SCI, which SCI expects to
be minimal.
(3) Assumes the sale of all Common Shares offered hereby.
----------------
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS SEPTEMBER 24, 1996.
<PAGE>
IN CONNECTION WITH THIS OFFERING, SCI OR ITS AFFILIATES MAY EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE COMMON
SHARES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-2
<PAGE>
INTRODUCTION
Unless otherwise indicated, this Prospectus Supplement assumes the sale of
2,036,342 Common Shares offered hereby and the sale of 10,181,709 Common
Shares in connection with SCI's Rights Offering.
RIGHTS OFFERING
On August 21, 1996, SCI commenced a rights offering (the "Rights Offering")
pursuant to which it distributed to its shareholders transferable rights
("Rights") to subscribe for and purchase up to 6,787,806 Common Shares at a
subscription price of $17 1/4 per Common Share (the "Subscription Price"). SCI
simultaneously sought third-party purchasers to acquire Common Shares,
including up to 3,393,903 Common Shares (the "Additional Shares"). Additional
Shares were also available to shareholders who subscribed for more than their
basic Rights amount. SCI will be issuing all of the 10,181,709 Common Shares
available in connection with the Rights Offering, whether through the exercise
of Rights, exercise of the oversubscription privilege of shareholders or sales
to third parties. The Rights Offering expired on September 24, 1996, and
Common Shares purchased pursuant thereto will be issued by September 30, 1996.
SHELF REGISTRATION
SCI currently has a "shelf" registration statement in effect pursuant to
which it may offer one or more of the following categories of its securities:
(i) Common Shares; (ii) preferred shares, in one or more series; and (iii)
unsecured senior debt securities, in one or more series. Such securities may
be offered separately or together, in separate series or amounts, at prices
and on terms determined by the SCI Board of Trustees. Approximately $113.1
million of such securities are currently available for issuance under such
registration statement, including the $35.1 million of Common Shares offered
hereby.
SECURITY CAPITAL INDUSTRIAL TRUST
SCI is the largest publicly held owner and operator of distribution
properties in the United States based on equity market capitalization. SCI,
through its REIT manager, Security Capital Industrial Incorporated (the "REIT
Manager" or "REIT Management"), is a fully integrated national operating
company focused exclusively on meeting the distribution space needs of
national, regional and local industrial real estate users through the SCI
National Operating System(TM). SCI distinguishes itself from its competition
by being the only entity that combines all of the following:
1. A national operating strategy targeting 1,000 key users of distribution
space;
2. A disciplined investment strategy based on proprietary research that
identifies high growth markets with sustainable demand for SCI's low
finish distribution space product;
3. An organizational structure and service delivery system built around the
customer; SCI believes its service approach is unique to the real estate
industry as it combines national scope and expertise with strong local
presence; and
4. Over 270 professionals in 28 offices which REIT Management believes
comprise the deepest and most experienced management team in industrial
real estate.
The cornerstone of SCI's national operating strategy is the SCI National
Operating System(TM) comprised of the Market Officer Group, the National
Services Group and the National Development Group (described under the caption
"Business") that provides an exceptional level of customer service, marketing
and development on a national, regional and local basis.
SCI engages in the acquisition, development, marketing, operation and long-
term ownership of distribution facilities, and the development of master-
planned distribution parks and build-to-suit facilities for its customers.
S-3
<PAGE>
SCI, through its REIT Manager, is a fully integrated national operating
company with a significant level of expertise in market research; building and
land acquisition and due diligence; master-planned distribution park design
and building construction; marketing; asset and leasing management; capital
markets and financial operations. SCI deploys capital in markets with
excellent long-term growth prospects and in markets where SCI can achieve a
strong market position through the acquisition and development of generic,
flexible facilities designed for both warehousing and light manufacturing
uses.
SCI highlights include:
.As of June 30, 1996, SCI was servicing over 2,300 customers including 259
national customers of which 149 are multiple market customers.
.As of June 30, 1996, SCI's portfolio contained 70.1 million square feet in
860 buildings and had an additional 10.2 million square feet under
development in 79 buildings for a total of 80.3 million square feet in 939
buildings. The total aggregate cost of the 80.3 million square feet
(including properties under development at total budgeted cost) is $2.399
billion ($29.88 per square foot average).
.As of June 30, 1996, SCI's stabilized portfolio of 61.6 million square
feet was 97.34% leased (96.49% occupied), and the total operating
portfolio of 70.1 million square feet, which includes 8.5 million pre-
stabilized square feet, was 94.82% leased (92.51% occupied).
.During the first six months of 1996, a total of 11.1 million square feet
was leased in 523 transactions through the operation of the SCI National
Operating System(TM). During the first six months of 1996, rental rates on
new and renewed leases on previously leased space for the operating
portfolio increased an average of 13.3%.
.In the first six months of 1996, SCI acquired 6.8 million square feet of
distribution space for a total expected investment of $162.0 million in 20
transactions, an average of $23.82 per square foot.
.As of June 30, 1996, SCI had under letter of intent or contingent
contract, subject to the completion of due diligence, acquisition
opportunities totalling 5.4 million square feet of distribution properties
at an acquisition cost of $153.8 million. Additionally, as of June 30,
1996, SCI was in active negotiations for acquisition opportunities
totalling approximately 7.9 million square feet of distribution
properties, at an acquisition cost of approximately $209.1 million.
.During the first six months of 1996, SCI commenced development of 6.4
million square feet of distribution space in 23 target markets. SCI had
under development 10.2 million square feet of distribution space in 26
target market cities as of June 30, 1996.
.Inventory building starts totalled 5.1 million square feet during the
first six months of 1996. As of June 30, 1996, completed inventory
buildings were 83.8% leased and 90.5% leased and committed.
.Build-to-suit starts totalled 1.3 million square feet during the first six
months of 1996. In addition, as of June 30, 1996, SCI was in active
negotiations for 5.1 million square feet of additional build-to-suit
projects.
.As of June 30, 1996, SCI owned 981.9 acres of development land and had
fixed price options and rights of first refusal to acquire 349.8 acres and
21.8 acres, respectively, which in the aggregate, will permit the
development of approximately 23.3 million square feet of additional
distribution space in 28 target market cities. Also, as of June 30, 1996,
SCI had an additional 453.0 acres under letter of intent or contingent
contract, subject to the completion of due diligence, which will permit
the development of approximately 7.8 million square feet of additional
distribution space.
.Security Capital Group Incorporated ("SCG"), SCI's largest shareholder,
which owned 48.3% of the Common Shares as of September 20, 1996 (46.0%
after giving effect to the Rights Offering and this offering), owns the
REIT Manager and has provided common equity investment capital to SCI at
the same times and on the same terms made available to public investors
and other shareholders.
S-4
<PAGE>
.SCI's pro forma percentage of debt to total book capitalization (including
accumulated depreciation) as of June 30, 1996 was 28.3% after giving
effect to this offering and the Rights Offering and the use of the
proceeds therefrom, providing significant capacity to prudently add fully
amortizing, long-term, fixed rate debt consistent with SCI's balance sheet
strategy. At September 24, 1996, SCI had $149.7 million of outstanding
borrowings under its $350 million unsecured line of credit facility.
SCI's executive offices are located at 14100 East 35th Place, Aurora,
Colorado 80011 and its telephone number is (303) 375-9292. SCI's predecessor
was formed in June 1991 as a Delaware corporation, and SCI was re-formed as a
Maryland real estate investment trust in January 1993.
S-5
<PAGE>
BUSINESS
SCI GROWTH AND OPERATING STRATEGY
Based on thorough research, SCI was created in June 1991 to take advantage
of two strategic opportunities: first, the opportunity to build a national
distribution and light manufacturing asset base at prices significantly below
replacement cost and a land inventory at attractive prices; and second, to
create, for the first time, a national operating company which would
differentiate itself from its competition through its ability to address and
service a corporate customer's distribution space requirements on a national,
regional and local basis. SCI's objective is to achieve long-term sustainable
growth in cash flow through: first, focusing its investments in markets with
excellent long-term growth prospects and markets where SCI can achieve a
strong market position through the acquisition and development of generic,
flexible facilities designed for both warehousing and light manufacturing
uses; second, the SCI National Operating System(TM); and third, ownership or
control of a significant inventory of land to enable SCI to take advantage of
market opportunities and accommodate expansion or build-to-suit requirements
of customers through development of new facilities.
SCI's operating strategy is to achieve significant market presence in each
target market city and selected submarkets in those cities through
acquisitions and master-planned distribution park development. SCI defines
market presence not only in terms of square feet of buildings and acres of
development land owned, but also by the extent of SCI's relationships with
customers having current and expected future space needs in such markets.
SCI's growth and operating strategy is designed to meet not only the needs
of today's distribution space users, which means providing functional, cost-
effective facilities and a comprehensive level of service, but also to shape
the future trends of the industry through innovation, service and product
leadership consistent with SCI's long-term investment horizon.
The SCI National Operating System(TM) is designed to provide substantial
benefits to existing and prospective SCI customers, including:
Relocation Capability. User requirements can change frequently, and SCI's
presence in 36 markets and ownership structure of its facilities permit SCI to
accommodate the needs of its customers by moving an existing customer within a
market or between markets both regionally and nationally.
Expansion Capability. SCI, through its development program, land inventory
and existing facilities, works with existing customers who have expansion
requirements to meet their growing business needs. Expansion may result in
relocating a customer to larger SCI spaces in a given market or in developing
a build-to-suit facility for such customer.
Nationally Coordinated Program. SCI provides a single point of contact for
multi-location national users through National Services Group professionals
who are charged with building long-term customer relationships and ensuring
that all SCI services and products are consistent in quality throughout the
United States. SCI's experience to date suggests that many major corporate
customers prefer working with one firm to meet their national distribution
space needs.
Development/Build-to-Suit Expertise. SCI's team of development professionals
are focused exclusively on building facilities for SCI customers that
incorporate the latest technology with respect to building design and building
systems. SCI has developed national standards and procedures that it strictly
adheres to in the development of all its facilities throughout the United
States.
The SCI National Operating System(TM) is comprised of three groups: the
Market Officer Group, the National Services Group and the National Development
Group.
Market Officer Group. This group is comprised of 25 professionals. Market
Officers have extensive experience (with an average of over 13 years) in
marketing distribution space and are responsible for
S-6
<PAGE>
understanding the needs of existing and prospective customers in their
respective markets. To meet such needs, Market Officers utilize their
extensive knowledge of local market conditions, including the cost and
availability of alternative space. Additionally, Market Officers have access
to information regarding existing SCI customers who are expanding or
relocating to various markets. A key role of the Market Officers is assisting
the National Services Group in identifying SCI customers with national, multi-
market requirements. REIT Management believes that the Market Officers' access
to national SCI resources provides significant stature and profile and
improves their ability to serve customers in the local market.
On a regular basis, the Market Officer communicates with senior management
in charge of that Market Officer's region for guidance on lease terms, as well
as for national and local marketing assistance, and is able to take advantage
of SCI's fully integrated national development and service capabilities.
Market Officers do not develop projects or borrow or commit capital; they
focus strictly on creating and maintaining relationships with industrial space
users and industrial brokers, marketing SCI's products and identifying
potential build-to-suit, acquisition and leasing opportunities in their target
market cities.
National Services Group. The National Services Group, comprised of 10
professionals, is dedicated to marketing SCI's services and products to 1,000
key domestic and international users of distribution space. The National
Services Group is headquartered in Denver and has regional offices in Atlanta,
Chicago, Dallas, the Los Angeles metropolitan area and, most recently, in the
New York metropolitan area. A key function of this group is identifying
companies whose reconfiguration and expansion of their distribution networks
will create multi-market and/or build-to-suit opportunities and coordinating
SCI services to those companies with the respective Market Officers and the
National Development Group. National Services Group professionals build long-
term relationships with SCI national customers and provide a single point of
contact to simplify and streamline the execution of such customers' national
distribution space plans. An ancillary benefit is research insights into
national distribution and logistics trends gained through continuous
interaction with National Services Group clients.
National Development Group. The National Development Group, comprised of 45
professionals, focuses substantial research and development efforts on
creating industry-leading, master-planned distribution parks and buildings.
Its members have extensive experience in development and construction of these
facilities.
This group is comprised principally of professionally trained architects,
engineers and construction professionals who oversee every aspect of the land
planning and building design processes. This group also monitors the
construction process and oversees the performance of third-party general
contractors. The group's build-to-suit specialists are based in Denver while
project managers (with an average experience level of 17.5 years) operate
regionally to better serve their markets. The project managers supervise each
project with continual oversight from national headquarters, pursuant to
uniform standards, procedures and specifications which have been carefully
designed to achieve consistent quality.
REIT Management believes the depth and breadth of the National Development
Group enhances the effectiveness of the National Services Group and gives the
Market Officers a distinct competitive advantage for development and build-to-
suit opportunities in their respective markets.
FOCUS ON RESEARCH-BASED GROWTH-ORIENTED MARKETS
Based on its research, the REIT Manager has focused SCI on selected
distribution markets, where supply and demand factors have permitted high
occupancies at increasing rental rates. The research indicates that demand for
distribution and light manufacturing space in SCI's target market cities
should be stable to strong in the near to medium term which should have a
positive effect on leasing rates and cash flow growth. REIT Management
believes that the primary factors influencing future supply and demand for
distribution real estate in SCI's target market cities will be continued job
and population growth, related regional and local company growth,
reconfiguration of distribution networks, and quality and cost of labor. In
addition, REIT Management
S-7
<PAGE>
believes that short construction cycles targeted for SCI's distribution
facilities, fragmented ownership and undercapitalization of local developers
also contribute to the attractive supply and demand fundamentals in SCI's
target markets.
SCI focuses on three types of industrial investment markets: export/import
growth markets, low cost manufacturing markets and growth distribution
markets. SCI is being asked by its customers to expand its geographic scope
and is evaluating these opportunities. SCI is also evaluating alternatives to
increase the services it provides to its customers.
MARKET PRESENCE
In each target market city (or in selected submarkets in cities such as
Dallas and Atlanta) in which SCI invests, REIT Management intends that SCI
become one of the major distribution space owners and operators within a four
to seven-year period. REIT Management believes that significant market
presence will provide the following benefits:
Value Enhancement. The significant local owners and developers in a given
market can usually generate above-market performance as measured by lease
rates and occupancy because of their ability to reduce turnover through
meeting their customers' needs to either expand or contract, by relocating
them within SCI's existing inventory of distribution space or by developing
new facilities. REIT Management believes that providing this flexibility
permits SCI to realize higher effective lease rates and lower levels of
ongoing tenant improvement investment. Effective implementation of this
strategy requires a critical mass of customers and space and ongoing
communication between customers and the Market Officers. REIT Management
believes SCI has achieved this critical mass in the following 27 markets:
Atlanta, Austin, Birmingham, Charlotte, Chattanooga, Cincinnati, Columbus,
Dallas/Fort Worth, Denver, the East Bay (San Francisco), El Paso, Houston,
Indianapolis, Kansas City, Memphis, Nashville, Oklahoma City, Orlando,
Phoenix, Portland, Reno, Rio Grande Valley (Brownsville), Salt Lake City, San
Antonio, the South Bay (San Francisco), Tampa and Washington, D.C./Baltimore,
and REIT Management believes that it is close to achieving critical mass in
two additional markets.
Maximum Market Exposure. Size and market presence provide visibility and
access to and knowledge of potential leasing and build-to-suit transactions.
The industrial brokerage community and corporate users are often motivated to
develop a relationship with the significant owners and developers in a
particular market in order to achieve their respective business objectives.
The opportunity to compete for the majority of customers' space requirements
in each target submarket is a crucial factor in achieving SCI's operating
objectives.
CUSTOMER BASE OBJECTIVE
SCI's objective is to develop a customer base in each target market city
which is diverse in terms of industry concentration and represents a broad
spectrum of national, regional and local distribution space users who have
potential for growth in demand for space. SCI had 2,698 customer leases in
64.9 million square feet of occupied space as of June 30, 1996. REIT
Management believes that having a large number of customers with generic space
requirements in each submarket will provide the opportunity to maximize cash
flow through intensively managing SCI's customer base. At the same time,
exposure to overall occupancy declines is reduced by achieving a broad
spectrum of customers in each submarket. SCI's largest customer accounted for
less than 1.5% of SCI's June 1996 rental income (on an annualized basis), and
the annualized base rent for SCI's 20 largest customers accounted for less
than 12.2% of SCI's June 1996 rental income (on an annualized basis). During
the last six months of 1996, approximately 11.3% of the leased square feet in
SCI's portfolio will expire, creating opportunities for SCI to increase rents
upon renewal or replacement of those leases.
S-8
<PAGE>
GEOGRAPHIC DISTRIBUTION
Substantially all of SCI's properties are located in 36 target markets. The
table below demonstrates the geographic distribution of SCI's equity real
estate investments through June 30, 1996. This chart does not include land
held for future development, which is less than 4% of assets, based on cost.
<TABLE>
<CAPTION>
PERCENTAGE OF ASSETS
NUMBER OF PROPERTIES BASED ON COST(1)
-------------------- --------------------
<S> <C> <C>
Atlanta, Georgia..................... 98 8.53%
Austin, Texas........................ 35 3.37
Birmingham, Alabama.................. 6 1.43
Charlotte, North Carolina............ 21 2.48
Chattanooga, Tennessee............... 5 0.65
Chicago, Illinois.................... 13 2.67
Cincinnati, Ohio..................... 30 2.61
Columbus, Ohio....................... 13 2.06
Dallas/Fort Worth, Texas............. 56 4.65
Denver, Colorado..................... 22 2.56
East Bay (San Francisco), California. 40 4.68
El Paso, Texas....................... 22 2.68
Fort Lauderdale, Florida............. 3 0.77
Houston, Texas....................... 67 5.42
Indianapolis, Indiana................ 47 4.75
Kansas City, Kansas/Missouri......... 28 2.23
Las Vegas, Nevada.................... 9 1.44
Louisville, Kentucky................. 2 0.50
Memphis, Tennessee................... 26 2.13
Nashville, Tennessee................. 24 2.08
New Jersey I-95 Corridor............. 0(2) --
Oklahoma City, Oklahoma.............. 10 0.61
Orange County, California............ 15 4.04
Orlando, Florida..................... 12 1.06
Phoenix, Arizona..................... 22 1.68
Portland, Oregon..................... 25 2.61
Reno, Nevada......................... 18 2.42
Rio Grande Valley (Brownsville),
Texas............................... 14 1.02
Salt Lake City, Utah................. 8 2.66
San Antonio, Texas................... 60 4.57
San Diego, California................ 3 0.60
Seattle, Washington.................. 9 1.83
South Bay (San Francisco),
California.......................... 66 8.33
Tampa, Florida....................... 60 4.68
Tulsa, Oklahoma...................... 10 0.53
Washington D.C./Baltimore............ 30 4.79
Other................................ 10 0.88
--- ------
Total............................ 939(3) 100.00%
=== ======
</TABLE>
- --------
(1) Includes properties under development at their budgeted total development
costs, rather than costs incurred to date.
(2) The New Jersey I-95 Corridor is a significant distribution space market
and is an SCI target market. Subsequent to June 30, 1996, SCI acquired
approximately 530,000 square feet in this target market and currently has
approximately 1.4 million square feet of distribution space under letter
of intent or contract in such target market.
(3) Includes 79 buildings under development.
S-9
<PAGE>
STRATEGIC AND OPERATING ACCOMPLISHMENTS
SCI's strategic and operating objectives have been furthered by the
following accomplishments:
.Creation of the SCI National Operating System(TM). The REIT Manager
developed the SCI National Operating System(TM) which provides an
exceptional level of customer service, marketing and development on a
national, regional and local basis through its 80 professionals and is a
key component of SCI's growth and operating strategy.
.Build-to-Suit Program. The build-to-suit program enhances SCI's ability to
meet customer needs. SCI's build-to-suit program is targeted to
distribution customers whose facility requirements are generic, not
special purpose, so as to facilitate the property's future marketability
and functionality. From inception through June 30, 1996, SCI completed or
commenced development of build-to-suit facilities totalling 6.5 million
square feet with an expected total investment of $217.8 million. In
addition, SCI is currently in active negotiations for 5.1 million square
feet of additional build-to-suit projects.
.Critical Mass in 27 Markets. Another key element of SCI's growth and
operating strategy is to build a critical mass of properties and customers
in each target market city through acquisition and development of
distribution space. SCI believes it has achieved critical mass in 27
markets and believes that it is close to achieving critical mass in two
additional markets.
.Target Market Expansion. SCI selectively evaluates the potential expansion
of its target markets to include other target market cities which have
strong growth prospects. From January 1, 1994 through June 30, 1996, SCI's
target market expanded to include 21 cities to more effectively service
the national distribution space needs of its customers bringing the total
of SCI's target market cities to 36.
.Land Inventory/Master-Planned Park Development. SCI's land inventory and
master-planned park development strategy is essential to meeting the
expansion and relocation needs of SCI's existing customer base and to
further penetrate its target markets. At June 30, 1996, SCI owned or
controlled land in 28 target market cities, which will permit the
development of approximately 23.3 million square feet of additional
distribution space. Also, as of June 30, 1996, SCI had an additional 453.0
acres under letter of intent or contingent contract, subject to the
completion of due diligence, which will permit the development of
approximately 7.8 million square feet of additional distribution space.
The REIT Manager believes that master-planned park development will
provide an important source of growth. Since inception, SCI has commenced
development of 53 master-planned parks in 27 of its target market cities.
.Inventory Building Program. In SCI's master-planned distribution parks,
SCI commences development of an inventory building when it perceives an
emerging demand in a specific submarket from both existing SCI customers
who are expanding and potential new customers whose leases for their
current space are approaching expiration. By having an appropriate supply
of distribution space, SCI can meet the expansion needs of existing
customers and can accommodate new customers. From inception through June
30, 1996, SCI completed or commenced development of 15.3 million square
feet of inventory buildings with a total investment cost of $532.3 million
in 26 target market cities.
USE OF PROCEEDS
The net proceeds to SCI from the sale of the Common Shares offered hereby
are expected to be approximately $35.1 million. SCI expects that the net
proceeds of this offering and the approximately $175.3 million of net proceeds
from the Rights Offering will be used to repay borrowings under SCI's
unsecured line of credit facility, with the remaining net proceeds used for
the acquisition and development of additional distribution properties, as
suitable opportunities arise, for capital improvements to properties and for
general corporate purposes. SCI's $350 million unsecured revolving line of
credit bears interest at the greater of the federal funds rate plus 0.5% and
prime (8.25% at September 24, 1996) or, at SCI's option, LIBOR plus 1.25%,
based upon SCI's current senior debt rating (6.7813% at September 24, 1996),
and is scheduled to mature in May 1998. At September 24, 1996, $149.7 million
in borrowings were outstanding under this line of credit. SCI expects to make
additional borrowings under the line of credit following this offering.
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of SCI at June 30, 1996,
and as adjusted to give effect to the issuance and sale of the 2,036,342
Common Shares offered hereby and the application of the net proceeds
therefrom, and the issuance and sale of all 10,181,709 Common Shares in
connection with the Rights Offering and the application of the net proceeds
therefrom. The table should be read in conjunction with the financial
statements of SCI incorporated by reference herein and in the accompanying
Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------
HISTORICAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
7.125% Notes due 1998.................................. $ 15,000 $ 15,000
Original issue discount on 7.125% Notes.............. (9) (9)
7.25% Notes due 2000................................... 17,500 17,500
Original issue discount on 7.25% 2000 Notes.......... (58) (58)
7.30% Notes due 2001................................... 17,500 17,500
Original issue discount on 7.30% Notes............... (71) (71)
7.25% Notes due 2002................................... 50,000 50,000
Original issue discount on 7.25% 2002 Notes.......... (54) (54)
7.95% Notes due 2008................................... 100,000 100,000
Original issue discount on 7.95% Notes............... (165) (165)
7.875% Notes due 2009.................................. 75,000 75,000
Original issue discount on 7.875% Notes.............. (348) (348)
8.72% Notes due 2009................................... 150,000 150,000
9.34% Notes due 2015................................... 50,000 50,000
8.65% Notes due 2016................................... 50,000 50,000
Original issue discount on 8.65% Notes............... (144) (144)
---------- ----------
Total unsecured long term debt......................... 524,151 524,151
Mortgage notes and assessment bonds payable............ 137,682 137,682
Minority Interest...................................... 57,905 57,905
Shareholders' Equity:
Shares of Beneficial Interest, par value $.01 per
share; 150,000,000 shares authorized:
Series A Preferred Shares (liquidation preference
$25.00 per share); 5,400,000 shares outstanding... 135,000 135,000
Series B Preferred Shares (liquidation preference
$25.00 per share);
8,050,000 shares outstanding...................... 201,250 201,250
Common Shares; 81,447,929 shares outstanding(1).... 814 936
Additional paid-in capital......................... 1,050,271 1,260,560
Distributions in excess of net earnings............ (55,648) (55,648)
---------- ----------
Total Shareholders' Equity....................... 1,331,687 1,542,098
---------- ----------
Total Capitalization............................. $2,051,425 $2,261,836
========== ==========
</TABLE>
- --------
(1) Excludes 5,733 Common Shares issued on August 15, 1996 under SCI's
Dividend Reinvestment and Share Purchase Plan, 10,320,513 Common Shares
reserved for issuance upon conversion of the Series B Preferred Shares,
5,194,258 Common Shares reserved for issuance upon exchange of partnership
units held by limited partners in certain partnerships, 1,370,971 Common
Shares reserved for issuance pursuant to SCI's Dividend Reinvestment and
Share Purchase Plan, 100,000 Common Shares reserved for issuance pursuant
to SCI's Share Option Plan for Outside Trustees and 11,764 Common Shares
reserved for issuance upon exercise of outstanding warrants.
S-11
<PAGE>
PRICE RANGE OF COMMON SHARES AND DISTRIBUTIONS
The Common Shares are listed on the NYSE under the symbol "SCN". The
following table sets forth the high and low sale prices of the Common Shares as
reported in the New York Stock Exchange Composite Tape, and distributions
declared, for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW DISTRIBUTIONS
------- ------- -------------
<S> <C> <C> <C>
1994
March 31(1).............................. $14 7/8 $13 1/2 $0.2125
Second Quarter........................... 17 1/8 13 5/8 0.2125
Third Quarter............................ 18 1/4 15 0.2125
Fourth Quarter........................... 17 1/8 14 7/8 0.2125
1995
First Quarter............................ $17 3/4 $15 1/4 $0.23375(2)
Second Quarter........................... 17 1/2 14 1/2 0.23375
Third Quarter............................ 16 1/2 15 0.23375
Fourth Quarter........................... 17 5/8 16 0.23375
1996
First Quarter............................ $18 7/8 $16 1/2 $0.2525(3)
Second Quarter........................... 18 16 7/8 0.2525
Third Quarter (through September 24)..... 18 1/4 16 7/8 0.2525
</TABLE>
- --------
(1) SCI's initial public offering was completed, and the Common Shares
commenced trading, on March 31, 1994.
(2) Declared in the fourth quarter of 1994 and paid in the first quarter of
1995.
(3) Declared in the fourth quarter of 1995 and paid in the first quarter of
1996.
See the cover page of this Prospectus Supplement for the price of a Common
Share as of a recent date. On September 20, 1996, SCI had approximately
81,453,662 Common Shares outstanding, which were held of record by
approximately 1,100 shareholders.
SCI, in order to qualify as a REIT, is required to make distributions (other
than capital gain distributions) to its shareholders in amounts at least equal
to (i) the sum of (A) 95% of its "REIT taxable income" (computed without regard
to the dividends paid deduction and its net capital gain) and (B) 95% of the
net income (after tax), if any, from foreclosure property, minus (ii) the sum
of certain items of noncash income. SCI's distribution strategy is to
distribute what it believes is a conservative percentage of its cash flow,
permitting SCI to retain funds for capital improvements and other investments
while funding its distributions.
SCI announces the following year's projected annual distribution level after
the annual budget review and approval in December of each year by SCI's Board
of Trustees. At its December 1995 board meeting, the Board of Trustees
announced a projected increase in the annual distribution level from $0.935 to
$1.01 per Common Share. The payment of distributions is subject to the
discretion of the Board of Trustees and is dependent upon the financial
condition and operating results of SCI.
For federal income tax purposes, distributions may consist of ordinary
income, capital gains, non-taxable return of capital or a combination thereof.
Distributions that exceed SCI's current and accumulated earnings and profits
(calculated for tax purposes) constitute a return of capital rather than a
dividend and reduce the shareholder's basis in his or her Common Shares. To the
extent that a distribution exceeds both current and accumulated earnings and
profits and the shareholder's basis in his or her Common Shares, it will
generally be treated as gain from the sale or exchange of that shareholder's
Common Shares. SCI annually notifies shareholders of the taxability of
distributions paid during the preceding year. Approximately 26% of the
distribution for 1995 constituted a non-taxable return of capital for federal
income tax purposes and approximately 74% was ordinary income.
S-12
<PAGE>
Under federal income tax rules, SCI's earnings and profits are first
allocated to its preferred shares, which increases the portion of the Common
Shares distribution classified as return of capital. SCI's tax returns have
not been examined by the Internal Revenue Service and, therefore, the
taxability of distributions is subject to change. The portion of distributions
characterized as return of capital results primarily from the excess of
distributions over earnings, primarily because non-cash charges such as
depreciation are added to earnings in determining distribution levels.
Depreciation has increased as new properties have been added. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations."
DIVIDEND REINVESTMENT AND SHARE PURCHASE PLAN
In March 1995, SCI adopted a Dividend Reinvestment and Share Purchase Plan
(the "Plan"). The Plan allows holders of Common Shares the opportunity to
acquire additional Common Shares by automatically reinvesting distributions.
Common Shares are acquired pursuant to the Plan at a price equal to 98% of the
market price of such Common Shares, without payment of any brokerage
commission or service charge. The Plan also allows participating shareholders
to purchase a limited number of additional Common Shares at 98% of the market
price of such Common Shares, by making optional cash payments, without payment
of any brokerage commission or service charge. Shareholders who do not
participate in the Plan continue to receive distributions as declared.
S-13
<PAGE>
SELECTED FINANCIAL DATA(1)
The following tables set forth selected financial data for SCI and should be
read in conjunction with the financial statements and notes thereto included
or incorporated by reference in this Prospectus Supplement and the
accompanying Prospectus (amounts in thousands, except ratios and per share
data).
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, PERIODS ENDED DECEMBER 31,
---------------------- --------------------------------------------------
1996 1995 1995 1994 1993 1992 1991(2)
---------- ---------- ---------- ---------- -------- ------- -------
(UNAUDITED) (AUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Rental Income.......... $ 104,423 $ 68,241 $ 153,879 $ 70,609 $ 9,963 $ 1,592 $ 86
Series A Preferred
Share Dividends....... 6,345 353 6,698 -- -- -- --
Series B Preferred
Share Dividends....... 5,023 -- -- -- -- -- --
Net Earnings (Loss)
Attributable to Common
Shares................ 23,681 18,808 42,015 25,101 4,412 (59) (127)
Common Share
Distributions......... $ 41,122 $ 30,194 $ 64,445 $ 37,698 $ 7,001 $ 390 $ --
PER SHARE DATA:
Series A Preferred
Share Dividends....... $ 1.175 $ 0.065 $ 1.24 -- -- -- --
Series B Preferred
Share Dividends....... 0.62708 -- -- -- -- -- --
Net Earnings (Loss)
Attributable to Common
Shares................ 0.29 0.29 0.61 0.57 0.47 (0.06) (0.38)
Common Share
Distributions......... $ 0.5050 $ 0.4675 $ 0.935 $ 0.85 $ 0.75 $ 0.45 $ --
Weighted Average Common
Shares Outstanding.... 81,436 64,587 68,924 44,265 9,334 930 337
OTHER DATA:
Net Cash Provided by
Operating Activities.. $ 57,260 $ 41,906 $ 100,154 $ 47,222 $ 12,084 $ 865 $ 559
Net Cash Used in
Investing Activities.. (323,916) (266,655) (628,795) (631,871) (260,780) (31,549) (8,266)
Net Cash Provided by
Financing Activities.. 253,463 252,624 529,606 599,382 254,770 31,032 7,822
Funds from Operations
Attributable to Common
Shares(3)............. $ 52,565 $ 37,962 $ 84,060 $ 46,307 $ 7,189 $ 499 $ (95)
<CAPTION>
JUNE 30, DECEMBER 31,
---------------------- --------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- -------- ------- -------
(UNAUDITED) (AUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Income Producing Real
Estate Owned, at Cost. $1,932,932 $1,325,487 $1,622,404 $1,073,026 $354,436 $35,114 $2,936
Land Held for
Development........... 74,545 50,110 60,363 42,147 21,667 5,886 5,464
Total Assets........... 2,136,195 1,497,765 1,833,972 1,194,937 401,855 42,253 10,423
Mortgage Notes Payable. 137,682 152,430 145,276 144,262 40,109 -- --
Long Term Debt......... 524,151 324,455 324,527 -- -- -- --
Total Liabilities...... 746,603 520,236 639,040 350,607 141,618 1,684 5,456
Minority Interest...... 57,905 65,610 58,741 66,555 50,786 -- 1,690
Total Shareholders'
Equity................ $1,331,687 $ 911,919 $1,136,191 $ 777,775 $209,451 $40,569 $3,277
Number of Common Shares
Outstanding........... 81,448 64,588 81,416 64,587 19,762 4,111 337
</TABLE>
- --------
(1) These tables present selected operating, balance sheet and other data for
the periods presented. Certain factors which may affect the comparability
of the data presented are set forth under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(2) For the period from June 14, 1991 (the date of SCI's inception) to
December 31, 1991.
(3) SCI believes that Funds from Operations is helpful in understanding a
property portfolio in that such calculation reflects cash flow from
operating activities and the properties' ability to support interest
payments and general operating expenses before the impact of certain
activities, such as gains or losses from sales of depreciated property and
changes in accounts receivable and accounts payable. For an explanation of
Funds from Operations, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources." Funds from Operations should not be considered as an
alternative to net income or any other generally accepted accounting
principles ("GAAP") measurement of performance as an indicator of SCI's
operating performance or as an alternative to cash flows from operating,
investing or financing activities as a measure of liquidity. The Funds
from Operations measure presented by SCI may not be comparable to other
similarly titled measures of other REITs. In January 1995, SCI changed to
a more conservative policy of expensing the amortization of loan costs in
determining Funds from Operations. For comparability, prior period amounts
have been restated to conform to this policy.
S-14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Financial Data" and all of the financial statements incorporated by reference
in this Prospectus Supplement and the accompanying Prospectus. Historical
results and percentage relationships set forth in "Selected Financial Data"
and in such financial statements should not be taken as indicative of future
operations of SCI.
OVERVIEW
SCI's operating results depend primarily upon net operating income from
distribution properties, which is substantially influenced by (i) the demand
for and supply of distribution properties in SCI's target market cities, (ii)
the pace and economic returns at which SCI can acquire and develop additional
distribution properties, and (iii) the extent to which SCI can sustain
improved market performance as measured by lease rates and occupancy. SCI's
target market cities and submarkets have benefitted substantially in recent
periods from demographic trends (including population and job growth) which
influence the demand for distribution properties. REIT management believes
SCI's ability to compete is significantly enhanced relative to other companies
because of the REIT Manager's depth of management, including the SCI National
Operating System(TM), which includes acquisition and development personnel,
and presence in local markets. The REIT Manager is a subsidiary of SCG, SCI's
largest shareholder. As a result of acquisitions and developments for the last
six months of 1995 and the first six months of 1996, SCI's rentable square
footage increased by 21.5 million square feet or 44.2% to 70.1 million square
feet as of June 30, 1996 from 48.6 million square feet as of June 30, 1995. As
of June 30, 1996, the portfolio was 94.82% leased. REIT Management expects
that SCI's ability to acquire and develop distribution properties at favorable
economic returns will continue through the remainder of 1996. Over the longer
term, SCI expects masterplanned, full service distribution park developments
to constitute an increasing percentage of SCI's growth. Additionally, SCI
Development Services Incorporated ("SCI Development Services") (see "--Other
Real Estate Income") is expected to contribute an increasing level of income
in subsequent periods. As of June 30, 1996, 2.3 million square feet of SCI's
10.2 million square feet under development consisted of build-to-suits under
development representing a total expected investment of $80.7 million.
SCI frequently acquires properties which are underleased and develops
properties which are not fully leased at the start of construction, which
reduces SCI's overall occupancy rate below its stabilized level but provides
opportunities to increase revenues. The term "stabilized" means that capital
improvements, repositioning, new management and new marketing programs (or
development and marketing, in the case of newly developed properties) have
been completed and in effect for a sufficient period of time (but in no case
longer than 12 months for properties acquired by SCI and 18 months after shell
completion for properties developed by SCI) to achieve stabilized occupancy
(typically 93%, but ranging from 90% to 95%, depending on the submarket and
product type) at market rents. SCI has been successful in increasing
occupancies on acquired and developed properties during their initial months
of operations resulting in an occupancy rate of 96.49% for stabilized
properties owned as of June 30, 1996. The average increase in rental rates for
new and renewed leases on previously leased space during the first six months
of 1996 was 13.3%. As leases are renewed or new leases are acquired, SCI
expects most lease rates on renewals or new leases to increase in the
remainder of 1996. These factors should improve SCI's results of operations.
Capital and credit market conditions which affect SCI's costs of equity and
debt capital may influence future growth in operating results. No assurance
can be given that the expected trends for the remainder of 1996 in leasing
rates, occupancy rates and economic returns on acquired and developed
properties will be realized.
The following discussion outlines SCI's financial condition and results of
operations for the first six months of 1996 compared to the first six months
of 1995. A discussion of other fiscal periods, financial condition and results
of operations is contained in "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" in SCI's Form 10-K for the year
ended December 31, 1995, which is incorporated herein by reference.
S-15
<PAGE>
RESULTS OF OPERATIONS--SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Interim Period Comparisons
Net earnings attributable to Common Shares increased by $4.9 million or
26.1% to $23.7 million for the first six months of 1996 from $18.8 million for
the same period in 1995.
Net earnings are expected to increase in subsequent periods due to the
acquisition and development of additional operating properties and the
continued increase in the stabilized portfolio rental rates.
Historically, the primary components of revenue and earnings growth have
been SCI's acquisition and development activity. SCI has acquired and
developed $1.9 billion of operating properties from its inception through June
30, 1996. Projected 1996 property level earnings before interest, taxes,
depreciation and amortization ("EBITDA") for these properties is 10.32% of
SCI's aggregate cost. Aggregate cost for the properties includes the purchase
price, closing costs, actual and budgeted capital improvements and marketing
costs prior to stabilization (and all development costs, in the case of
developed properties). Projected EBITDA is based on current lease rates for
stabilized properties and current market rates for properties being stabilized
and anticipated operating expenses. No assurance can be given that projected
levels of EBITDA will be achieved by these properties nor that future
acquisitions and developments will achieve the same level of EBITDA relative
to SCI's investment basis. The EBITDA measure presented by SCI may not be
comparable to other similarly titled measures of other REITs.
Rental Revenues
Rental revenues for the first six months of 1996 increased by $36.2 million
or 53.1% to $104.4 million, as compared to $68.2 million for the same period
in 1995. Of this increase, $19.1 million was generated by the 180 properties
acquired in 1995, $8.2 million was generated by the 48 developments completed
in 1995, $4.9 million was generated by the 70 properties acquired in 1996, and
$2.7 million was generated by the 41 developments completed in 1996. The
remaining $1.3 million increase was attributable to revenue increases in the
521 properties owned at January 1, 1995.
Other Real Estate Income
Other real estate income consists of gains on disposition of property and
fees and other income from build-to-suit customers generated primarily by SCI
Development Services. SCI Development Services is expected to generate
recurring income in subsequent periods. SCI owns a preferred stock interest
representing 95% of the net operating cash flow of SCI Development Services.
SCI Development Services develops build-to-suit distribution space facilities
or works on a fee basis for customers whose space needs do not meet SCI's
strict investment criteria for long-term ownership. Through its preferred
stock ownership, SCI will realize substantially all economic benefits of SCI
Development Services activities. The activities of SCI Development Services
are consolidated with SCI. SCI Development Services pays federal and state
taxes at the applicable corporate rate.
Interest Income
Interest income for the first six months of 1996 increased $173,000 from the
same period in 1995. The increase in interest income was a result of higher
average balances in interest bearing accounts and higher interest rates in the
first six months of 1996 compared to the same period in 1995.
Rental Expenses
Rental expenses, net of recoveries, increased by $5.9 million or 78.7% to
$13.4 million for the first six months of 1996 from $7.5 million for the same
period in 1995. The increase in rental expenses is primarily attributable to
acquisitions and developments for the last six months of 1995 and the first
six months of 1996, which increased SCI's rentable square footage by 21.5
million square feet to 70.1 million square feet.
S-16
<PAGE>
Interest Expense
Interest expense increased by $2.2 million or 14.5% to $17.4 million for the
first six months of 1996 from $15.2 million for the same period in 1995. Total
interest capitalized increased by $3.8 million or 122.6% to $6.9 million for
the first six months of 1996 from $3.1 million for the same period in 1995.
The increase in interest expense was principally caused by the 1995 issuance
of $325 million in Senior Notes and the issuance of $200 million in Senior
Notes on May 17, 1996 (See "--Liquidity and Capital Resources"). The
capitalized interest increase is attributable to increased development
activity in the first six months of 1996 as compared to the first six months
of 1995.
REIT Management Fee
The REIT management fee paid by SCI is based on SCI's cash flow (as defined
in the REIT Management Agreement between SCI and the REIT Manager) before the
REIT management fee and therefore increased for the first six months of 1996
as compared to the same period in 1995 because cash flow increased
substantially.
Other Expenses
Other expenses increased by $469,000 or 64.2% to $1.2 million for the first
six months of 1996 from $731,000 for the same period in 1995. Other expenses
consist of land holding costs and acquisition and build-to-suit pursuit cost
write-offs. Land holding costs were $820,000 for the first six months of 1996
compared to $487,000 for the same period in 1995, and acquisition and build-
to-suit pursuit cost write-offs were $380,000 for the first six months of 1996
compared to $244,000 for the same period in 1995. The increase in land holding
costs is principally the result of the increase in the average balance in land
holdings.
Preferred Share Dividends
In June 1995, SCI issued $135 million of Series A Cumulative Redeemable
Preferred Shares (the "Series A Preferred Shares") that are entitled to
receive an annual dividend of $2.35 per share (9.4% annual dividend rate),
which amounted to $6.3 million for the first six months of 1996 compared to
$353,000 for the period from the June 21, 1995 issue date through June 30,
1995. In February 1996, SCI issued $201.3 million of Series B Cumulative
Convertible Redeemable Preferred Shares (the "Series B Preferred Shares") that
are entitled to receive an annual dividend of $1.75 per share (7% annual
dividend rate) which amounted to $5.0 million for the period from the February
21, 1996 issue date through June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities increased from $41.9 million in the
first six months of 1995 to approximately $57.3 million in the first six
months of 1996. Cash used in investing activities increased from approximately
$266.7 million in the first six months of 1995 to approximately $323.9 million
in the first six months of 1996. Cash provided by financing activities was
approximately $253.5 million in the first six months of 1996 compared to
approximately $252.6 million in the first six months of 1995. Cash provided by
financing activities for the first six months of 1996 consisted, primarily, of
$192 million of net proceeds from the sale of the Series B Preferred Shares,
$199.6 million net proceeds from the May debt offering and a net repayment on
the line of credit of $67.7 million. Cash provided by financing activities in
the first six months of 1995 consisted primarily of $130.4 million net
proceeds from the sale of the Series A Preferred Shares, $324.5 million of net
proceeds from the March and May long-term debt offerings and a $160 million
net repayment on the line of credit. Additionally, distributions paid to
common and preferred shareholders used $21.9 million more cash in the first
six months of 1996 as compared to the first six months of 1995.
On May 17, 1996, SCI issued $50 million of Senior Notes due 2002 (the "2002
Notes"), $100 million of Senior Notes due 2008 (the "2008 Notes"), and $50
million of Senior Notes due 2016 (the "2016 Notes" and together with the 2002
Notes and the 2008 Notes, the "May 1996 Notes"). The 2002 Notes bear interest
at
S-17
<PAGE>
7.25% per annum and require annual principal payments of $12.5 million,
commencing May 15, 1999. The 2008 Notes bear interest at 7.95% per annum and
require annual principal payments of $25 million, commencing May 15, 2005. The
2016 Notes bear interest at 8.65% per annum and require aggregate annual
principal payments of $5 million, commencing 2010 through 2013, $7.5 million
in 2014, $10 million in 2015, and $12.5 million in 2016. In order to lock in
interest rates for the May 1996 Notes, SCI entered into an interest rate
protection agreement in the form of a Forward Treasury Lock Agreement with an
investment banker on May 9, 1996. The agreement included a determination date
of May 15, 1996 and a settlement date of May 16, 1996. The notional amount was
$50 million with a reference price of 97.203%. On May 14, 1996, the Forward
Treasury Lock Agreement was unwound at a price of 99.375% and SCI paid $1.086
million in settlement. Additionally, SCI paid $837,000 to terminate an
Interest Rate Swap Agreement entered into with an investment banker on May 9,
1996. The agreement included an effective date of May 15, 1996 and a
termination date of May 15, 2006. The notional amount of the Interest Rate
Swap Agreement was $50 million. Collectively, the May 1996 Notes originally
had an average life to maturity of 10.8 years and an average effective
interest cost, inclusive of offering discounts, issuance costs and the
interest rate protection agreements of 8.41% per annum.
In February 1996, SCI issued a total of 8,050,000 Series B Preferred Shares.
The Series B Preferred Shares have a liquidation preference of $25 per share
for an aggregate liquidation preference of $201,250,000 plus any accrued and
unpaid dividends. Holders of the Series B Preferred Shares are only entitled
to limited voting rights under certain conditions. The Series B Preferred
Shares are convertible at any time, unless previously redeemed, at the option
of the holders thereof into SCI common shares at a conversion price of $19.50
per common share (equivalent to a conversion rate of 1.282 Common Shares for
each Series B Preferred Share), subject to adjustment in certain
circumstances. Holders of the Series B Preferred Shares are entitled to
receive, when, as and if declared by the Board of Trustees, out of funds
legally available for the payment of distributions, cumulative preferential
cash distributions in an amount per share equal to the greater of 7% of the
liquidation preference per annum (equivalent to $1.75 per share) or the
distributions on the Common Shares, or portion thereof, into which a Series B
Preferred Share is convertible. Distributions on the Series B Preferred Shares
are cumulative from the date of original issue and are payable quarterly in
arrears on the last day of March, June, September and December of each year.
The Series B Preferred Shares are redeemable at the option of SCI on or after
February 21, 2001. The Series B Preferred Shares rank on a parity with the
Series A Preferred Shares with respect to payment of distributions and amounts
upon liquidation.
On September 29, and October 3, 1995, SCI completed a $250.0 million public
offering and issued a total of 16,260,163 Common Shares at a price of $15.375
per Common Share in conjunction with a rights offering.
On June 21, 1995, SCI issued 5,400,000 Series A Preferred Shares. The Series
A Preferred Shares have a liquidation preference of $25 per share for an
aggregate liquidation preference of $135 million plus any accrued but unpaid
dividends. The net proceeds (after underwriting commission and other offering
costs) of the Series A Preferred Shares issued were $130.4 million. Holders of
the Series A Preferred Shares are entitled only to
limited voting rights under certain conditions. Holders of the Series A
Preferred Shares will be entitled to receive, when, as and if declared by the
Board of Trustees, out of funds legally available for the payment of
distributions, cumulative preferential cash distributions at the rate of 9.4%
of the liquidation preference per annum (equivalent to $2.35 per share). The
Series A Preferred Shares are redeemable at the option of SCI on or after June
21, 2000. The redemption price (other than the portion thereof consisting of
accrued and unpaid distributions) is payable solely out of the sale proceeds
of other capital shares of SCI, which may include shares of other series of
preferred shares.
On May 16, 1995, SCI issued $75 million of Senior Notes due 2009 (the "May
2009 Notes"), $17.5 million of Senior Notes due 2001 (the "2001 Notes"), $17.5
million of Senior Notes due 2000 (the "2000 Notes") and $15 million of Senior
Notes due 1998 (the "1998 Notes," together with the May 2009 Notes, the 2001
Notes and the 2000 Notes, collectively referred to herein as the "May 1995
Notes"). The May 2009 Notes bear interest at 7.875% per annum and require
annual principal payments of $9.375 million, commencing May 15, 2002. The 2001
Notes, 2000 Notes and 1998 Notes bear interest at 7.30%, 7.25% and 7.125% per
annum, respectively, with the principal payable at maturity. Collectively, the
May 1995 Notes originally had an average life to
S-18
<PAGE>
maturity of 8.2 years and an average effective interest cost, inclusive of
offering discount and issuance costs, of 7.92% per annum.
On March 2, 1995, SCI issued $150 million of Senior Notes due 2009 (the
"March 2009 Notes") and $50 million of Senior Notes due 2015 (the "2015
Notes," together with the March 2009 Notes, collectively referred to herein as
the "March Notes"). The March 2009 Notes bear interest at 8.72% per annum and
require annual principal payments of $18.75 million, commencing March 1, 2002.
The 2015 Notes bear interest at 9.34% per annum and require aggregate annual
principal payments of $5 million in 2010, $6.25 million in 2011, $7.5 million
in 2012, $8.75 million in 2013, $10 million in 2014 and $12.5 million in 2015.
Collectively, the March Notes originally had an average life to maturity of
12.38 years and an average effective interest cost, inclusive of offering
discount and issuance costs, of 9.04% per annum.
All of the foregoing notes (the May 1996 Notes, the May 1995 Notes and the
March Notes, collectively referred to herein as the "Notes") are redeemable at
any time at the option of SCI, in whole or in part, at a redemption price
equal to the sum of the principal amount of the notes being redeemed plus
accrued interest thereon to the redemption date plus an adjustment, if any,
based on the yield to maturity relative to market yields available at
redemption. Such notes are governed by the terms and provisions of an
indenture agreement (the "Indenture") between SCI and State Street Bank and
Trust Company, as trustee.
Under the terms of the Indenture, SCI can incur additional debt only if,
after giving effect to the debt being incurred and application of proceeds
therefrom, (i) the ratio of debt to total assets, as defined in the Indenture,
does not exceed 60%, (ii) the ratio of secured debt to total assets, as
defined in the Indenture, does not exceed 40% and (iii) SCI's pro forma
interest coverage ratio, as defined in the Indenture, for the four preceding
fiscal quarters is not less than 1.5:1. In addition, SCI may not at any time
own Total Unencumbered Assets, as defined in the Indenture, equal to less than
150% of the aggregate outstanding principal amount of SCI's unsecured debt. At
June 30, 1996, SCI was in compliance with all debt covenants.
On June 1, 1995, SCI increased its line of credit agented by NationsBank
Texas N.A. ("NationsBank"), to $350 million. The line of credit, as amended
and restated effective May 2, 1996, bears interest at SCI's option at either
(a) the greater of the federal funds rate plus 0.5% and prime, or (b) LIBOR
plus 1.25%, based upon SCI's current senior debt ratings, and is scheduled to
mature in May 1998. This line may be extended annually for an additional year
with the approval of NationsBank and the other participating lenders. All debt
incurrences are subject to a covenant that SCI maintain a debt to tangible net
worth ratio of not greater than 1 to 1. Additionally, SCI is required to
maintain an adjusted net worth (as defined) of at least $1 billion, to
maintain interest payment coverage of not less than 2 to 1, and to maintain a
fixed charge coverage ratio (as defined) of not less than 1.4 to 1. As of June
30, 1996, SCI was in compliance with all covenants, and as of September 24,
1996, $149.7 million of borrowings were outstanding.
From inception through June 30, 1996, SCI had invested $1.9 billion for the
acquisition and development of 860 distribution properties. These acquisitions
and developments were financed with cash on hand, the issuance of limited
partnership units, the assumption of existing mortgage debt and borrowings
under SCI's line of credit which were repaid with the proceeds of SCI's equity
and debt offerings.
On June 30, 1996, SCI had $371.1 million of budgeted development cost for
developments in process, of which $237.8 million was unfunded. In addition, at
June 30, 1996, SCI had letters of intent or contingent contracts, subject to
SCI's final due diligence, for the acquisition of 5.4 million square feet of
distribution properties in various target market cities with an acquisition
cost of $153.8 million. The foregoing transactions are subject to a number of
conditions, and SCI cannot predict with certainty that any of them will be
consummated.
SCI expects to finance construction, development and acquisitions primarily
with cash on hand, borrowings under its line of credit and cash from future
securities offerings. When issuing debt, SCI intends primarily to arrange
fully amortizing, fixed rate, 10-year to 20-year debt to finance additional
acquisitions and developments.
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To a lesser extent, under certain circumstances, SCI may arrange for debt with
different maturities in order to optimize its debt maturity schedule.
The REIT Manager considers SCI's liquidity and ability to generate cash from
operations and financings to be adequate and expects it to continue to be
adequate to meet SCI's acquisition, development, operating, debt service and
shareholder distribution requirements.
SCI's current distribution policy is to pay quarterly distributions to
shareholders based upon what REIT Management considers to be a reasonable
percentage of cash flow. Because depreciation is a non-cash expense, cash flow
typically will be greater than earnings from operations and net earnings.
Therefore, quarterly distributions will consistently be higher than quarterly
earnings.
Pursuant to the terms of the Series A Preferred Shares and the Series B
Preferred Shares, SCI is restricted from declaring or paying any distribution
with respect to the Common Shares unless all cumulative distributions with
respect to the Series A Preferred Shares and the Series B Preferred Shares
have been paid and sufficient funds have been set aside for distributions that
have been declared for the then current distribution period with respect to
the Series A Preferred Shares and the Series B Preferred Shares. The Series A
Preferred Share and Series B Preferred Share dividends do not reduce the
amount SCI has budgeted for Common Share distributions, but do increase the
percentage of the Common Share distribution that constitutes a non-taxable
return of capital.
Funds from Operations
Funds from Operations attributable to Common Shares increased $14.6 million
or 38.4% from $38.0 million for the first six months of 1995 to $52.6 million
for the same period in 1996. SCI believes that Funds from Operations is
helpful in understanding a property portfolio in that such calculation
reflects cash flow from operating activities and the properties' ability to
support interest payments and general operating expenses before the impact of
certain activities, such as changes in accounts receivable and accounts
payable. Funds from Operations should not be considered as an alternative to
net earnings or any other GAAP measurement of performance as an indicator of
SCI's operating performance or as an alternative to cash flows from operating,
investing or financing activities as a measure of liquidity. The Funds from
Operations measure presented by SCI may not be comparable to other similarly
titled measures of other REITs.
Funds from Operations represents SCI's net earnings (computed in accordance
with GAAP) before minority interest and before gains/losses on disposition of
depreciated property, plus depreciation and amortization. In January 1995, SCI
changed to a more conservative policy of expensing loan cost amortization in
determining Funds from Operations.
STATEMENTS OF FUNDS FROM OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net earnings attributable to Common Shares................... $ 23,681 $ 18,808
Add:
Depreciation and amortization............................ 27,215 17,415
Minority interest........................................ 1,640 1,739
Loss on disposition of depreciated real estate........... 29 --
-------- --------
Funds from operations attributable to Common Shares.......... $ 52,565 $ 37,962
======== ========
</TABLE>
REIT MANAGEMENT AGREEMENT
Effective December 1, 1991, SCI entered into an agreement (as amended and
restated, the "REIT Management Agreement") pursuant to which the REIT Manager
assumed the day-to-day management of SCI.
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The REIT Management Agreement requires SCI to pay a base annual fee of
approximately 16% of cash flow as defined in the REIT Management Agreement.
See "REIT Management" for a description of the services included in the REIT
Management fee. Cash flow is calculated by reference to SCI's cash flow from
operations, plus (i) fees paid to the REIT Manager, (ii) extraordinary
expenses incurred at the request of the independent Trustees of SCI and (iii)
33% of any interest paid by SCI on convertible subordinated debentures (of
which there are currently none) and, after deducting actual or assumed
regularly scheduled principal and interest payments for long term debt and
distributions actually paid with respect to non-convertible preferred shares
of beneficial interest, such as the Series A Preferred Shares. The REIT
Management Agreement provides that the Notes described above under "--
Liquidity and Capital Resources" are treated as having regularly scheduled
principal and interest payments like a 20-year level monthly payment, fully
amortizing mortgage, and the assumed principal and interest payments are
deducted from cash flow in determining the fee. SCI does not currently plan to
issue any convertible debt. The REIT Management fee calculation includes a
portion of the interest on convertible debt because of the equity
characteristics represented by the conversion feature of such debt. Cash flow
does not include interest and dividend income from SCI Development Services,
realized gains from dispositions of investments or income from cash equivalent
investments. The REIT Manager also receives a fee of 0.20% per year on the
average daily balance of cash equivalent investments.
Total real estate operating, general and administrative costs will increase
due to SCI's larger asset size following each security offering, as well as
unforeseen changes which may occur. REIT Management fees paid by SCI will
increase if cash flow of SCI, as defined in the REIT Management Agreement,
increases, including such increases that may relate to increases in SCI's
assets. SCI does not expect its other operating costs and expenses to increase
except as a result of inflation, market conditions or other factors over which
the REIT Manager has no control. Operating costs for particular items,
however, may be increased if they are expected to result in greater decreases
in other expenses or increases in revenues from SCI assets. For example, land
holding costs and pursuit cost writeoffs fluctuate in relation to SCI's
acquisition and development activity.
SCI is obligated to reimburse the REIT Manager for all expenses incurred by
the REIT Manager on behalf of SCI relating to SCI's operations, primarily
including third party legal, accounting, property development and similar fees
paid on behalf of SCI, and travel expenses incurred in seeking financing,
property acquisitions, property development, property sales, attending SCI
Board of Trustees and shareholder meetings and similar activities on behalf of
SCI. Under the REIT Management Agreement, the REIT Manager or any of its
affiliates are not precluded from rendering services to other investors,
including other REITs, even if such investors compete with SCI. Since the REIT
Manager is a wholly owned subsidiary of SCI's largest shareholder, the REIT
Manager has no intention of rendering services to investors who compete with
SCI.
The REIT Management Agreement is renewable by SCI annually, subject to a
determination by the independent Trustees that the REIT Manager's performance
has been satisfactory and that the compensation payable to the REIT Manager is
fair. Each of SCI and the REIT Manager may terminate the REIT Management
Agreement on 60 days' notice. Because of the year-to-year nature of the
agreement, its maximum effect on SCI's results of operations cannot be
predicted, other than that REIT Management fees will generally increase or
decrease in proportion to cash flow increases or decreases.
To better serve national companies which are valued SCI customers and enable
SCI to exclusively meet all of their distribution space needs, SCI Development
Services develops or works on a fee basis for these customers build-to-suit
distribution space facilities which do not meet SCI's strict investment
criteria. SCI will not own these buildings but owns a preferred stock interest
representing 95% of the net operating cash flow of SCI Development Services.
Through its preferred stock ownership, SCI will realize substantially all
economic benefits of SCI Development Services' activities. Under a separate
agreement, the REIT Manager provides SCI Development Services with day-to-day
management for a fee based on 16% of SCI Development Services' pre-tax cash
flow, including gains and losses realized on property sales. The fee incurred
for the first six months of 1996 was approximately $527,000. Dividends and
interest paid by SCI Development Services to SCI are excluded from SCI's cash
flow for determining the REIT Management fee paid by SCI.
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REIT MANAGEMENT
GENERAL
The REIT Manager provides SCI with strategic and day-to-day management,
research, investment analysis, acquisition and due diligence, development,
marketing, asset management, capital markets, disposition of assets,
management information systems support and legal and accounting services, all
of which are included in the REIT Management fee. Hence, SCI depends upon the
quality of the management provided by the REIT Manager. SCI believes that its
relationship with the REIT Manager provides SCI with access to high quality
and depth of management personnel and resources, savings from a capital
markets group, and access to centralized research, information systems,
accounting and legal support.
SCG, the owner of the REIT Manager, has a substantial shareholder interest
in SCI, creating commonality of interest with SCI's shareholders, and the REIT
Management Agreement requires approval of the Independent Trustees for
transactions between SCI and the REIT Manager and its affiliates. Furthermore,
the REIT Manager provides all of its services for one fee, and an affiliate
provides property management services at or below market rates in a
competitive environment. The REIT Manager does not receive additional fees for
investment banking, financing, asset sales or similar services.
REIT Management believes that the quality of management should be assessed
in light of the following factors:
Management Depth/Succession. Management should have several senior
executives with the leadership, operational, investment and financial skills
and experience to oversee the entire operations of the REIT. The REIT Manager
believes that several of its senior officers could serve as the principal
executive officer and continue SCI's performance. See "--Directors, Trustees
and Officers of SCI, the REIT Manager and Relevant Affiliates" below.
Strategic Vision. Management should have the strategic vision to determine
an investment focus which provides favorable initial yields and long-term
growth prospects. The REIT Manager has demonstrated its strategic vision by
focusing SCI on building a national distribution asset base at prices
significantly below replacement cost and a land inventory at attractive
prices. In addition, the REIT Manager differentiated SCI from its competition
by positioning SCI, through the SCI National Operating System(TM), as the
first national operating company that was able to address and service a
corporate customer's distribution space requirements on a national, regional
and local basis. The REIT Manager also focused SCI on selected distribution
markets, where demographic and supply factors have permitted high occupancies
at increasing rents, conditions which are consistent with the long term
demographic forecast for SCI's target market cities. See "Security Capital
Industrial Trust" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Research Capability. Management should have the means for researching
markets to determine appropriate investment opportunities. SCI divides its
target market cities into numerous submarkets for analysis purposes. The REIT
Manager and its affiliate, Security Capital Investment Research Incorporated
("Security Capital Investment Research"), devote substantial time to research,
on a submarket-by-submarket basis, under the supervision of the Managing
Directors of the REIT Manager; hence, the REIT Manager's research has
supplemented SCI's strategic focus and investment program.
Investment Committee Process. Investment committees should provide
discipline and guidance to the investment activities of the REIT in order to
achieve its investment goals. The members of the REIT Manager's investment
committee have a combined 120 years experience in the real estate industry.
See "--Directors, Trustees and Officers of SCI, the REIT Manager and Relevant
Affiliates" below. The investment committee receives detailed written analyses
and research, in a standardized format, from the REIT Manager's acquisition
personnel and evaluates all prospective investments pursuant to uniform
underwriting criteria prior to submission of investment recommendations to the
investment committee of the Board of Trustees. The quality of the REIT
Manager's investment committee process is evident from the ability of SCI to
achieve its investment goals, generally realizing its projected initial
returns and growth from distribution property investments.
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<PAGE>
Acquisitions Capability/Due Diligence Process. Management should have
experienced senior personnel dedicated to acquiring investments and performing
intelligent and thorough due diligence. The REIT Manager has 10 full time
acquisition and due diligence professionals and has developed uniform systems
and procedures for due diligence. As described under "Security Capital
Industrial Trust," the REIT Manager's acquisition and due diligence personnel
have screened and selected a large volume of successful investments.
Development/Redevelopment Capability. By internally developing projects and
redeveloping well located operating facilities, management can capture for the
REIT the value which normally escapes through sales premiums paid to
successful developers. The REIT Manager's 45 development professionals have
substantial development and redevelopment experience, as described in "--
Directors, Trustees and Officers of SCI, the REIT Manager and Relevant
Affiliates" below. As of June 30, 1996, the REIT Manager was developing 10.2
million square feet of distribution space for SCI, with a total budgeted cost
of $371.1 million. REIT Management has engaged in substantial development on
behalf of SCI at attractive yields which have exceeded projections and
believes that development will provide growth when the market for acquisitions
becomes less favorable. The REIT Manager has commenced development on behalf
of SCI of 53 master-planned parks in 27 target market cities. As important, as
of June 30, 1996, SCI owned 981.9 acres of additional land and had fixed price
options and rights of first refusal to acquire 349.8 acres and 21.8 acres,
respectively, which will permit the development of approximately 23.3 million
square feet of additional distribution space in 28 cities. Also, as of June
30, 1996, SCI had an additional 453.0 acres under letter of intent or
contingent contract, subject to completion of due diligence, which will permit
the development of approximately 7.8 million square feet of additional
distribution space. See "Security Capital Industrial Trust."
Capital Markets Capability. Management must be able effectively to raise
equity and debt capital for the REIT in order for the REIT to achieve growth
through investment. As described under "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources," REIT Management has successfully arranged funding for SCI's
investment program, including SCI's initial public offering in March 1994
which was arranged at no commission cost, following which SCI commenced
trading on the NYSE.
Operating Capability. Management can substantially improve Funds from
Operations by actively and effectively managing assets. The REIT Manager
conceived of and developed the SCI National Operating System(TM) to
effectively operate SCI's business and provide customers with an exceptional
level of coordinated, comprehensive services. In addition, SCI Client Services
Incorporated, an affiliate of the REIT Manager ("SCI Client Services"),
provides a high level of property management services to customers. SCI Client
Services provides property management services in accordance with uniform
quality standards, thus assuring a high quality of services to customers in
all properties managed by SCI Client Services. As of June 30, 1996, SCI Client
Services managed approximately 79% of SCI's operating portfolio. Through the
SCI National Operating System(TM) and SCI Client Services, the REIT Manager
controls and effectively administers the management of SCI's distribution
portfolio.
Communications/Shareholder Relations Capability. A REIT's success in capital
markets and asset acquisition activities can be enhanced by management's
ability to effectively communicate the REIT's strategy and performance to
investors, sellers of property and the financial media. The REIT Manager
provides at its expense full time personnel who prepare informational
materials for and conduct periodic meetings with the investment community and
analysts.
Successfully combining the foregoing attributes significantly enhances a
REIT's ability to increase cash flow and its market valuation. SCI's cash flow
from operating activities and market valuation have increased under the REIT
Manager's administration.
DIRECTORS, TRUSTEES AND OFFICERS OF SCI, THE REIT MANAGER AND RELEVANT
AFFILIATES
Trustees of SCI and Directors of the REIT Manager
Members of the REIT Manager's investment committee are designated by an
asterisk (*).
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<PAGE>
*K. DANE BROOKSHER--57--Mr. Brooksher was elected as a Trustee in October of
1993 and as Co-Chairman and Chief Operating Officer of SCI and the REIT
Manager in November 1993, and is a director of the REIT Manager. Prior
thereto, Mr. Brooksher was Area Managing Partner and Chicago Office Managing
Partner of KPMG Peat Marwick, independent public accountants, where he served
on the Board of Directors and Management Committee and as International
Development Partner for Belgium and the Netherlands. Mr. Brooksher's term as
Trustee expires in 1999.
STEPHEN L. FEINBERG--51--Mr. Feinberg was elected as a Trustee in January
1993. Since 1970, he has been Chairman of the Board and Chief Executive
Officer of Dorsar Investment Co., a diversified holding company with interests
in real estate, manufacturing and venture capital. Mr. Feinberg is also a
director of Continental Transmission Corporation (private investment company)
and Feinberg Foundation, Inc. and a former director of Farrar, Strauss and
Giroux, Inc. (private publishing company). Mr. Feinberg is currently Chairman
of the Board of Visitors and Governors of St. John's College and a director of
other charitable organizations. Mr. Feinberg's term as Trustee expires in
1999.
DONALD P. JACOBS--69--Mr. Jacobs was appointed a Trustee in February 1996.
Mr. Jacobs has been a member of the J.L. Kellogg Graduate School of Management
of Northwestern University since 1957, and Dean since 1975. Mr. Jacobs is
Chairman of the Public Review Board of Andersen Worldwide and a member of the
Board of Directors of Commonwealth Edison, First National Bank of Chicago,
Hartmarx Corporation, Unocal Corporation, and Whitman Industries. From 1990 to
1992, Mr. Jacobs was Chairman of the Advisory Committee of the Oversight Board
of the Resolution Trust Corporation for the third region; from 1975 to 1979,
Chairman of the Board of AMTRAK; from 1970 to 1971, Co-Staff Director of the
Presidential Commission on Financial Structure and Regulation; from 1963 to
1964, Senior Economist for the Banking and Currency Committee of the U.S.
House of Representatives. Mr. Jacobs' term as Trustee expires in 1998.
JOHN T. KELLEY--56--Advisory Trustee of SCI; Trustee of Security Capital
Pacific Trust, El Paso, Texas (development and ownership of multifamily
properties in the western United States), a REIT affiliated with SCG; Managing
Member of J. Edwards Jewelry Distributing Company, L.L.C. since July 1995;
from 1987 to 1991, Chairman of the Board, Kelley-Harris Company, Inc., El
Paso, Texas (real estate investment company); from 1968 to 1987, Managing
Director, LaSalle Partners Limited, Chicago, Illinois (corporate real estate
services). Mr. Kelley is also a director of SCG and Texas Commerce Bank El
Paso, National Association.
*IRVING F. LYONS, III--46--Mr. Lyons was elected as a Trustee in March 1996;
Director of the REIT Manager; Managing Director of the REIT Manager since
December 1993, where he has responsibility for the Pacific region of the
United States, and Managing Director of SCI. Prior thereto, Mr. Lyons was the
Managing Partner of King & Lyons (a San Francisco Bay Area industrial real
estate development and management company) since its inception in 1979, where
he was responsible for supervising development, asset management and day-to-
day activities. Mr. Lyons has been involved in the development of over 3.5
million square feet of industrial space in the San Francisco Bay Area. Prior
to forming King & Lyons, Mr. Lyons spent five years as a Vice President of
Wells Fargo Mortgage Company. Mr. Lyons' term as Trustee expires in 1997.
WILLIAM G. MYERS--69--Mr. Myers was elected as a Trustee in January 1995. He
is also a Trustee of Security Capital Pacific Trust, a REIT affiliated with
SCG; Chief Executive Officer of Ojai Ranch and Investment Company, Inc., Santa
Barbara, California, which he founded in 1963 (agri-business and other
investments); Director, Idetek, Inc., Sunnyvale, California (food diagnostic
start-up company). Mr. Myers' term as Trustee expires in 1997.
JOHN E. ROBSON--66--Mr. Robson was appointed a Trustee as of April 1, 1994.
Since October 1993, Mr. Robson has served as Senior Advisor of Robertson,
Stephens & Co., a San Francisco-based investment banking company. From 1989 to
1992, Mr. Robson served as Deputy Secretary of the United States Treasury.
From 1986 to 1989, Mr. Robson was Dean and Professor of Management, Emory
University School of Business Administration. From 1977 to 1985, he served as
President and Chief Executive Officer and as Executive Vice President of G.D.
Searle & Co. (pharmaceutical and consumer products). Mr. Robson is currently a
director of
S-24
<PAGE>
Age Wave Inc. (mature market products and services), Calgene Inc.
(agricultural products), Northrop Grumman Corporation (aerospace), Ralin
Medical, Inc. (medical devices and services) and Rand McNally & Co.
(publishing) and a past director of AOA Corporation (insurance), Chiron
Corporation (biotechnology), Continental Airlines and Conrail (railroad),
among others. Mr. Robson's term as Trustee expires in 1997.
*THOMAS G. WATTLES--44--Mr. Wattles was elected as a Trustee in January
1993; he was a Director of SCI's predecessor since its formation in June 1991
and has been Co-Chairman and Chief Investment Officer of SCI and the REIT
Manager since November 1993; Managing Director of SCI and the REIT Manager
from January 1993 to November 1993, and Director of the REIT Manager since
June 1991. From January 1991 to December 1992, Mr. Wattles served as Managing
Director of Security Capital Pacific Incorporated, the REIT Manager for
Security Capital Pacific Trust; from July 1989 to December 1990, Managing
Partner of Stanwich Advisors Incorporated (real estate advisory and
development services); and from July 1985 to June 1989, Senior Vice
President--Property Finance Group of LaSalle Partners Limited (corporate real
estate services). Mr. Wattles' term as Trustee expires in 1999.
*JEFFREY H. SCHWARTZ--37--Director of the REIT Manager; Managing Director of
the REIT Manager since October 1994, where he has overall responsibility for
national development activities, and Managing Director of SCI; prior thereto,
Mr. Schwartz was a founder and managing partner of The Krauss/Schwartz
Company, one of the largest industrial real estate developers in Florida; from
April 1986 to October 1988, Mr. Schwartz was a Partner at Anderson Properties
in Atlanta, Georgia.
*ROBERT J. WATSON--47--Director of the REIT Manager; Managing Director of
SCI since January 1993 and of the REIT Manager since November 1992, where he
is Managing Director and Chief Operating Officer of SCI Client Services; from
April 1991 to November 1992, private consultant in the real estate industry;
from June 1977 to April 1991, Area and then Regional Partner for Trammell Crow
Commercial Company, a real estate development and management company, in
Denver, Colorado and a member of that firm's Management Board. As Regional
Partner, Mr. Watson was responsible for Trammell Crow Commercial Company's
commercial/industrial development, leasing and management activities in both
the inter-mountain and the southwestern United States. In his position prior
to affiliation with the REIT Manager, Mr. Watson was responsible for over $1
billion in assets and developed over 3.5 million square feet of industrial and
other commercial space.
Other Officers
ROBERT O. ALTER--36--Vice President of the REIT Manager since August 1995,
where he has responsibility for coordinating build-to-suits nationwide, and
Vice President of SCI; from August 1992 to August 1995, Managing Director of
Faison in Tampa, Florida; from May 1989 to August 1992, Director with Oxford
Properties Florida, Inc., also in Tampa.
ARIEL AMIR--36--Vice President of SCG since June 1994; from September 1985
to April 1994, an attorney with the law firm of Weil, Gotshal & Manges, New
York, New York, where he practiced securities and corporate law for eight
years. Mr. Amir provides securities offerings and corporate acquisition
services to SCI.
NED K. ANDERSON--49--Senior Vice President of the REIT Manager since
December 1993, where he has Market Officer responsibilities for the San
Francisco Bay Area, and Senior Vice President of SCI; since 1985, he was a
partner at King & Lyons, where he directed the development, leasing and
management of the 250 acre Bayside Business Park in Fremont, where King &
Lyons developed approximately 1.5 million square feet of buildings, which are
occupied by approximately 130 tenants. He also helped oversee King & Lyons
East Bay properties, which total 2.5 million square feet of buildings; prior
thereto, Mr. Anderson was a Vice President of Wells Fargo Realty Finance.
GREGORY J. ARNOLD--40--Vice President of the REIT Manager since January 1996
where he is a member of the National Services Group and Vice President of SCI;
from January 1995 to September 1995, Project
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Executive and General Manager for ROI Realty Services, Inc.; from November
1985 to January 1995, Equity Vice President and Senior Leasing Specialist at
LaSalle Partners in Washington, D.C.
CLAUDE A. BILLINGS--55--Vice President of the REIT Manager since January
1994, where he is a member of the National Services Group, and Vice President
of SCI; from March 1991 to February 1994, Senior Vice President and Regional
Manager of the Staubach Company, a Dallas, Texas corporate real estate service
firm; from March 1989 to March 1991, Vice President of the Leasing and Equity
Departments for Walker & Dunlop, Inc.; prior thereto, Vice President of the
Investment Properties Division of J.E. Robert Companies; for five years during
the mid-1980s, Mr. Billings was a Vice President with LaSalle Partners
Limited, where he acquired, financed and marketed income-producing real estate
assets.
DARCY B. BORIS--33--Vice President of Security Capital Investment Research
since June 1995, and an associate from December 1994 to June 1995, where she
conducts strategic market analysis for SCI and affiliated companies; from
August 1993 to November 1994, Ms. Boris worked for Security Capital Markets
Group Incorporated ("Capital Markets Group"); from January 1987 to September
1991, Ms. Boris was associated with Summerhill Development Company, the
multifamily development subsidiary of Marcus & Millichap Incorporated, where
she managed the development of multifamily housing, and prior thereto, she was
an analyst for its property investment subsidiary.
MARK R. CASHMAN--36--Vice President of the REIT Manager since November 1995,
where he has Market Officer responsibilities for Dallas, Texas, and Vice
President of SCI; prior thereto, Vice President of Security Capital Pacific
Trust since January 1995, where he was a member of the asset management group;
from September 1992 to January 1995, First Vice President/Portfolio Manager
with First Nationwide Financial Corporation in Los Angeles, California, where
he was responsible for the property management department holdings throughout
the western United States; from May 1990 to September 1992, Vice
President/Senior Asset Manager with American Real Estate Group in Irvine,
California.
LISA M. CERNY--33--Vice President of the REIT Manager since June 1995, where
she is controller for the National Development Group, and Vice President of
SCI; prior thereto, Ms. Cerny provided accounting services for the National
Development Group from October 1993; from January 1988 to June 1993, Director
of Corporate Services and Portfolio Manager with The Koll Company in Newport
Beach, California, where she managed corporate financial services.
MARK J. CHAPMAN--39--Vice President of Security Capital Investment Research
since November 1995, where he is director of the group and conducts strategic
market analyses for affiliates of the firm; from November 1994 to November
1995, Mr. Chapman was a Vice President of Security Capital Pacific Trust with
asset management responsibilities in five major markets; from July 1989 to
November 1994, Vice President with Copley Real Estate Advisors, Inc., where he
directed asset management for Copley assets in its New England, mid-Atlantic
and Texas regions, valued in excess of $1.5 billion.
JAMES D. COCHRAN--35--Vice President of the REIT Manager since March 1994,
where he has Market Officer responsibilities for Denver, Colorado and Kansas
City, Kansas, and Vice President of SCI; from August 1988 to March 1994, Vice
President for TCW Realty Advisors, where he was responsible for industrial
acquisitions in southern California; from September 1984 to August 1987,
Associate with Economics Research Associates, where he performed market and
financial feasibility studies for a wide variety of land use development
projects.
PAUL C. CONGLETON--41--Vice President of the REIT Manager since January
1995, where he has Market Officer responsibilities for Houston and Austin,
Texas, and Vice President of SCI; from October 1990 to December 1994,
Principal with Overland Company, a property management, development and
investment services firm in Tucson, Arizona; from March 1985 to October 1990,
Partner with Trammell Crow Company in Tucson, Arizona.
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R. STAN CONWAY, JR.--32--Vice President of the REIT Manager since November
1994, where he has Market Officer responsibilities for Atlanta, Georgia, and
Vice President of SCI; from October 1989 to October 1994, Vice President of
Marketing for Bullock, Terrell and Mannelly; from April 1987 to October 1989,
Vice President of Industrial Sales for Royal LePage.
MICHAEL S. CURLESS--32--Vice President of the REIT Manager since August
1995, where he has Market Officer responsibilities for Indianapolis, and Vice
President of SCI; from June 1989 to August 1995, Marketing Director with
Trammell Crow Company, where he was responsible for the development and
marketing of industrial projects; from July 1986 to July 1987, Financial
Analyst with General Electric.
DAVID B. DANIEL--29--Vice President of the REIT Manager since June 1996
where he is a member of the due diligence team, and Vice President of SCI;
prior thereto, a member of due diligence since April 1995; from February 1994
to April 1995, Senior Underwriter with Remsen Partners Ltd. in New York, New
York where he was involved in all phases of a loan origination and
securitization program; from May 1992 to February 1994, Associate Consultant
with Kenneth Leventhal & Co. in Houston, Texas and New York, New York, where
he performed due diligence and evaluation on a variety of real estate
transactions.
MARK H. DEGNER--34--Vice President of the REIT Manager since April 1994,
where he is responsible for portfolio acquisitions and dispositions, and Vice
President of SCI; from October 1988 to April 1994, Manager for the Hahn
Company in San Diego, California, where he was Manager of Development and
Acquisitions, Corporate Development and most recently, Dispositions.
WILLIAM H. EAGER--55--Vice President of the REIT Manager since June 1996
where he is a member of the National Services Group and Vice President of SCI;
from June 1976 to June 1996, Mr. Eager was a First Vice President of CB
Commercial where he was involved in over $350 million of industrial real
estate transactions; prior thereto, Mr. Eager was an account executive and
assistant to the president of Leo Burnett Advertising from September 1968 to
June 1976 where he was active in developing marketing and advertising
strategies.
FRANK H. FALLON--34--Vice President of the REIT Manager since January 1995,
where he has Market Officer responsibilities in Memphis, Nashville and
Chattanooga, Tennessee, and Vice President of SCI; prior to joining SCI, Mr.
Fallon was with Trammell Crow Company from March 1987 to December 1994, where
he was responsible for leasing, management, acquisition and disposition of
industrial properties in the Dallas/Fort Worth, Texas area.
KURT R. FULLER--38--Vice President of the REIT Manager since October 1994,
where he has Project Manager responsibilities for tenant improvement
construction in the San Francisco Bay Area, Reno, Portland, Seattle and Salt
Lake City, and Vice President of SCI; from February 1989 to October 1994,
Project Manager/Estimator for Wentz Builders, Inc. in San Carlos, California,
where he was responsible for managing tenant improvement and special projects.
THOMAS P. GARRIGAN--47--Vice President of the REIT Manager since March 1995,
where he is a member of the National Services Group, and Vice President of
SCI; from June 1993 to February 1995, he was Senior Vice President of SCG and
its affiliates, where he oversaw accounting operations; from July 1981 to June
1993, Audit Partner with KPMG Peat Marwick in Midland and El Paso, Texas; from
July 1971 to July 1981, on the professional staff of KPMG Peat Marwick.
JOHN R. HANSON--45--Vice President of the REIT Manager since May 1995, where
he has Project Manager responsibilities for the Pacific region, and Vice
President of SCI; from July 1994 to May 1995, Vice President of Jack & Cohen
Builders, Inc. in Palo Alto, California, where he was responsible for a wide
variety of construction projects; from January 1991 to July 1994, Project
Director of Jack & Cohen; prior thereto, Project Manager of L.E. Wentz Company
in San Carlos, California from April 1987 to January 1991.
LARRY H. HARMSEN--36--Vice President of the REIT Manager since February
1995, where he has Market Officer responsibilities for San Diego and Orange
County, California, and Vice President of SCI; from January
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<PAGE>
1988 to February 1995, Vice President/Managing General Partner with Lincoln
Property Company in Southern California, where he was responsible for all
aspects of asset and property management for a portfolio of office and
industrial space containing over 2.5 million square feet; from July 1985 to
January 1988, Development/
Marketing Manager with Lincoln Property N.C., Inc.
DONALD L. HARRIER--37--Vice President of the REIT Manager since May 1994,
where he has Project Manager responsibilities for the Pacific region, and Vice
President of SCI; from May 1993 to May 1994, Senior Partner with Donald L.
Harrier, AIA, Architecture; from August 1986 to May 1993, Project Director
with DES Architects & Engineers in Redwood City and Fremont, California, where
he was involved in project management, architecture and marketing.
M. MARC JASON--35--Vice President of the REIT Manager since December 1993,
where he is responsible for acquisition due diligence, and Vice President of
SCI; from January 1993 to December 1993, President of Aslan Communications, a
regional telecommunications company; from December 1986 to December 1992,
employed with Trammell Crow Company, most recently as Senior Vice President
and Finance Manager, where he managed the finance and accounting departments
for the company's $1 billion southern California asset base; prior thereto, an
accountant with Price Waterhouse.
KENT W. JOHNSON--42--Senior Vice President of the REIT Manager since July
1995, where he heads the National Services Group, and Senior Vice President of
SCI; from March 1994 to June 1995, National Director for Sequent Computer
Systems, where he was recognized as World-Wide Manager of the Year; from
January 1977 to March 1994, with IBM in various positions, including National
Account Director and Branch Manager.
M. GORDON KEISER--52--Senior Vice President of the REIT Manager since
October 1995, where he is Chief Financial Officer and is responsible for
accounting, financial reporting and coordination of financing, and Senior Vice
President of SCI; from August 1988 to October 1995, Senior Vice President of
JMB Realty Corporation, where he was responsible for structuring joint venture
development transactions, capital markets financing and corporate acquisition
financing.
DOUGLAS A. KIERSEY, JR.--35--Vice President of the REIT Manager since May
1994, where he has Market Officer responsibilities for Seattle, Washington and
Portland, Oregon, and Vice President of SCI; from September 1983 to May 1994,
a member of the Industrial/Technology Group at Cushman & Wakefield of Oregon,
Inc., where he specialized in the sale and leasing of industrial properties.
JEFFREY A. KLOPF--48--Senior Vice President and Secretary of SCI, the REIT
Manager and SCG since January 1996; from 1988 to December 1995, Partner with
Mayer, Brown & Platt where he practiced corporate and securities law. Mr.
Klopf provides securities offering and corporate acquisitions services to SCI
and its affiliates and oversees the provision of legal services to SCI and its
affiliates.
ROBERT A. KRITT--35--Vice President of the REIT Manager since November 1991,
where he has responsibility for coordinating build-to-suits nationwide, and
Vice President of SCI; from January 1991 to December 1992, Vice President of
Security Capital Pacific Incorporated, the REIT Manager for Security Capital
Pacific Trust, where he was responsible for acquisition due diligence; from
1986 to December 1990, Vice President of Sanders Partners Incorporated,
Chicago, Illinois (multibusiness holding company); prior thereto, senior tax
consultant with Arthur Andersen & Co.
EDWARD F. LONG--40--Vice President and Controller of SCI and the REIT
Manager since January 1996, where he supervises accounting and financial
reporting; from June 1995 to January 1996, Controller for SCI Client Services;
from December 1990 to June 1995, Director of Financial Services for Coopers
and Lybrand in Central Florida and the Carolinas.
DONALD W. MADSEN--52--Senior Vice President of the REIT Manager since July
1993, where he supervises development services related to construction
management and build-to-suit facilities, and Senior Vice
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President of SCI; from July 1992 to June 1993, Vice President, Business
Development for Windward, Ltd., a Dallas, Texas-based design/build general
construction company; from December 1990 to July 1992, Managing Director and
from December 1978 to December 1990, Partner of Construction Management,
Dallas Industrial Division of Trammell Crow Company; prior thereto, Mr. Madsen
was an industrial architect with Trammell Crow Company. In his prior
positions, Mr. Madsen supervised the development of over 38 million square
feet of industrial space.
BRIAN N. MARSH--31--Vice President of the REIT Manager since January 1995,
where he has Market Officer responsibilities for Columbus, Ohio, and Vice
President of SCI; from June 1990 to January 1995, with Pizzuti Realty Inc., in
Columbus, Ohio, where he was responsible for master planning, development and
marketing of a 400 acre plus, mixed-use development; prior thereto, Marketing
Associate with Wears Kahn McMenamy in Columbus, Ohio.
J. THOMAS MERCER--37--Vice President of the REIT Manager since January 1995,
where he is responsible for coordinating build-to-suits nationwide, and Vice
President of SCI; from September 1987 to January 1995, Senior Marketing
Representative with Friendswood Development Company in Houston, Texas, where
he completed over $15 million in land transactions; prior thereto, Industrial
Leasing Specialist with The Horne Company in Houston, Texas, where he leased
more than 500,000 square feet of industrial space.
STEVEN K. MEYER--47--Senior Vice President of the REIT Manager since
December 1995, where he has responsibility for the Central Region of the
United States, and Senior Vice President of SCI; prior thereto, Vice President
of the REIT Manager since September 1994; from 1990 to July 1994, Executive
Vice President with Trammell Crow Company, where he directed leasing and
development activities for the Industrial Division; from 1983 to 1990, Project
Partner with Trammell Crow, where he developed and/or acquired 77 projects
totalling over 7 million square feet; prior thereto, Mr. Meyer was a Leasing
Agent with Trammell Crow.
JOSEPH H. MIKES--36--Vice President of the REIT Manager since August 1995,
where he has Market Officer responsibilities for the Chicago area, and Vice
President of SCI; from March 1988 to August 1995, Senior Director of Opus
North Corporation, where he managed office and industrial real estate
activities; from April 1984 to March 1988, Director of Real Estate for Opus,
in Florida.
RON W. MILLS--38--Vice President of the REIT Manager since April 1993, where
he has been a member of the National Services Group since July 1996, and Vice
President of SCI; prior thereto, Mr. Mills had Market Officer responsibilities
for San Antonio, Austin and Rio Grande Valley, Texas from February 1991 to May
1992, Vice President of Commercial Operations for SCG Realty Services
Incorporated, a regional real estate services organization; prior thereto,
Vice President of Asset Management and Property Management for Operations for
USAA Real Estate Company.
R.A.D. MORTON, III--39--Vice President of the REIT Manager since July 1993,
where he has Market Officer responsibilities for El Paso, San Antonio and Rio
Grande Valley, Texas, and Vice President of SCI; from January 1991 to July
1993, President of The Morton Group, which specialized in corporate industrial
real estate services, asset management and development services; from June
1988 to January 1991, Principal with Trammell Crow Company in its El Paso
Commercial Division, where he was responsible for industrial development.
DAVID S. MORZE--36--Vice President of the REIT Manager since March 1995,
where he has Market Officer responsibilities for Reno, Nevada and Salt Lake
City, Utah, and Vice President of SCI; from May 1993 to March 1995, Director
of Marketing for Northern California for SARES*REGIS; from January 1993 to May
1993, Real Estate Consultant to The Moreno Bavarian Corporation in Portola
Valley, California; from September 1983 to January 1993, Partner with Cabot &
Forbes in Northern California, where he developed and acquired over
$140,000,000 of office, research and development and industrial projects.
DONALD E. MYERS--52--Vice President of the REIT Manager since March 1993,
where he is responsible for asset management of SCI's portfolio, and Vice
President of SCI; from July 1988 to March 1993, a Senior
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<PAGE>
Vice President of Dreyfus Realty Advisors, where he was responsible for asset
management; from March 1984 to June 1988, Senior Vice President with Realco
International, a private real estate investment and development company; and
from July 1978 to February 1984, Vice President of LaSalle Partners Limited in
its Land Group, where he provided acquisition and disposition services for
clients of the firm.
MICHAEL NACHAMKIN--42--Vice President of the REIT Manager since March 1996
where he has Market Officer responsibilities for New Jersey I-95 corridor and
Vice President of SCI; from 1984 to February 1996, Director of Investment
Sales, Tenant Representation and Marketing at Cushman & Wakefield of New
Jersey; prior thereto, a salesperson with Coldwell Banker Real Estate Services
from 1983 to 1984.
AUGUST J. NAPOLITANO--49--Vice President of the REIT Manager since May 1995,
where he is a member of the National Services Group, and Vice President of
SCI; from November 1992 to December 1994, Director/Branch Manager of Cushman &
Wakefield in Orange County, California, where he managed all aspects of the
Newport Beach and Anaheim Commercial brokerage offices; from January 1981 to
November 1992, Senior Vice President/Broker with CB Commercial, also in Orange
County.
EDWARD S. NEKRITZ--30--Vice President of the REIT Manager since September
1995, where he is responsible for coordinating the national leasing program,
overseeing environmental issues and providing asset management and legal
services, and Vice President of SCI; from October 1990 to September 1995,
attorney with Mayer, Brown & Platt, where he specialized in commercial real
estate transactions, including acquisitions and dispositions, leasing,
development and zoning.
PETER J. NIELSEN--50--Vice President of the REIT Manager since March 1994,
where he has Project Manager responsibility for build-to-suit projects, and
Vice President of SCI; from November 1984 to February 1994, Vice President of
Project Development for Dueck Group of Companies, a development firm in
Denver, Colorado; and from November 1980 to November 1984, Design-Build
Project Manager for Voth Brothers Construction, a contractor/development
company in Abbotsford, British Columbia. Mr. Nielsen has supervised the
development of over 4 million square feet of industrial and commercial space.
WILLIAM D. PETSAS--38--Vice President of the REIT Manager since July 1994,
where he has Market Officer responsibilities for Phoenix, Arizona, and Vice
President of SCI; from June 1993 to June 1994, Mr. Petsas was a consultant to
SCI in the area of due diligence and acquisitions; from May 1992 to May 1993,
Mr. Petsas was a director of business development for residential properties
in the Southwest for Trammell Crow Company; from June 1986 to April 1992, Mr.
Petsas was with the Industrial Division of Trammell Crow Company in Phoenix,
Arizona, where he was a marketing principal beginning in 1989.
WALTER C. RAKOWICH--38--Senior Vice President of the REIT Manager since
November 1994, where he has responsibility for the Mid-Atlantic region of the
United States, and Senior Vice President of SCI; from July 1994 to November
1994, Vice President of the REIT Manager; from October 1993 to June 1994, Mr.
Rakowich was a consultant to SCI in the area of due diligence and
acquisitions; from 1985 to September 1993, Mr. Rakowich was with Trammell Crow
Company, where he was involved in the acquisition, development, financing,
marketing, management and disposition of property and was a Senior Vice
President and Principal beginning in 1992.
THOMAS M. RAY--33--Vice President of the REIT Manager since March 1996 where
he is responsible for coordinating build-to-suits nationwide, and Vice
President of SCI; prior thereto, a member of the build-to-suit group since
September 1995; from October 1994 to September 1995, Mr. Ray supervised land
acquisitions in due diligence; from August 1994 to October 1994, a member of
the land acquisitions due diligence group; from March 1994 to August 1994, a
member of the Management Development Program where he assisted with
multifamily portfolio acquisitions; from February 1991 to August 1992, General
Counsel with Richardson International Corp. in Fort Collins, Colorado.
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BETTY J. REMSTEDT--51--Vice President of the REIT Manager since December
1993, where she provides accounting, financial analysis and budgeting services
for the REIT Manager with respect to SCI's Pacific region properties, and Vice
President of SCI; from December 1988 to December 1993, Chief Financial Officer
of King & Lyons; prior thereto, Controller at Barratt Southern California,
Inc., a real estate development company in San Jose, California.
JOHN W. SEIPLE--38--Senior Vice President of the REIT Manager since November
1994, where he has responsibility for the Southeast region of the United
States, and Senior Vice President of SCI; from October 1993 to November 1994,
Vice President of the REIT Manager; from January 1992 to June 1993, Senior Vice
President, and from June 1988 to December 1991, Partner, with Trammell Crow
Dallas Industrial, Inc., a subsidiary of Trammell Crow Company, where he was
responsible for leasing, development, acquisition, financing, tenant build-out
and property management of 7.5 million square feet of industrial properties;
from June 1987 to May 1988, Marketing Principal, and from May 1985 to May 1987,
Leasing Agent with Trammell Crow Company.
STEVEN O. SPAULDING--54--Vice President of the REIT Manager since May 1993,
where he has Market Officer responsibilities for Las Vegas, Nevada, and Vice
President of SCI; from June 1992 to May 1993, Area Manager with Dermody
Properties in Las Vegas, where he was responsible for its management portfolio
and new development activities; from November 1991 to June 1992, independent
consultant; from 1987 to November 1991, Managing Partner of St. Louis division,
and from 1983 to 1987, Industrial Partner of Trammell Crow Company in St.
Louis.
RICHARD H. STRADER--36--Vice President of the REIT Manager since June 1994,
where he has Market Officer responsibilities for Charlotte, Raleigh-Durham and
Winston-Salem, North Carolina, and Vice President of SCI; from October 1987 to
May 1994, Mr. Strader was with the Dallas Industrial Division of Trammell Crow
Company, where he was the Managing Director of the Central and Southwest Dallas
Industrial office since 1990.
CHARLES E. SULLIVAN--38--Vice President of the REIT Manager since October
1994, where he has Market Officer responsibilities for Miami, Orlando and
Tampa, Florida, and Vice President of SCI; from July 1989 to October 1994,
Senior Industrial Broker with Cushman & Wakefield.
STANLEY G. THOMAS--50--Vice President of the REIT Manager since April 1995,
where he has Project Manager responsibilities for the Central Region, and Vice
President of SCI; from January 1990 to March 1995, Project manager for Cushman
& Wakefield Development Consulting Group in Dallas, Texas, where he was
responsible for the total design and construction process for projects
including build-to-suits and tenant fit-up, ranging from 25,000 to 200,000
square feet; from April 1987 to December 1989, Senior Project Manager with
Neiman Marcus' Planning, Architecture, Construction & Facilities Management
Group in Dallas, Texas; prior thereto, managing principal of Pickle & Thomas,
Inc., Architecture/Interiors.
JEFFREY M. TODD--39--Vice President of the REIT Manager since January 1995,
where he has Project Manager responsibilities for build-to-suit projects, and
Vice President of SCI; from November 1994 to January 1995, Project Manager for
Smallwood, Reynolds, Stewart, Stewart & Associates, Inc., where he was
responsible for managing industrial architecture; from June 1984 to November
1994, Project Architect for Wakefield/Beasley & Associates.
JAMES E. TROUT--33--Vice President of the REIT Manager since June 1995, where
he has Project Manager responsibilities for the Central Region, and Vice
President of SCI; prior thereto, Mr. Trout was a member of the National
Development Group from June 1993; from February 1992 to May 1993, Real Estate
Consultant with Douglas A. Edwards, Incorporated in New York, New York; from
June 1991 to January 1992, Assistant to President of Solow Realty and
Development in New York, New York; prior thereto, Management Associate with
Citicorp in New York, New York.
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MARY JANE VIETZE--42--Vice President of the REIT Manager since April 1996
where she is responsible for accounting and financial reporting and Vice
President of SCI; prior thereto, a member of the accounting group since
September 1993; from July 1990 to September 1993, Senior Accountant for Price
Waterhouse; from October 1983 to July 1990, Controller for a group of privately
owned real estate investment companies.
EDWIN D. WAGERS--52--Vice President of the REIT Manager since January 1995,
where he has Project Manager responsibilities for the Mid-Atlantic region of
the United States, and Vice President of SCI; from April 1991 to December 1994,
Chief Operating Officer of National Real Estate Development at Muirfield
Village Development in Columbus, Ohio; from August 1988 to April 1991, Senior
Vice President of Galbreath Huff Companies in Columbus, Ohio; from May 1977 to
August 1988, Senior Vice President of the Midwest Division with Vantage
Companies.
DAVID L. WELCH--34--Vice President of the REIT Manager since February 1995,
where he has Market Officer responsibilities for Washington D.C. and Baltimore,
Maryland, and Vice President of SCI; from September 1992 to January 1995,
Associate Senior Vice President with Carey Winston Co. in Washington D.C.,
where he managed the leasing and marketing program for over 1.5 million square
feet of industrial space in Northern Virginia; from May 1984 to September 1992,
Vice President with CB Commercial, where he specialized in industrial leasing,
land and building sales in Northern Virginia.
JAMES E. WHITE--39--Vice President of the REIT Manager since July 1995, where
he has Market Officer responsibilities for Cincinnati, Ohio and Louisville,
Kentucky and Vice President of SCI; from July 1994 to July 1995, Senior
Regional Director with First Industrial Realty Trust, Inc. in Southfield,
Michigan; prior thereto, Chief Financial Officer with Damone/Andrew Enterprises
in Troy, Michigan from August 1989 to July 1994.
JAMES P. WILSON--52--Vice President of the REIT Manager since October 1994,
where he has Project Manager responsibilities for the Southeast region, and
Vice President of SCI; from March 1988 to October 1994, Vice President of
Development and Construction for The Krauss/Schwartz Company; from April 1986
to March 1988, Vice President of Development and Construction for The Hogan
Group, a real estate development and property management company.
Shareholder Relations and Capital Markets
The following persons provide shareholder relations and capital markets
services to SCI:
K. SCOTT CANON--34--President of Capital Markets Group since January 1996;
prior thereto, Vice President of Capital Markets Group since August 1993 and a
member of Capital Markets Group since March 1992; from September 1991 to March
1992, a personal account director for Chase Manhattan Investment Services; from
August 1987 to September 1991, a member of private client services for Goldman,
Sachs & Co. Mr. Canon is registered with the National Association of Securities
Dealers, Inc.
JEFFREY A. COZAD--31--Senior Vice President of Capital Markets Group since
December 1994 and Vice President from September 1992 through November 1994 (in
its New York office since June 1993) and a member of Capital Markets Group
since March 1992; from August 1991 to August 1992, a member of SCG; in June
1991, Mr. Cozad obtained an M.B.A. from The University of Chicago; prior
thereto, an analyst with LaSalle Partners Limited, where he provided corporate
real estate services to major institutions from 1986 to 1989. Mr. Cozad is
registered with the National Association of Securities Dealers, Inc.
JAMES J. EVANS, JR.--43--Senior Vice President of Capital Markets Group since
December 1994; from December 1992 to November 1994, Managing Director of Copley
Real Estate Advisors, where he was responsible for all acquisitions in the
western United States, and worked on new business initiatives (designing and
marketing business products), capital raising and asset management; from
December 1988 to December 1992, Vice President and Principal of Copley, where
he was responsible for new investments in Southern California; prior thereto,
Associate at Copley. Mr. Evans is registered with the National Association of
Securities Dealers, Inc.
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ROBERT H. FIPPINGER--53--Vice President of Capital Markets Group since June
1995, where he directs corporate communications services for affiliates of the
firm; prior thereto, Mr. Fippinger headed corporate communications for the firm
from October 1994; from November 1991 to October 1994, with Grubb & Ellis in
San Francisco, California, where he represented corporate clients and provided
tenant advisory services; from October 1989 to October 1991, Executive Director
with Techmart in Santa Clara, California, where he was responsible for
management, marketing, operations, leasing and program development of
commercial properties.
GERARD DE GUNZBURG--48--Vice President of Capital Markets Group in its New
York office since January 1993; from June 1988 to December 1992, a consultant
to American and European companies; prior thereto, Director and Partner of
Lincoln Property Company, Europe, where he arranged real estate financing from
1976 to 1988. Mr. de Gunzburg is registered with the National Association of
Securities Dealers, Inc.
ALISON C. HEFELE--37--Vice President of Capital Markets Group since February
1994, where she provides capital markets services for affiliates of the firm;
from January 1990 to February 1994, Vice President with Prudential Real Estate
Investors (strategic planning and business development for institutional real
estate investment management services); from September 1985 to January 1990, a
management consultant with McKinsey & Company; prior thereto, a financial
analyst with Morgan Stanley Realty Inc. Ms. Hefele is registered with the
National Association of Securities Dealers, Inc.
BRADFORD W. HOWE--31--Vice President of Capital Markets Group since January
1996, where he provides capital markets services for affiliates of the firm and
where he has been an associate since December 1994; from March 1993 to December
1994, Assistant Vice President in the real estate investment banking group of
Kidder Peabody & Co., Incorporated; from June 1992 to March 1993, Mr. Howe was
a real estate consultant at Coopers & Lybrand. Mr. Howe is registered with the
National Association of Securities Dealers, Inc.
JAMES H. POLK, III--53--Managing Director of Capital Markets Group since
August 1992; Trustee of Security Capital Pacific Trust. Mr. Polk has been
affiliated with the REIT Manager since March 1991; prior thereto, he was
President and Chief Executive Officer of Security Capital Pacific Trust for
sixteen years. Mr. Polk is registered with the National Association of
Securities Dealers, Inc. and is a past President and Trustee of the National
Association of Real Estate Investment Trusts, Inc.
S-33
<PAGE>
THE OFFERING
As discussed above under "Introduction--Rights Offering," the Rights
Offering expired on September 24, 1996. The demand for Common Shares in the
Rights Offering, whether through the exercise of Rights, exercise of the
oversubscription privilege or sales to third parties, exceeded the Common
Shares offered, and consequently, SCI was unable to accept, either in whole or
in part, all subscriptions.
In order to accommodate a portion of the subscription requests of third
parties, SCI, with the assistance of Capital Markets Group (who will not
receive any special compensation from SCI), is offering Common Shares hereby
to such third parties on a negotiated basis at the offering price of $17 1/4
per Common Share, which is equal to the Subscription Price in the Rights
Offering.
SCI will not pay any person any commission or special fee in connection with
the offer or sale of the Common Shares. SCI will indemnify Capital Markets
Group against certain civil liabilities, including liabilities arising under
the Securities Act of 1933, as amended. In connection with the Rights
Offering, the REIT Manager agreed to pay a fee of $250,000 to Capital Markets
Group.
S-34
<PAGE>
PROSPECTUS
LOGO
$600,000,000 DEBT SECURITIES, PREFERRED SHARES AND COMMON SHARES*
----------------
Security Capital Industrial Trust ("SCI") may from time to time offer in one
or more series its (i) unsecured senior debt securities (the "Debt
Securities"), (ii) Preferred Shares of Beneficial Interest, par value $0.01
per share (the "Preferred Shares"), and (iii) Common Shares of Beneficial
Interest, par value $0.01 per share (the "Common Shares"). The Debt
Securities, Preferred Shares and Common Shares (collectively, the "Offered
Securities") may be offered, separately or together, in separate series, in
amounts, at prices and on terms to be set forth in a supplement to this
Prospectus (a "Prospectus Supplement").
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable: (i) in the case of Debt
Securities, the specific title, aggregate principal amount, currency, form
(which may be registered or bearer, or certificated or global), authorized
denominations, maturity, rate (or manner of calculation thereof) and time of
payment of interest, terms for redemption at the option of SCI or repayment at
the option of the Holder, terms for sinking fund payments, and any initial
public offering price; (ii) in the case of Preferred Shares, the specific
title and stated value, any dividend, liquidation, redemption, conversion,
voting and other rights, and any initial public offering price; and (iii) in
the case of Common Shares, any initial public offering price. In addition,
such specific terms may include limitations on direct or beneficial ownership
and restrictions on transfer of the Offered Securities, in each case as may be
appropriate to preserve the status of SCI as a real estate investment trust
("REIT") for federal income tax purposes.
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered
Securities covered by such Prospectus Supplement.
The Offered Securities may be offered directly by SCI, through agents
designated from time to time by SCI, or to or through underwriters or dealers.
If any agents or underwriters are involved in the sale of any of the Offered
Securities, their names, and any applicable purchase price, fee, commission or
discount arrangement between or among them, will be set forth, or will be
calculable from the information set forth, in the applicable Prospectus
Supplement. See "Plan of Distribution." No Offered Securities may be sold
without delivery of the applicable Prospectus Supplement describing the method
and terms of the offering of such series of Offered Securities.
----------------
*Pursuant to Rule 429 under the Securities Act of 1933, as amended (the
"Securities Act"), this Prospectus also relates to an additional $89,999,994
of the Offered Securities which were registered under a previous registration
statement.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
----------------
THE DATE OF THIS PROSPECTUS IS DECEMBER 28, 1995.
<PAGE>
AVAILABLE INFORMATION
SCI is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith,
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and
other information can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549; Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and 7 World Trade Center, 13th Floor, New York, New York
10048. Copies of such material can be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. SCI's outstanding Common Shares and Series A
Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 par value
per share (the "Series A Preferred Shares"), are listed on the New York Stock
Exchange (the "NYSE") under the symbols "SCN" and "SCN-PRA", respectively, and
all such reports, proxy statements and other information filed by SCI with the
NYSE may be inspected at the NYSE's offices at 20 Broad Street, New York, New
York 10005.
This Prospectus constitutes part of a registration statement on Form S-3
(together with all amendments and exhibits, the "Registration Statement")
filed by SCI with the Commission under the Securities Act. This Prospectus
does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information, reference is hereby
made to the Registration Statement.
INCORPORATION BY REFERENCE
There are incorporated herein by reference the following documents
heretofore filed by SCI with the Commission:
(a) SCI's Annual Report on Form 10-K for the fiscal year ended December
31, 1994;
(b) SCI's Quarterly Reports on Form 10-Q for the fiscal quarters ended
March 31, 1995, June 30, 1995 and September 30, 1995;
(c) SCI's Current Reports on Form 8-K dated April 6, 1995, May 9, 1995,
June 16, 1995 and August 2, 1995;
(d) The description of the Series A Preferred Shares contained under the
caption "Description of Series A Preferred Shares" in SCI's prospectus
supplement dated June 16, 1995 to the prospectus dated April 27, 1995
forming a part of SCI's registration statement on Form S-3 (File No. 33-
90940) filed with the Commission pursuant to Rule 424(b) under the
Securities Act and the related description contained under the caption
"Description of Preferred Shares" in such prospectus;
(e) The description of the Common Shares contained in SCI's registration
statement on Form 8-A; and
(f) The description of SCI's preferred share purchase rights contained in
SCI's registration statement on Form 8-A.
All documents subsequently filed by SCI pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act prior to the termination of the offering of
the Offered Securities, shall be deemed to be incorporated by reference in
this Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained herein, or in any subsequently filed document which is incorporated
or deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
SCI will provide without charge to each person, including any beneficial
owner, to whom a copy of this Prospectus is delivered, upon the written or
oral request of such person, a copy of any or all of the documents
incorporated herein by reference, other than exhibits to such documents unless
such exhibits are specifically incorporated by reference into such documents.
Requests should be addressed to Secretary, Security Capital Industrial Trust,
7777 Market Center Avenue, El Paso, Texas 79912, telephone number: (915) 877-
3900.
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SECURITY CAPITAL INDUSTRIAL TRUST
SCI, through its REIT manager, Security Capital Industrial Incorporated (the
"REIT Manager" or "REIT Management"), is the largest publicly held, fully
integrated operating company, based on equity market capitalization, focused
exclusively on meeting the distribution space needs of national, regional and
local industrial real estate users throughout the United States. SCI
distinguishes itself from its competition by being the only entity that
combines all of the following:
1. A national operating strategy targeting the largest 1,000 users of
distribution space;
2. A disciplined investment strategy based on proprietary research that
targets high growth markets with sustainable demand for SCI's targeted
product--low finish distribution space;
3. An organizational structure and service delivery system built around the
customer; SCI believes its service approach is unique to the real estate
industry as it combines national scope and expertise with strong local
presence; and
4. 220 professionals in 24 offices which REIT Management believes comprise
the deepest and most experienced management team in industrial real
estate.
The cornerstone of SCI's operating strategy is the SCI National Operating
System(TM) comprised of the Market Officer Group, the National Services Group
and the National Development Group that provides an exceptional level of
customer service, marketing and development on a national, regional and local
basis.
SCI engages in the acquisition, development, marketing, operation and long-
term ownership of distribution facilities, and the development of master-
planned distribution parks and build-to-suit facilities for its customers.
SCI, through its REIT Manager, is a fully integrated operating company with a
significant level of expertise in market research; building and land
acquisition and due diligence; master-planned distribution park design and
building construction; marketing; asset and leasing management; capital
markets and financial operations. SCI deploys capital in markets with
excellent long-term growth prospects and in markets where SCI can achieve a
strong market position through the acquisition and development of generic,
flexible facilities designed for both warehousing and light manufacturing
uses.
SCI's executive offices are located at 14100 East 35th Place, Aurora,
Colorado 80011 and its telephone number is (303) 375-9292. SCI's predecessor
was formed in June 1991 as a Delaware corporation, and SCI was re-formed as a
Maryland real estate investment trust in January 1993.
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement, the net
proceeds from the sale of the Offered Securities will be used for the
acquisition and development of additional industrial properties, as suitable
opportunities arise, for the repayment of certain outstanding indebtedness at
such time, for capital improvements to properties and for general corporate
purposes.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities are to be issued under an Indenture, dated as of March
1, 1995 (the "Indenture"), between SCI and State Street Bank and Trust Company
(the "Trustee"). The Indenture has been incorporated by reference as an
exhibit to the Registration Statement of which this Prospectus is a part and
is available for inspection at the corporate trust office of the Trustee at
225 Franklin Street, Boston, Massachusetts 02110 or as described above under
"Available Information." The Indenture is subject to, and governed by, the
Trust Indenture Act of 1939, as amended (the "TIA"). The statements made
hereunder relating to the Indenture and the Debt Securities to be issued
thereunder are summaries of certain provisions thereof, do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all the provisions of the Indenture and such Debt Securities. All section
references appearing herein are to sections of the Indenture, and capitalized
terms used but not defined herein shall have the respective meanings set forth
in the Indenture.
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GENERAL
The Debt Securities will be direct, unsecured and unsubordinated obligations
of SCI and will rank equally with all other unsecured and unsubordinated
indebtedness of SCI from time to time outstanding. The Indenture provides that
the Debt Securities may be issued without limit as to aggregate principal
amount, in one or more series, in each case as established from time to time
in or pursuant to authority granted by a resolution of the Board of Trustees
(the "Board") of SCI or as established in one or more indentures supplemental
to the Indenture. All Debt Securities of one series need not be issued at the
same time and, unless otherwise provided, a series may be reopened, without
the consent of the Holders of the Debt Securities of such series, for
issuances of additional Debt Securities of such series (Section 301).
Reference is made to the Prospectus Supplement relating to the series of
Debt Securities being offered for the specific terms thereof, including:
(1) the title of such series of Debt Securities;
(2) the aggregate principal amount of such series of Debt Securities and
any limit on such principal amount;
(3) the percentage of the principal amount at which the Debt Securities
of such series will be issued and, if other than the full principal amount
thereof, the portion of the principal amount thereof payable upon
declaration of acceleration of the maturity thereof, or the method by which
any such portion shall be determined;
(4) the date or dates, or the method by which such date or dates will be
determined, on which the principal of the Debt Securities of such series
will be payable and the amount of principal payable thereon;
(5) the rate or rates (which may be fixed or variable), or the method by
which such rate or rates shall be determined, at which the Debt Securities
of such series will bear interest, if any;
(6) the date or dates, or the method by which such date or dates will be
determined, from which any such interest will accrue, the Interest Payment
Dates on which any such interest will be payable, the Regular Record Dates
for such Interest Payment Dates, or the method by which such dates shall be
determined, the Person to whom, and the manner in which, such interest
shall be payable, and the basis upon which interest shall be calculated if
other than that of a 360-day year comprised of twelve 30-day months;
(7) the place or places where the principal of (and premium or Make-Whole
Amount (as defined), if any) and interest and Additional Amounts, if any,
on the Debt Securities of such series will be payable, where such Debt
Securities may be surrendered for registration of transfer or exchange and
where notices or demands to or upon SCI in respect of such Debt Securities
and the Indenture may be served;
(8) the period or periods within which, the price or prices (including
the premium or Make-Whole Amount, if any) at which, the currency or
currencies in which, and the other terms and conditions upon which the Debt
Securities of such series may be redeemed, as a whole or in part, at the
option of SCI, if SCI is to have such an option;
(9) the obligation, if any, of SCI to redeem, repay or purchase the Debt
Securities of such series pursuant to any sinking fund or analogous
provision or at the option of a Holder thereof, and the period or periods
within which, the date or dates upon which, the price or prices at which,
the currency or currencies, currency unit or units or composite currency or
currencies in which, and the other terms and conditions upon which such
Debt Securities shall be redeemed, repaid or purchased, as a whole or in
part, pursuant to such obligation;
(10) if other than United States dollars, the currency or currencies in
which the Debt Securities of such series are denominated and payable, which
may be a foreign currency or units of two or more foreign currencies or a
composite currency or currencies, and the terms and conditions relating
thereto;
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(11) whether the amount of payments of principal of (and premium or Make-
Whole Amount, if any) or interest, if any, on the Debt Securities of such
series may be determined with reference to an index, formula or other
method (which index, formula or method may be, but need not be, based on a
currency, currencies, currency unit or units or composite currency or
currencies) and the manner in which such amounts shall be determined;
(12) whether the principal of (and premium or Make-Whole Amount, if any)
or interest or Additional Amounts, if any, on the Debt Securities of such
series are to be payable, at the election of SCI or a Holder, in a currency
or currencies, currency unit or units or composite currency or currencies,
other than that in which such Debt Securities are denominated or stated to
be payable, the period or periods within which, and the terms and
conditions upon which, such election may be made, and the time and manner
of, and identity of the exchange rate agent with responsibility for,
determining the exchange rate between the currency or currencies in which
such Debt Securities are denominated or stated to be payable and the
currency or currencies in which such Debt Securities are to be so payable;
(13) any deletions from, modifications of or additions to the terms of
such series of Debt Securities with respect to the Events of Default or
covenants set forth in the Indenture;
(14) whether the Debt Securities of such series will be issued in
certificated or book-entry form;
(15) whether the Debt Securities of such series will be in registered or
bearer form and, if in registered form, the denominations thereof if other
than $1,000 and any integral multiple thereof and, if in bearer form, the
denominations thereof if other than $5,000 and the terms and conditions
relating thereto;
(16) the applicability, if any, of the defeasance and covenant defeasance
provisions of Article Fourteen of the Indenture to such series of Debt
Securities and any provisions in modification thereof, in addition thereto
or in lieu thereof;
(17) if the Debt Securities of such series are to be issued upon the
exercise of debt warrants, the time, manner and place for such Debt
Securities to be authenticated and delivered;
(18) whether and under what circumstances SCI will pay Additional Amounts
as contemplated in the Indenture on the Debt Securities of such series in
respect of any tax, assessment or governmental charge and, if so, whether
SCI will have the option to redeem such Debt Securities rather than pay
such Additional Amounts; and
(19) any other terms of such series of Debt Securities not inconsistent
with the provisions of the Indenture (Section 301).
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
or bear no interest or bear interest at a rate which at the time of issuance
is below market rates ("Original Issue Discount Securities"). Special United
States federal income tax, accounting and other considerations applicable to
Original Issue Discount Securities will be described in the applicable
Prospectus Supplement.
Except as set forth below under "--Certain Covenants--Limitations on
Incurrence of Debt," the Indenture does not contain any other provisions that
would limit the ability of SCI to incur indebtedness or that would afford
Holders of Debt Securities protection in the event of a highly leveraged or
similar transaction involving SCI or in the event of a change of control.
However, SCI's Amended and Restated Declaration of Trust, as amended and
supplemented (the "Declaration of Trust"), restricts beneficial ownership of
SCI's outstanding shares of beneficial interest by a single person, or persons
acting as a group, to 9.8% of such shares, with certain exceptions (including
an exception in the case of Security Capital Group Incorporated "SCG"). See
"Description of Common Shares--Restriction on Size of Holdings." Additionally,
the Articles Supplementary relating to the Series A Preferred Shares restrict
beneficial ownership of the Series A Preferred Shares by a person, or persons
acting as a group, to 25% of the Series A Preferred Shares, with limited
exceptions. Similarly, the Articles Supplementary for each other series of
Preferred Shares will contain certain provisions restricting
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the ownership and transfer of the Preferred Shares. See "Description of
Preferred Shares--Restrictions on Ownership." These restrictions are designed
to preserve SCI's status as a REIT and, therefore, may act to prevent or
hinder a change of control. Reference is made to the applicable Prospectus
Supplement for information with respect to any deletions from, modifications
of or additions to the Events of Default or covenants of SCI that are
described below, including any addition of a covenant or other provision
providing event risk or similar protection.
DENOMINATIONS
Unless otherwise described in the applicable Prospectus Supplement, the Debt
Securities of any series issued in registered form will be issuable in
denominations of $1,000 and integral multiples thereof. Unless otherwise
described in the applicable Prospectus Supplement, the Debt Securities of any
series issued in bearer form will be issuable in denominations of $5,000
(Section 302).
PRINCIPAL AND INTEREST
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium or Make-Whole Amount, if any) and interest on any
series of Debt Securities will be payable at the corporate trust office of the
Trustee, initially located at 225 Franklin Street, Boston, Massachusetts
02110; provided that, at the option of SCI, payment of interest may be made by
check mailed to the address of the Person entitled thereto as it appears in
the Security Register or by wire transfer of funds to such Person to an
account maintained within the United States (Sections 301, 305, 306, 307 and
1002).
If any Interest Payment Date, Principal Payment Date or the Maturity Date
falls on a day that is not a Business Day, the required payment shall be made
on the next Business Day as if it were made on the date such payment was due
and no interest shall accrue on the amount so payable for the period from and
after such Interest Payment Date, Principal Payment Date or the Maturity Date,
as the case may be. "Business Day" means any day, other than a Saturday or
Sunday, on which banks in Boston, Massachusetts are not required or authorized
by law or executive order to close. Any interest not punctually paid or duly
provided for on any Interest Payment Date with respect to any Debt Security
("Defaulted Interest") will forthwith cease to be payable to the Holder on the
applicable Regular Record Date and may either be paid to the person in whose
name such Debt Security is registered at the close of business on a special
record date (the "Special Record Date") for the payment of such Defaulted
Interest to be fixed by the Trustee, notice of which shall be given to the
Holder of such Debt Security not less than 10 days prior to such Special
Record Date, or may be paid at any time in any other lawful manner, all as
more completely described in the Indenture (Section 307).
MERGER, CONSOLIDATION OR SALE
SCI may consolidate with, or sell, lease or convey all or substantially all
of its assets to, or merge with or into, any other entity, provided that (a)
either SCI shall be the continuing entity, or the successor entity (if other
than SCI) formed by or resulting from any such consolidation or merger or
which shall have received the transfer of such assets is a Person organized
and existing under the laws of the United States or any State thereof and
shall expressly assume payment of the principal of (and premium or Make-Whole
Amount, if any) and any interest (including Additional Amounts, if any) on all
of the Debt Securities outstanding and the due and punctual performance and
observance of all of the covenants and conditions contained in the Indenture;
(b) immediately after giving effect to such transaction and treating any
indebtedness which becomes an obligation of SCI or any Subsidiary as a result
thereof as having been incurred by SCI or such Subsidiary at the time of such
transaction, no Event of Default under the Indenture, and no event which,
after notice or the lapse of time, or both, would become such an Event of
Default, shall have occurred and be continuing; and (c) an officer's
certificate and legal opinion covering such conditions shall be delivered to
the Trustee (Sections 801 and 803).
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CERTAIN COVENANTS
Limitations on Incurrence of Debt. SCI will not, and will not permit any
Subsidiary to, incur any Debt (as defined below) if, immediately after giving
effect to the incurrence of such additional Debt and the application of the
proceeds thereof, the aggregate principal amount of all outstanding Debt of
SCI and its Subsidiaries on a consolidated basis determined in accordance with
generally accepted accounting principles is greater than 60% of the sum of
(without duplication) (i) SCI's Total Assets (as defined below) as of the end
of the calendar quarter covered in SCI's Annual Report on Form 10-K or
Quarterly Report on Form 10-Q, as the case may be, most recently filed with
the Commission (or, if such filing is not permitted under the Exchange Act,
with the Trustee) prior to the incurrence of such additional Debt and (ii) the
purchase price of any real estate assets or mortgages receivable acquired, and
the amount of any securities offering proceeds received (to the extent that
such proceeds were not used to acquire real estate assets or mortgages
receivable or used to reduce Debt), by SCI or any Subsidiary since the end of
such calendar quarter, including those proceeds obtained in connection with
the incurrence of such additional Debt (Section 1004).
In addition to the foregoing limitation on the incurrence of Debt, SCI will
not, and will not permit any Subsidiary to, incur any Debt secured by any
mortgage, lien, charge, pledge, encumbrance or security interest of any kind
upon any of the property of SCI or any Subsidiary if, immediately after giving
effect to the incurrence of such additional Debt and the application of the
proceeds thereof, the aggregate principal amount of all outstanding Debt of
SCI and its Subsidiaries on a consolidated basis which is secured by any
mortgage, lien, charge, pledge, encumbrance or security interest on property
of SCI or any Subsidiary is greater than 40% of the sum of (i) SCI's Total
Assets as of the end of the calendar quarter covered in SCI's Annual Report on
Form 10-K or Quarterly Report on Form 10-Q, as the case may be, most recently
filed with the Commission (or if such filing is not permitted under the
Exchange Act, with the Trustee) prior to the incurrence of such additional
Debt and (ii) the purchase price of any real estate assets or mortgages
receivable acquired, and the amount of any securities offering proceeds
received (to the extent that such proceeds were not used to acquire real
estate assets or mortgages receivable or used to reduce Debt), by SCI or any
Subsidiary since the end of such calendar quarter, including those proceeds
obtained in connection with the incurrence of such additional Debt (Section
1004).
In addition to the foregoing limitations on the incurrence of Debt, no
Subsidiary may incur any unsecured Debt other than intercompany Debt
subordinate to the Debt Securities; provided, however, that SCI or a
Subsidiary may acquire an entity that becomes a Subsidiary that has unsecured
Debt if the incurrence of such Debt (including any guarantees of such Debt
assumed by SCI or any Subsidiary) was not intended to evade the foregoing
restrictions and the incurrence of such Debt (including any guarantees of such
Debt assumed by SCI or any Subsidiary) would otherwise be permitted under the
Indenture (Section 1004).
SCI and its Subsidiaries may not at any time own Total Unencumbered Assets
equal to less than 150% of the aggregate outstanding principal amount of the
Unsecured Debt of SCI and its Subsidiaries on a consolidated basis (Section
1004).
In addition to the foregoing limitations on the incurrence of Debt, SCI will
not, and will not permit any Subsidiary to, incur any Debt if the ratio of
Consolidated Income Available for Debt Service (as defined below) to the
Annual Service Charge (as defined below) for the four consecutive fiscal
quarters most recently ended prior to the date on which such additional Debt
is to be incurred shall have been less than 1.5, on a pro forma basis after
giving effect thereto and to the application of the proceeds therefrom, and
calculated on the assumption that (i) such Debt and any other Debt incurred by
SCI and its Subsidiaries since the first day of such four-quarter period and
the application of the proceeds therefrom, including to refinance other Debt,
had occurred at the beginning of such period; (ii) the repayment or retirement
of any other Debt by SCI and its Subsidiaries since the first day of such
four-quarter period had been incurred, repaid or retired at the beginning of
such period (except that, in making such computation, the amount of Debt under
any revolving credit facility shall be computed based upon the average daily
balance of such Debt during such period); (iii) in the case of Acquired
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Debt (as defined below) or Debt incurred in connection with any acquisition
since the first day of such four-quarter period, the related acquisition had
occurred as of the first day of such period with the appropriate adjustments
with respect to such acquisition being included in such pro forma calculation;
and (iv) in the case of any acquisition or disposition by SCI or its
Subsidiaries of any asset or group of assets since the first day of such four-
quarter period, whether by merger, stock purchase or sale, or asset purchase
or sale, such acquisition or disposition or any related repayment of Debt had
occurred as of the first day of such period with the appropriate adjustments
with respect to such acquisition or disposition being included in such pro
forma calculation (Section 1004).
Existence. Except as permitted under "--Merger, Consolidation or Sale," SCI
will do or cause to be done all things necessary to preserve and keep in full
force and effect its existence, rights (charter and statutory) and franchises;
provided, however, that SCI shall not be required to preserve any right or
franchise if it determines that the preservation thereof is no longer
desirable in the conduct of its business and that the loss thereof is not
disadvantageous in any material respect to the Holders of the Debt Securities
(Section 1005).
Maintenance of Properties. SCI will cause all of its properties used or
useful in the conduct of its business or the business of any Subsidiary to be
maintained and kept in good condition, repair and working order and supplied
with all necessary equipment and will cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in the
judgment of SCI may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that SCI and its Subsidiaries shall not be prevented from selling or
otherwise disposing for value its properties in the ordinary course of
business (Section 1006).
Insurance. SCI will, and will cause each of its Subsidiaries to, keep all of
its insurable properties insured against loss or damage at least equal to
their then full insurable value with financially sound and reputable insurance
companies (Section 1007).
Payment of Taxes and Other Claims. SCI will pay or discharge or cause to be
paid or discharged, before the same shall become delinquent, (i) all taxes,
assessments and governmental charges levied or imposed upon it or any
Subsidiary or upon the income, profits or property of SCI or any Subsidiary
and (ii) all lawful claims for labor, materials and supplies which, if unpaid,
might by law become a lien upon the property of SCI or any Subsidiary;
provided, however, that SCI shall not be required to pay or discharge or cause
to be paid or discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings (Section 1008).
Provision of Financial Information. Whether or not SCI is subject to Section
13 or 15(d) of the Exchange Act, SCI will, to the extent permitted under the
Exchange Act, file with the Commission the annual reports, quarterly reports
and other documents which SCI would have been required to file with the
Commission pursuant to such Section 13 or 15(d) (the "Financial Statements")
if SCI were so subject, such documents to be filed with the Commission on or
prior to the respective dates (the "Required Filing Dates") by which SCI would
have been required so to file such documents if SCI were so subject. SCI will
also in any event (x) within 15 days of each Required Filing Date (i) transmit
by mail to all Holders of Debt Securities, as their names and addresses appear
in the Security Register, without cost to such Holders, copies of the annual
reports and quarterly reports which SCI would have been required to file with
the Commission pursuant to Section 13 or 15(d) of the Exchange Act if SCI were
subject to such Sections and (ii) file with the Trustee copies of the annual
reports, quarterly reports and other documents which SCI would have been
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act if SCI were subject to such Sections and (y) if filing such
documents by SCI with the Commission is not permitted under the Exchange Act,
promptly upon written request and payment of the reasonable cost of
duplication and delivery, supply copies of such documents to any prospective
Holder (Section 1009).
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EVENTS OF DEFAULT, NOTICE AND WAIVER
The Indenture provides that the following events are "Events of Default"
with respect to any series of Debt Securities issued thereunder: (a) default
in the payment of any installment of interest or Additional Amounts payable on
any Debt Security of such series which continues for 30 days; (b) default in
the payment of the principal of (or premium or Make-Whole Amount, if any, on)
any Debt Security of such series at its Maturity; (c) default in making any
sinking fund payment as required for any Debt Security of such series; (d)
default in the performance of any other covenant of SCI contained in the
Indenture (other than a covenant added to the Indenture solely for the benefit
of a series of Debt Securities issued thereunder other than such series),
continued for 60 days after written notice as provided in the Indenture; (e)
default in the payment of an aggregate principal amount exceeding $10,000,000
of any evidence of indebtedness of SCI or any mortgage, indenture or other
instrument under which such indebtedness is issued or by which such
indebtedness is secured, such default having occurred after the expiration of
any applicable grace period and having resulted in the acceleration of the
maturity of such indebtedness, but only if such indebtedness is not discharged
or such acceleration is not rescinded or annulled; (f) the entry by a court of
competent jurisdiction of one or more judgments, orders or decrees against SCI
or any of its Subsidiaries in an aggregate amount (excluding amounts fully
covered by insurance) in excess of $10,000,000 and such judgments, orders or
decrees remain undischarged, unstayed and unsatisfied in an aggregate amount
(excluding amounts fully covered by insurance) in excess of $10,000,000 for a
period of 30 consecutive days; (g) certain events of bankruptcy, insolvency or
reorganization, or court appointment of a receiver, liquidator or trustee of
SCI or any Significant Subsidiary or for all or substantially all of either of
its property; and (h) any other Event of Default provided with respect to a
particular series of Debt Securities (Section 501). The term "Significant
Subsidiary" means each significant subsidiary (as defined in Regulation S-X
promulgated under the Securities Act) of SCI.
If an Event of Default under the Indenture with respect to Debt Securities
of any series at the time Outstanding occurs and is continuing, then in every
such case, unless the principal of all of the Outstanding Debt Securities of
such series shall already have become due and payable, the Trustee or the
Holders of not less than 25% in principal amount of the Outstanding Debt
Securities of such series may declare the principal (or, if the Debt
Securities of such series are Original Issue Discount Securities or Indexed
Securities, such portion of the principal as may be specified in the terms
thereof) of, and the Make-Whole Amount, if any, on, all of the Debt Securities
of such series to be due and payable immediately by written notice thereof to
SCI (and to the Trustee if given by the Holders). However, at any time after
such a declaration of acceleration with respect to Debt Securities of any
series has been made, but before a judgment or decree for payment of the money
due has been obtained by the Trustee, the Holders of not less than a majority
in principal amount of the Outstanding Debt Securities of such series may
rescind and annul such declaration and its consequences if (a) SCI shall have
deposited with the Trustee all required payments of the principal of (and
premium or Make-Whole Amount, if any) and interest, and any Additional
Amounts, on the Debt Securities of such series, plus certain fees, expenses,
disbursements and advances of the Trustee and (b) all Events of Default, other
than the nonpayment of accelerated principal (or specified portion thereof and
the Make-Whole Amount, if any) or interest, with respect to Debt Securities of
such series have been cured or waived as provided in the Indenture (Section
502). The Indenture also provides that the Holders of not less than a majority
in principal amount of the Outstanding Debt Securities of any series may waive
any past default with respect to such series and its consequences, except a
default (x) in the payment of the principal of (or premium or Make-Whole
Amount, if any) or interest or Additional Amounts payable on any Debt Security
of such series or (y) in respect of a covenant or provision contained in the
Indenture that cannot be modified or amended without the consent of the Holder
of each Outstanding Debt Security affected thereby (Section 513).
The Trustee is required to give notice to the Holders of Debt Securities
within 90 days of a default under the Indenture; provided, however, that the
Trustee may withhold notice to the Holders of any series of Debt Securities of
any default with respect to such series (except a default in the payment of
the principal of (or premium or Make-Whole Amount, if any) or interest or
Additional Amounts payable on any Debt Security
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of such series or in the payment of any sinking fund installment in respect of
any Debt Security of such series) if the Responsible Officers of the Trustee
consider such withholding to be in the interest of such Holders (Section 601).
The Indenture provides that no Holders of Debt Securities of any series may
institute any proceedings, judicial or otherwise, with respect to the
Indenture or for any remedy thereunder, except in the case of failure of the
Trustee, for 60 days, to act after it has received a written request to
institute proceedings in respect of an Event of Default from the Holders of
not less than 25% in principal amount of the Outstanding Debt Securities of
such series, as well as an offer of reasonable indemnity (Section 507). This
provision will not prevent, however, any Holder of Debt Securities from
instituting suit for the enforcement of payment of the principal of (and
premium or Make-Whole Amount, if any), interest on, and Additional Amounts
payable with respect to, such Debt Securities at the respective due dates
thereof (Section 508).
Subject to provisions in the Indenture relating to its duties in case of
default, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any Holders of any
series of Debt Securities then Outstanding under the Indenture, unless such
Holders shall have offered to the Trustee reasonable security or indemnity
(Section 602). The Holders of not less than a majority in principal amount of
the Outstanding Debt Securities of any series shall have the right to direct
the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or of exercising any trust or power conferred upon
the Trustee. However, the Trustee may refuse to follow any direction which is
in conflict with any law or the Indenture, which may involve the Trustee in
personal liability or which may be unduly prejudicial to the Holders of Debt
Securities of such series not joining therein (Section 512).
Within 120 days after the close of each fiscal year, SCI must deliver to the
Trustee a certificate, signed by one of several specified officers, stating
whether or not such officer has knowledge of any default under the Indenture
and, if so, specifying each such default and the nature and status thereof
(Section 1010).
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture may be made with the consent
of the Holders of not less than a majority in principal amount of all
Outstanding Debt Securities which are affected by such modification or
amendment; provided, however, that no such modification or amendment may,
without the consent of the Holder of each such Debt Security affected thereby,
(a) change the Stated Maturity of the principal of (or premium or Make-Whole
Amount, if any), or any installment of principal of or interest or Additional
Amounts payable on, any such Debt Security; (b) reduce the principal amount
of, or the rate or amount of interest on, or any premium or Make-Whole Amount
payable on redemption of, or any Additional Amounts payable with respect to,
any such Debt Security, or reduce the amount of principal of an Original Issue
Discount Security or Make-Whole Amount, if any, that would be due and payable
upon declaration of acceleration of the maturity thereof or would be provable
in bankruptcy, or adversely affect any right of repayment of the Holder of any
such Debt Security; (c) change the Place of Payment, or the coin or currency,
for payment of principal of (and premium or Make-Whole Amount, if any), or
interest on, or any Additional Amounts payable with respect to, any such Debt
Security; (d) impair the right to institute suit for the enforcement of any
payment on or with respect to any such Debt Security; (e) reduce the above-
stated percentage of Outstanding Debt Securities of any series necessary to
modify or amend the Indenture, to waive compliance with certain provisions
thereof or certain defaults and consequences thereunder or to reduce the
quorum or voting requirements set forth in the Indenture; or (f) modify any of
the foregoing provisions or any of the provisions relating to the waiver of
certain past defaults or certain covenants, except to increase the required
percentage to effect such action or to provide that certain other provisions
may not be modified or waived without the consent of the Holder of such Debt
Security (Section 902).
The Holders of not less than a majority in principal amount of Outstanding
Debt Securities have the right to waive compliance by SCI with certain
covenants in the Indenture (Section 1012).
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Modifications and amendments of the Indenture may be made by SCI and the
Trustee without the consent of any Holder of Debt Securities for any of the
following purposes: (i) to evidence the succession of another Person to SCI as
obligor under the Indenture; (ii) to add to the covenants of SCI for the
benefit of the Holders of all or any series of Debt Securities or to surrender
any right or power conferred upon SCI in the Indenture; (iii) to add Events of
Default for the benefit of the Holders of all or any series of Debt
Securities; (iv) to add or change any provisions of the Indenture to
facilitate the issuance of, or to liberalize certain terms of, Debt Securities
in bearer form, or to permit or facilitate the issuance of Debt Securities in
uncertificated form, provided that such action shall not adversely affect the
interests of the Holders of the Debt Securities of any series in any material
respect; (v) to change or eliminate any provisions of the Indenture, provided
that any such change or elimination shall become effective only when there are
no Debt Securities Outstanding of any series created prior thereto which are
entitled to the benefit of such provision; (vi) to secure the Debt Securities;
(vii) to establish the form or terms of Debt Securities of any series and any
related coupons; (viii) to provide for the acceptance of appointment by a
successor Trustee or facilitate the administration of the trusts under the
Indenture by more than one Trustee; (ix) to cure any ambiguity, defect or
inconsistency in the Indenture or to make any other changes, provided that in
each case, such action shall not adversely affect the interests of Holders of
Debt Securities of any series in any material respect; (x) to close the
Indenture with respect to the authentication and delivery of additional series
of Debt Securities or to qualify, or maintain qualification of, the Indenture
under the TIA; or (xi) to supplement any of the provisions of the Indenture to
the extent necessary to permit or facilitate defeasance and discharge of any
series of such Debt Securities, provided that such action shall not adversely
affect the interests of the Holders of the Debt Securities of any series in
any material respect (Section 901).
The Indenture provides that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have
given any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security
that shall be deemed to be outstanding shall be the amount of the principal
thereof that would be due and payable as of the date of such determination
upon declaration of acceleration of the maturity thereof; (ii) the principal
amount of a Debt Security denominated in a Foreign Currency that shall be
deemed outstanding shall be the United States dollar equivalent, determined on
the issue date for such Debt Security, of the principal amount (or, in the
case of an Original Issue Discount Security, the United States dollar
equivalent on the issue date of such Debt Security of the amount determined as
provided in (i) above); (iii) the principal amount of an Indexed Security that
shall be deemed outstanding shall be the principal face amount of such Indexed
Security at original issuance, unless otherwise provided with respect to such
Indexed Security pursuant to Section 301 of the Indenture; and (iv) Debt
Securities owned by SCI or any other obligor upon the Debt Securities or any
Affiliate of SCI or of such other obligor shall be disregarded (Section 101).
The Indenture contains provisions for convening meetings of the Holders of
Debt Securities of a series (Section 1501). A meeting may be called at any
time by the Trustee, and also, upon request, by SCI or the Holders of at least
10% in principal amount of the Outstanding Debt Securities of such series, in
any such case upon notice given as provided in the Indenture (Section 1502).
Except for any consent that must be given by the Holder of each Debt Security
affected by certain modifications and amendments of the Indenture, any
resolution presented at a meeting or adjourned meeting duly reconvened at
which a quorum is present may be adopted by the affirmative vote of the
Holders of a majority in principal amount of the Outstanding Debt Securities
of such series; provided, however, that, except as referred to above, any
resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given or taken by
the Holders of a specified percentage, which is less than a majority, in
principal amount of the Outstanding Debt Securities of a series may be adopted
at a meeting or adjourned meeting duly reconvened at which a quorum is present
by the affirmative vote of the Holders of such specified percentage in
principal amount of the Outstanding Debt Securities of such series. Any
resolution passed or decision taken at any meeting of Holders of Debt
Securities of any series duly held in accordance with the Indenture will be
binding on all Holders of Debt Securities of such series. The quorum at any
meeting called to adopt a resolution, and at any reconvened meeting, will be
Persons holding or representing a majority in principal amount of the
Outstanding Debt Securities of a series;
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provided, however, that if any action is to be taken at such meeting with
respect to a consent or waiver which may be given by the Holders of not less
than a specified percentage in principal amount of the Outstanding Debt
Securities of a series, the Persons holding or representing such specified
percentage in principal amount of the Outstanding Debt Securities of such
series will constitute a quorum (Section 1504).
Notwithstanding the foregoing provisions, if any action is to be taken at a
meeting of Holders of Debt Securities of any series with respect to any
request, demand, authorization, direction, notice, consent, waiver or other
action that the Indenture expressly provides may be made, given or taken by
the Holders of a specified percentage in principal amount of all Outstanding
Debt Securities affected thereby, or of the Holders of such series and one or
more additional series: (i) there shall be no minimum quorum requirement for
such meeting and (ii) the principal amount of the Outstanding Debt Securities
of such series that vote in favor of such request, demand, authorization,
direction, notice, consent, waiver or other action shall be taken into account
in determining whether such request, demand, authorization, direction, notice,
consent, waiver or other action has been made, given or taken under the
Indenture (Section 1504).
Any request, demand, authorization, direction, notice, consent, waiver or
other action provided by the Indenture to be given or taken by a specified
percentage in principal amount of the Holders of any or all series of Debt
Securities may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such specified percentage of Holders in
person or by agent duly appointed in writing; and, except as otherwise
expressly provided in the Indenture, such action shall become effective when
such instrument or instruments are delivered to the Trustee. Proof of
execution of any instrument or of a writing appointing any such agent shall be
sufficient for any purpose of the Indenture and (subject to Article Six of the
Indenture) conclusive in favor of the Trustee and SCI, if made in the manner
specified above (Section 1507).
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
SCI may discharge certain obligations to Holders of any series of Debt
Securities that have not already been delivered to the Trustee for
cancellation and that either have become due and payable or will become due
and payable within one year (or scheduled for redemption within one year) by
irrevocably depositing with the Trustee, in trust, funds in such currency or
currencies, currency unit or units or composite currency or currencies in
which such Debt Securities are payable in an amount sufficient to pay the
entire indebtedness on such Debt Securities in respect of principal (and
premium or Make-Whole Amount, if any) and interest and Additional Amounts
payable to the date of such deposit (if such Debt Securities have become due
and payable) or to the Stated Maturity or Redemption Date, as the case may be
(Section 1401).
The Indenture provides that, if the provisions of Article Fourteen are made
applicable to the Debt Securities of or within any series pursuant to Section
301 of the Indenture, SCI may elect either (a) to defease and be discharged
from any and all obligations with respect to such Debt Securities (except for
the obligation to pay Additional Amounts, if any, upon the occurrence of
certain events of tax, assessment or governmental charge with respect to
payments on such Debt Securities and the obligations to register the transfer
or exchange of such Debt Securities, to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities, to maintain an office or agency in
respect of such Debt Securities and to hold moneys for payment in trust)
("defeasance") (Section 1402) or (b) to be released from its obligations with
respect to such Debt Securities under Sections 1004 to 1009, inclusive, of the
Indenture (being the restrictions described under "--Certain Covenants") and,
if provided pursuant to Section 301 of the Indenture, its obligations with
respect to any other covenant, and any omission to comply with such
obligations shall not constitute a default or an Event of Default with respect
to such Debt Securities ("covenant defeasance") (Section 1403), in either case
upon the irrevocable deposit by SCI with the Trustee, in trust, of an amount,
in such currency or currencies, currency unit or units or composite currency
or currencies in which such Debt Securities are payable at Stated Maturity, or
Government Obligations (as defined below), or both, applicable to such Debt
Securities which through the scheduled payment of principal and interest
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in accordance with their terms will provide money in an amount sufficient to
pay the principal of (and premium or Make-Whole Amount, if any) and interest
on such Debt Securities, and any mandatory sinking fund or analogous payments
thereon, on the scheduled due dates therefor (Section 1404).
Such a trust may only be established if, among other things, SCI has
delivered to the Trustee an Opinion of Counsel (as specified in the Indenture)
to the effect that the Holders of such Debt Securities will not recognize
income, gain or loss for United States federal income tax purposes as a result
of such defeasance or covenant defeasance and will be subject to United States
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such defeasance or covenant defeasance
had not occurred, and such Opinion of Counsel, in the case of defeasance, must
refer to and be based upon a ruling of the Internal Revenue Service or a
change in applicable United States federal income tax law occurring after the
date of the Indenture (Section 1404).
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government which issued the Foreign
Currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations
of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America or such government which
issued the Foreign Currency in which the Debt Securities of such series are
payable, the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America or such other
government, which, in either case, are not callable or redeemable at the
option of the issuer thereof, and shall also include a depository receipt
issued by a bank or trust company as custodian with respect to any such
Government Obligation or a specific payment of interest on or principal of any
such Government Obligation held by such custodian for the account of the
holder of a depository receipt, provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to
the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt (Section 101).
Unless otherwise provided in the applicable Prospectus Supplement, if after
SCI has deposited funds and/or Government Obligations to effect defeasance or
covenant defeasance with respect to Debt Securities of any series, (a) the
Holder of a Debt Security of such series is entitled to, and does, elect
pursuant to Section 301 of the Indenture or the terms of such Debt Security to
receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such Debt Security or
(b) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security shall be deemed to have been,
and will be, fully discharged and satisfied through the payment of the
principal of (and premium or Make-Whole Amount, if any) and interest on such
Debt Security as they become due out of the proceeds yielded by converting the
amount so deposited in respect of such Debt Security into the currency,
currency unit or composite currency in which such Debt Security becomes
payable as a result of such election or such cessation of usage based on the
applicable market exchange rate (Section 1405). "Conversion Event" means the
cessation of use of (i) a currency, currency unit or composite currency (other
than the ECU or other currency unit) both by the government of the country
which issued such currency and for the settlement of transactions by a central
bank or other public institutions of or within the international banking
community, (ii) the ECU both within the European Monetary System and for the
settlement of transactions by public institutions of or within the European
Communities or (iii) any currency unit or composite currency other than the
ECU for the purposes for which it was established. Unless otherwise provided
in the applicable Prospectus Supplement, all payments of principal of (and
premium or Make-Whole Amount, if any) and interest on any Debt Security that
is payable in a Foreign Currency that ceases to be used by its government of
issuance shall be made in United States dollars (Section 101).
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In the event SCI effects covenant defeasance with respect to any Debt
Securities and such Debt Securities are declared due and payable because of
the occurrence of any Event of Default other than the Event of Default
described in clause (d) under "--Events of Default, Notice and Waiver" with
respect to Sections 1004 to 1009, inclusive, of the Indenture (which Sections
would no longer be applicable to such Debt Securities) or described in clause
(g) under "--Events of Default, Notice and Waiver" with respect to any other
covenant as to which there has been covenant defeasance, the amount in such
currency, currency unit or composite currency in which such Debt Securities
are payable plus Government Obligations on deposit with the Trustee, will be
sufficient to pay amounts due on such Debt Securities at the time of their
Stated Maturity but may not be sufficient to pay amounts due on such Debt
Securities at the time of the acceleration resulting from such Event of
Default. However, SCI would remain liable to make payment of such amounts due
at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions, if
any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
REGISTRATION AND TRANSFER
Subject to certain limitations imposed upon Debt Securities issued in book-
entry form, the Debt Securities of any series will be exchangeable for other
Debt Securities of the same series and of a like aggregate principal amount
and tenor of different authorized denominations upon surrender of such Debt
Securities at the corporate trust office of the Trustee referred to above. In
addition, subject to certain limitations imposed upon Debt Securities issued
in book-entry form, the Debt Securities of any series may be surrendered for
conversion or registration of transfer thereof at the corporate trust office
of the Trustee referred to above. Every Debt Security surrendered for
registration of transfer or exchange shall be duly endorsed or accompanied by
a written instrument of transfer. No service charge will be made for any
registration of transfer or exchange of any Debt Securities, but SCI may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith (Section 305). SCI may at any time
designate a transfer agent (in addition to the Trustee) with respect to any
series of Debt Securities. If SCI has designated such a transfer agent or
transfer agents, SCI may at any time rescind the designation of any such
transfer agent or approve a change in the location at which any such transfer
agent acts, except that SCI will be required to maintain a transfer agent in
each Place of Payment for such series (Section 1002).
Neither SCI nor the Trustee shall be required to (i) issue, register the
transfer of or exchange Debt Securities of any series during a period
beginning at the opening of business 15 days before any selection of Debt
Securities of that series to be redeemed and ending at the close of business
on the day of mailing of the relevant notice of redemption; (ii) register the
transfer of or exchange any Debt Security, or portion thereof, called for
redemption, except the unredeemed portion of any Debt Security being redeemed
in part; or (iii) issue, register the transfer of or exchange any Debt
Security which has been surrendered for repayment at the option of the Holder,
except the portion, if any, of such Debt Security not to be so repaid (Section
305).
BOOK-ENTRY PROCEDURES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities ("Global Securities") that will be
deposited with, or on behalf of, a depository (the "Depository") identified in
the applicable Prospectus Supplement relating to such series. Global
Securities, if any, are expected to be deposited with The Depository Trust
Company, as Depository. Global Securities may be issued in fully registered
form and may be issued in either temporary or permanent form. Unless and until
it is exchanged in whole or in part for the individual Debt Securities
represented thereby, a Global Security may not be transferred except as a
whole by the Depository for such Global Security to a nominee of such
Depository or by a nominee of such Depository to such Depository or another
nominee of such Depository or by the Depository or any nominee of such
Depository to a successor Depository or any nominee of such successor.
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The specific terms of the depository arrangement with respect to a series of
Debt Securities will be described in the applicable Prospectus Supplement
relating to such series. Unless otherwise indicated in the applicable
Prospectus Supplement, SCI anticipates that the following provisions will
apply to depository arrangements.
Upon the issuance of a Global Security, the Depository for such Global
Security or its nominee will credit on its book-entry registration and
transfer system the respective principal amounts of the individual Debt
Securities represented by such Global Security to the accounts of persons that
have accounts with such Depository ("Participants"). Such accounts shall be
designated by the underwriters, dealers or agents with respect to such Debt
Securities or by SCI if such Debt Securities are offered and sold directly by
SCI. Ownership of beneficial interests in a Global Security will be limited to
Participants or persons that may hold interests through Participants.
Ownership of beneficial interests in such Global Security will be shown on,
and the transfer of that ownership will be effected only through, records
maintained by the applicable Depository or its nominee (with respect to
beneficial interests of Participants) and records of Participants (with
respect to beneficial interests of persons who hold through Participants). The
laws of some states require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such limits and laws
may impair the ability to own, pledge or transfer beneficial interests in a
Global Security.
So long as the Depository for a Global Security or its nominee is the
registered owner of such Global Security, such Depository or such nominee, as
the case may be, will be considered the sole owner or holder of the Debt
Securities represented by such Global Security for all purposes under the
Indenture. Except as provided below or in the applicable Prospectus
Supplement, owners of beneficial interests in a Global Security will not be
entitled to have any of the individual Debt Securities of the series
represented by such Global Security registered in their names, will not
receive or be entitled to receive physical delivery of any such Debt
Securities of such series in definitive form and will not be considered the
owners or holders thereof under the Indenture.
Payments of principal of, any premium or Make-Whole Amount and any interest
on, or any Additional Amounts payable with respect to, individual Debt
Securities represented by a Global Security registered in the name of a
Depository or its nominee will be made to the Depository or its nominee, as
the case may be, as the registered owner of the Global Security representing
such Debt Securities. None of SCI, the Trustee, any Paying Agent or the
Security Registrar for such Debt Securities will have any responsibility or
liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests in the Global Security for such Debt
Securities or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests.
SCI expects that the Depository for a series of Debt Securities or its
nominee, upon receipt of any payment of principal, premium, Make-Whole Amount
or interest in respect of a permanent Global Security representing any of such
Debt Securities, immediately will credit Participants' accounts with payments
in amounts proportionate to their respective beneficial interests in the
principal amount of such Global Security for such Debt Securities as shown on
the records of such Depository or its nominee. SCI also expects that payments
by Participants to owners of beneficial interests in such Global Security held
through such Participants will be governed by standing instructions and
customary practices, as is the case with securities held for the account of
customers in bearer form or registered in "street name." Such payments will be
the responsibility of such Participants.
If a Depository for a series of Debt Securities is at any time unwilling,
unable or ineligible to continue as depository and a successor depository is
not appointed by SCI within 90 days, SCI will issue individual Debt Securities
of such series in exchange for the Global Security representing such series of
Debt Securities. In addition, SCI may, at any time and in its sole discretion,
subject to any limitations described in the applicable Prospectus Supplement
relating to such Debt Securities, determine not to have any Debt Securities of
such series represented by one or more Global Securities and, in such event,
will issue individual Debt Securities of such series in exchange for the
Global Security or Securities representing such series of Debt Securities.
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Individual Debt Securities of such series so issued will be issued in
denominations, unless otherwise specified by SCI, of $1,000 and integral
multiples thereof.
CERTAIN DEFINITIONS
"Acquired Debt" means Debt of a Person (i) existing at the time such Person
becomes a Subsidiary or (ii) assumed in connection with the acquisition of
assets from such Person, in each case, other than Debt incurred in connection
with, or in contemplation of, such Person becoming a Subsidiary or such
acquisition. Acquired Debt shall be deemed to be incurred on the date of the
related acquisition of assets from any Person or the date the acquired Person
becomes a Subsidiary.
"Annual Service Charge" as of any date means the maximum amount which is
payable in any period for interest on, and original issue discount of, Debt of
SCI and its Subsidiaries and the amount of dividends which are payable in
respect of any Disqualified Stock.
"Capital Stock" means, with respect to any Person, any capital stock
(including preferred stock), shares, interests, participations or other
ownership interests (however designated) of such Person and any rights (other
than debt securities convertible into or exchangeable for corporate stock),
warrants or options to purchase any thereof.
"Consolidated Income Available for Debt Service" for any period means
Earnings from Operations (as defined below) of SCI and its Subsidiaries plus
amounts which have been deducted, and minus amounts which have been added, for
the following (without duplication): (a) interest on Debt of SCI and its
Subsidiaries, (b) provision for taxes of SCI and its Subsidiaries based on
income, (c) amortization of debt discount, (d) provisions for gains and losses
on properties and property depreciation and amortization, (e) the effect of
any noncash charge resulting from a change in accounting principles in
determining Earnings from Operations for such period and (f) amortization of
deferred charges.
"Debt" of SCI or any Subsidiary means any indebtedness of SCI or any
Subsidiary, whether or not contingent, in respect of (i) borrowed money or
evidenced by bonds, notes, debentures or similar instruments, (ii)
indebtedness secured by any mortgage, pledge, lien, charge, encumbrance or any
security interest existing on property owned by SCI or any Subsidiary, (iii)
the reimbursement obligations, contingent or otherwise, in connection with any
letters of credit actually issued or amounts representing the balance deferred
and unpaid of the purchase price of any property or services, except any such
balance that constitutes an accrued expense or trade payable, or all
conditional sale obligations or obligations under any title retention
agreement, (iv) the principal amount of all obligations of SCI or any
Subsidiary with respect to redemption, repayment or other repurchase of any
Disqualified Stock or (v) any lease of property by SCI or any Subsidiary as
lessee which is reflected on SCI's Consolidated Balance Sheet as a capitalized
lease in accordance with generally accepted accounting principles, to the
extent, in the case of items of indebtedness under (i) through (iii) above,
that any such items (other than letters of credit) would appear as a liability
on SCI's Consolidated Balance Sheet in accordance with generally accepted
accounting principles, and also includes, to the extent not otherwise
included, any obligation by SCI or any Subsidiary to be liable for, or to pay,
as obligor, guarantor or otherwise (other than for purposes of collection in
the ordinary course of business), Debt of another Person (other than SCI or
any Subsidiary) (it being understood that Debt shall be deemed to be incurred
by SCI or any Subsidiary whenever SCI or such Subsidiary shall create, assume,
guarantee or otherwise become liable in respect thereof).
"Disqualified Stock" means, with respect to any Person, any Capital Stock of
such Person which by the terms of such Capital Stock (or by the terms of any
security into which it is convertible or for which it is exchangeable or
exercisable), upon the happening of any event or otherwise (i) matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise,
(ii) is convertible into or exchangeable or exercisable for Debt or
Disqualified Stock or (iii) is redeemable at the option of the holder thereof,
in whole or in part, in each case on or prior to the Stated Maturity of the
series of Debt Securities.
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"Earnings from Operations" for any period means net earnings excluding gains
and losses on sales of investments, net, as reflected in the financial
statements of SCI and its Subsidiaries for such period determined on a
consolidated basis in accordance with generally accepted accounting
principles.
"Encumbrance" means any mortgage, pledge, lien, charge, encumbrance or any
security interest existing on property owned by SCI or any Subsidiary securing
indebtedness for borrowed money, other than a Permitted Encumbrance.
"Permitted Encumbrances" means leases, Encumbrances securing taxes,
assessments and similar charges, mechanics liens and other similar
Encumbrances.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which a majority of (a) the voting power of the voting equity
securities or (b) in the case of a partnership or any other entity other than
a corporation, the outstanding equity interest of which are owned, directly or
indirectly, by such Person. For the purposes of this definition, "voting
equity securities" means equity securities having voting power for the
election of directors, whether at all times or only so long as no senior class
of security has such voting power by reason of any contingency.
"Total Assets" as of any date means the sum of (i) Undepreciated Real Estate
Assets and (ii) all other assets of SCI and its Subsidiaries determined in
accordance with generally accepted accounting principles (but excluding
accounts receivable and intangibles).
"Total Unencumbered Assets" means the sum of (i) those Undepreciated Real
Estate Assets not subject to an Encumbrance and (ii) the value (determined in
accordance with generally accepted accounting principles) of all other assets
(other than accounts receivable and intangibles) of SCI and its Subsidiaries
not subject to an Encumbrance.
"Undepreciated Real Estate Assets" as of any date means the cost (original
cost plus capital improvements) of real estate assets of SCI and its
Subsidiaries on such date, before depreciation and amortization determined on
a consolidated basis in accordance with generally accepted accounting
principles.
"Unsecured Debt" means Debt of the types described in clauses (i), (iii) and
(iv) of the definition thereof which is not secured by any mortgage, lien,
charge, pledge or security interest of any kind upon any of the properties of
SCI or any Subsidiary.
NO PERSONAL LIABILITY
No past, present or future trustee, officer, employee or shareholder, as
such, of SCI or any successor thereof shall have any liability for any
obligations of SCI under the Debt Securities or the Indenture or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder of Debt Securities by accepting such Debt Securities waives and
releases all such liability. The waiver and release are part of the
consideration for the issue of Debt Securities (Section 111).
TRUSTEE
The Indenture provides that there may be more than one Trustee thereunder,
each with respect to one or more series of Debt Securities. Any Trustee under
the Indenture may resign or be removed with respect to one or more series of
Debt Securities, and a successor Trustee may be appointed to act with respect
to such series (Section 608). In the event that two or more persons are acting
as Trustee with respect to different series of Debt Securities, each such
Trustee shall be a Trustee of a trust under the Indenture separate and apart
from the trust administered by any other Trustee (Sections 101 and 609), and,
except as otherwise indicated herein, any action described herein to be taken
by the Trustee may be taken by each such Trustee with respect to, and only
with respect to, the one or more series of Debt Securities for which it is
Trustee under the Indenture.
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DESCRIPTION OF PREFERRED SHARES
GENERAL
Subject to limitations prescribed by Maryland law and the Declaration of
Trust, the Board is authorized to issue, from the authorized but unissued
shares of beneficial interest of SCI, Preferred Shares in series and to
establish from time to time the number of Preferred Shares to be included in
such series and to fix the designation and any preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of the shares of each
series, and such other subjects or matters as may be fixed by resolution of
the Board or duly authorized committee thereof. At November 13, 1995,
5,400,000 Series A Preferred Shares were issued and outstanding and held of
record by approximately 260 shareholders.
Reference is made to the Prospectus Supplement relating to the series of
Preferred Shares offered thereby for the specific terms thereof, including:
(1) The title and stated value of such series of Preferred Shares;
(2) The number of shares of such series of Preferred Shares offered, the
liquidation preference per share and the offering price of such Preferred
Shares;
(3) The dividend rate(s), period(s) and/or payment date(s) or method(s)
of calculation thereof applicable to Preferred Shares of such series;
(4) The date from which dividends on Preferred Shares of such series
shall cumulate, if applicable;
(5) The procedures for any auction and remarketing, if any, for Preferred
Shares of such series;
(6) The provision for a sinking fund, if any, for Preferred Shares of
such series;
(7) The provision for redemption, if applicable, of Preferred Shares of
such series;
(8) Any listing of such series of Preferred Shares on any securities
exchange;
(9) The terms and conditions, if applicable, upon which Preferred Shares
of such series will be convertible into Common Shares, including the
conversion price (or manner of calculation thereof);
(10) Whether interests in Preferred Shares of such series will be
represented by global securities;
(11) Any other specific terms, preferences, rights, limitations or
restrictions of such series of Preferred Shares;
(12) A discussion of federal income tax considerations applicable to
Preferred Shares of such series;
(13) The relative ranking and preferences of Preferred Shares of such
series as to dividend rights and rights upon liquidation, dissolution or
winding up of the affairs of SCI;
(14) Any limitations on issuance of any series of Preferred Shares
ranking senior to or on a parity with such series of Preferred Shares as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of SCI; and
(15) Any limitations on direct or beneficial ownership and restrictions
on transfer of Preferred Shares of such series, in each case as may be
appropriate to preserve the status of SCI as a REIT.
RANK
Unless otherwise specified in the applicable Prospectus Supplement, the
Preferred Shares of each series will, with respect to dividend rights and
rights upon liquidation, dissolution or winding up of the affairs of SCI, rank
(i) senior to all classes or series of Common Shares, and to all equity
securities ranking junior to such series of Preferred Shares; (ii) on a parity
with all equity securities issued by SCI the terms of which specifically
provide that such equity securities rank on a parity with Preferred Shares of
such series; and (iii) junior to all equity securities issued by SCI the terms
of which specifically provide that such equity securities rank senior to
Preferred Shares of such series.
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DIVIDENDS
Holders of Preferred Shares of each series shall be entitled to receive,
when, as and if declared by the Board, out of assets of SCI legally available
for payment, cash dividends at such rates and on such dates as will be set
forth in the applicable Prospectus Supplement. Each such dividend shall be
payable to holders of record as they appear on the share transfer books of SCI
on such record dates as shall be fixed by the Board.
Dividends on any series of the Preferred Shares may be cumulative or
noncumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board fails to declare a dividend
payable on a dividend payment date on any series of the Preferred Shares for
which dividends are noncumulative, then the holders of such series of the
Preferred Shares will have no right to receive a dividend in respect of the
dividend period ending on such dividend payment date, and SCI will have no
obligation to pay the dividend accrued for such period, whether or not
dividends on such series are declared payable on any future dividend payment
date.
If Preferred Shares of any series are outstanding, no full dividends shall
be declared or paid or set apart for payment on the Preferred Shares of SCI of
any other series ranking, as to dividends, on a parity with or junior to the
Preferred Shares of such series for any period unless (i) if such series of
Preferred Shares has a cumulative dividend, full cumulative dividends have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on the Preferred
Shares of such series for all past dividend periods and the then current
dividend period or (ii) if such series of Preferred Shares does not have a
cumulative dividend, full dividends for the then current dividend period have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on the Preferred
Shares of such series. When dividends are not paid in full (or a sum
sufficient for such full payment is not so set apart) upon the Preferred
Shares of any series and the shares of any other series of Preferred Shares
ranking on a parity as to dividends with the Preferred Shares of such series,
all dividends declared upon Preferred Shares of such series and any other
series of Preferred Shares ranking on a parity as to dividends with such
Preferred Shares shall be declared pro rata so that the amount of dividends
declared per share on the Preferred Shares of such series and such other
series of Preferred Shares shall in all cases bear to each other the same
ratio that accrued dividends per share on the Preferred Shares of such series
(which shall not include any cumulation in respect of unpaid dividends for
prior dividend periods if such series of Preferred Shares does not have a
cumulative dividend) and such other series of Preferred Shares bear to each
other. No interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend payment or payments on Preferred Shares of such series
which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Shares has a cumulative dividend, full cumulative
dividends on the Preferred Shares of such series have been or
contemporaneously are declared and paid or declared and a sum sufficient of
the payment thereof set apart for payment for all past dividend periods and
the then current dividend period or (ii) if such series of Preferred Shares
does not have a cumulative dividend, full dividends on the Preferred Shares of
such series have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for payment for the
then current dividend period, no dividends (other than in Common Shares or
other capital shares ranking junior to the Preferred Shares of such series as
to dividends and upon liquidation) shall be declared or paid or set aside for
payment or other distribution shall be declared or made upon the Common Shares
or any other capital shares of SCI ranking junior to or on a parity with the
Preferred Shares of such series as to dividends or upon liquidation be
redeemed, purchased or otherwise acquired for any consideration (or any moneys
be paid to or made available for a sinking fund for the redemption of any
shares of any such series) by SCI (except by conversion into or exchange for
other capital shares of SCI ranking junior to the Preferred Shares of such
series as to dividends and upon liquidation).
Any dividend payment made on a series of Preferred Shares shall first be
credited against the earliest accrued but unpaid dividend due with respect to
shares of such series which remains payable.
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REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred Shares
of a series will be subject to mandatory redemption or redemption at the
option of SCI, as a whole or in part, in each case upon the terms, at the
times and at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Shares that is
subject to mandatory redemption will specify the number of Preferred Shares of
such series that shall be redeemed by SCI in each year commencing after a date
to be specified, at a redemption price per share to be specified, together
with an amount equal to all accrued and unpaid dividends thereon (which shall
not, if such series of Preferred Shares does not have a cumulative dividend,
include any cumulation in respect of unpaid dividends for prior dividend
periods) to the date of redemption. The redemption price may be payable in
cash or other property, as specified in the applicable Prospectus Supplement.
If the redemption price for Preferred Shares of any series is payable only
from the net proceeds of the issuance of capital shares of SCI, the terms of
such series of Preferred Shares may provide that, if no such capital shares
shall have been issued or to the extent the net proceeds from any issuance are
insufficient to pay in full the aggregate redemption price then due, Preferred
Shares of such series shall automatically and mandatorily be converted into
shares of the applicable capital shares of SCI pursuant to conversion
provisions specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred Shares
has a cumulative dividend, full cumulative dividends on all Preferred Shares
of any series shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment
for all past dividend periods and the then current dividend period or (ii) if
such series of Preferred Shares does not have a cumulative dividend, full
dividends on all Preferred Shares of any series shall have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for the then current dividend
period, no Preferred Shares of any series shall be redeemed unless all
outstanding Preferred Shares of such series are simultaneously redeemed;
provided, however, that the foregoing shall not prevent the purchase or
acquisition of Preferred Shares of such series pursuant to a purchase or
exchange offer made on the same terms to holders of all outstanding Preferred
Shares of such series, and, unless (i) if such series of Preferred Shares has
a cumulative dividend, full cumulative dividends on all Preferred Shares of
any series shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment
for all past dividend periods and the then current dividend period or (ii) if
such series of Preferred Shares does not have a cumulative dividend, full
dividends on all Preferred Shares of any series shall have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for the then current dividend
period, SCI shall not purchase or otherwise acquire directly or indirectly any
Preferred Shares of such series (except by conversion into or exchange for
capital shares of SCI ranking junior to the Preferred Shares of such series as
to dividends and upon liquidation).
If fewer than all of the outstanding Preferred Shares of any series are to
be redeemed, the number of shares to be redeemed will be determined by SCI and
such shares may be redeemed pro rata from the holders of record of Preferred
Shares of such series in proportion to the number of Preferred Shares of such
series held by such holders (with adjustments to avoid redemption of
fractional shares) or by lot in a manner determined by SCI.
Notice of redemption will be mailed at least 30 days but not more than 90
days before the redemption date to each holder of record of Preferred Shares
of any series to be redeemed at the address shown on the share transfer books
of SCI. Each notice shall state: (i) the redemption date; (ii) the number of
shares and series of the Preferred Shares to be redeemed; (iii) the redemption
price; (iv) the place or places where certificates for such Preferred Shares
are to be surrendered for payment of the redemption price; (v) that dividends
on the Preferred Shares to be redeemed will cease to accrue on such redemption
date; and (vi) the date upon which the holder's conversion rights, if any, as
to such Preferred Shares shall terminate. If fewer than all the Preferred
Shares of any series are to be redeemed, the notice mailed to each such holder
thereof shall also specify the number of
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Preferred Shares to be redeemed from each such holder. If notice of redemption
of any Preferred Shares has been given and if the funds necessary for such
redemption have been set aside by SCI in trust for the benefit of the holders
of any Preferred Shares so called for redemption, then from and after the
redemption date dividends will cease to accrue on such Preferred Shares, and
all rights of the holders of such Preferred Shares will terminate, except the
right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of SCI, then, before any distribution or payment shall be made to
the holders of any Common Shares or any other class or series of shares of
beneficial interest of SCI ranking junior to such series of Preferred Shares
in the distribution of assets upon any liquidation, dissolution or winding up
of SCI, the holders of each series of Preferred Shares shall be entitled to
receive out of assets of SCI legally available for distribution to
shareholders liquidating distributions in the amount of the liquidation
preference per share (set forth in the applicable Prospectus Supplement), plus
an amount equal to all dividends accrued and unpaid thereon (which shall not
include any cumulation in respect of unpaid dividends for prior dividend
periods if such series of Preferred Shares does not have a cumulative
dividend). After payment of the full amount of the liquidating distributions
to which they are entitled, the holders of Preferred Shares of such series
will have no right or claim to any of the remaining assets of SCI. In the
event that, upon any such voluntary or involuntary liquidation, dissolution or
winding up, the available assets of SCI are insufficient to pay the amount of
the liquidating distributions on all outstanding Preferred Shares of such
series and the corresponding amounts payable on all shares of other classes or
series of capital shares of SCI ranking on a parity with Preferred Shares of
such series in the distribution of assets, then the holders of Preferred
Shares of such series and all other such classes or series of capital shares
shall share ratably in any such distribution of assets in proportion to the
full liquidating distributions to which they would otherwise be respectively
entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Shares of such series, the remaining assets of SCI shall be
distributed among the holders of any other classes or series of capital shares
ranking junior to the Preferred Shares of such series upon liquidation,
dissolution or winding up, according to their respective rights and
preferences and in each case according to their respective number of shares.
For such purposes, the consolidation or merger of SCI with or into any other
entity, or the sale, lease or conveyance of all or substantially all of the
property or business of SCI, shall not be deemed to constitute a liquidation,
dissolution or winding up of SCI.
VOTING RIGHTS
Holders of the Preferred Shares of each series will not have any voting
rights, except as set forth below or in the applicable Prospectus Supplement
or as otherwise required by applicable law. The following is a summary of the
voting rights that, unless provided otherwise in the applicable Prospectus
Supplement, will apply to each series of Preferred Shares (as in the case of
the Series A Preferred Shares).
If six quarterly dividends (whether or not consecutive) payable on the
Preferred Shares of such series or any other series of Preferred Shares
ranking on a parity with such series of Preferred Shares with respect in each
case to the payment of dividends, amounts upon liquidation, dissolution and
winding up ("Parity Shares") are in arrears, whether or not earned or
declared, the number of Trustees then constituting the Board will be increased
by two, and the holders of Preferred Shares of such series, voting together as
a class with the holders of any other series of Parity Shares (any such other
series, the "Voting Preferred Shares"), will have the right to elect two
additional trustees to serve on the Board at any annual meeting of
shareholders or a properly called special meeting of the holders of Preferred
Shares of such series and such Voting Preferred Shares and at each subsequent
annual meeting of shareholders until all such dividends and dividends for the
current quarterly period on the Preferred Shares of such series and such other
Voting Preferred Shares have been paid or declared and set aside for payment.
Such voting rights will terminate when all such accrued and unpaid dividends
have been declared and paid or set aside for payment. The term of office of
all trustees so elected will terminate with the
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termination of such voting rights. For so long as SCG and certain of its
affiliates beneficially own in excess of 10% of the outstanding Common Shares,
in any such vote by holders of Preferred Shares of such series, SCG and
certain of its affiliates shall vote their Preferred Shares of such series, if
any, in the same respective percentages as the Preferred Shares of such series
and Voting Preferred Shares that are not held by such persons.
The approval of two-thirds of the outstanding Preferred Shares of such
series and all other series of Voting Preferred Shares similarly affected,
voting as a single class, is required in order to (i) amend the Declaration of
Trust to affect materially and adversely the rights, preferences or voting
power of the holders of the Preferred Shares of such series or the Voting
Preferred Shares; (ii) enter into a share exchange that affects the Preferred
Shares of such series, consolidate with or merge into another entity, or
permit another entity to consolidate with or merge into SCI, unless in each
such case each Preferred Share of such series remains outstanding without a
material and adverse change to its terms and rights or is converted into or
exchanged for preferred shares of the surviving entity having preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms or conditions of redemption thereof
identical to that of a Preferred Share of such series (except for changes that
do not materially and adversely affect the holders of the Preferred Shares of
such series); or (iii) authorize, reclassify, create, or increase the
authorized amount of any class of shares having rights senior to the Preferred
Shares of such series with respect to the payment of dividends or amounts upon
liquidation, dissolution or winding up. However, SCI may create additional
classes of Parity Shares and other series of Preferred Shares ranking junior
to such series of Preferred Shares with respect in each case to the payment of
dividends, amounts upon liquidation, dissolution and winding up ("Junior
Shares"), increase the authorized number of Parity Shares and Junior Shares
and issue additional series of Parity Shares and Junior Shares without the
consent of any holder of Preferred Shares of such series.
Except as provided above and as required by law, the holders of Preferred
Shares of each series will not be entitled to vote on any merger or
consolidation involving SCI or a sale of all or substantially all of the
assets of SCI.
CONVERSION RIGHTS
The terms and conditions, if any, upon which Preferred Shares of any series
are convertible into Common Shares will be set forth in the applicable
Prospectus Supplement relating thereto. Such terms will include the number of
Common Shares into which the Preferred Shares of such series are convertible,
the conversion price (or manner of calculation thereof), the conversion
period, provisions as to whether conversion will be at the option of the
holders of the Preferred Shares of such series or SCI, the events requiring an
adjustment of the conversion price and provisions affecting conversion in the
event of the redemption of the Preferred Shares of such series.
RESTRICTIONS ON OWNERSHIP
As discussed below under "Description of Common Shares--Restriction on Size
of Holdings," for SCI to qualify as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), not more than 50% in value of its outstanding
shares of beneficial interest may be owned by five or fewer individuals at any
time during the last half of any taxable year. Therefore, the Articles
Supplementary for each series of Preferred Shares will contain certain
provisions restricting the ownership and transfer of the Preferred Shares (the
"Preferred Shares Ownership Limit Provision"). Except as otherwise described
in the applicable Prospectus Supplement relating thereto, the provisions of
each Articles Supplementary relating to the Preferred Shares Ownership Limit
will provide (as in the case of the Series A Preferred Shares) as summarized
below.
The Preferred Shares Ownership Limit Provision will provide that, subject to
certain exceptions contained in such Articles Supplementary, no person, or
persons acting as a group, may beneficially own more than 25%
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of any series of Preferred Shares outstanding at any time, except as a result
of SCI's redemption of Preferred Shares. Shares acquired in excess of the
Preferred Shares Ownership Limit Provision must be redeemed by SCI at a price
equal to the average daily per share closing sale price during the 30-day
period ending on the business day prior to the redemption date. Such
redemption is not applicable if a person's ownership exceeds the limitations
due solely to SCI's redemption of Preferred Shares; provided that thereafter
any additional Preferred Shares acquired by such person shall be Excess Shares
(as hereinafter defined). See "Description of Common Shares--Restriction on
Size of Holdings." From and after the date of notice of such redemption, the
holder of the Preferred Shares thus redeemed shall cease to be entitled to any
distribution (other than distributions declared prior to the date of notice of
redemption), voting rights and other benefits with respect to such shares
except the right to receive payment of the redemption price determined as
described above. The Preferred Shares Ownership Limit Provision may not be
waived with respect to certain affiliates of SCI.
All certificates representing shares of Preferred Shares will bear a legend
referring to the restrictions described above.
DESCRIPTION OF COMMON SHARES
GENERAL
The Declaration of Trust authorizes SCI to issue up to 150,000,000 Shares of
Beneficial Interest, $0.01 par value, consisting of Common Shares, Preferred
Shares and such other types or classes of shares of beneficial interest as the
Board may create and authorize from time to time. At November 13, 1995,
approximately 81,409,860 Common Shares were issued and outstanding and held of
record by approximately 1,150 shareholders.
The following description sets forth certain general terms and provisions of
the Common Shares to which any Prospectus Supplement may relate, including a
Prospectus Supplement which provides for Common Shares issuable pursuant to
subscription offerings or rights offerings or upon conversion of Preferred
Shares which are offered pursuant to such Prospectus Supplement and
convertible into Common Shares for no additional consideration. The statements
below describing the Common Shares are in all respects subject to and
qualified in their entirety by reference to the applicable provisions of the
Declaration of Trust and SCI's Bylaws.
The outstanding Common Shares are fully paid and, except as set forth below
under "--Shareholder Liability," non-assessable. Each Common Share entitles
the holder to one vote on all matters requiring a vote of shareholders,
including the election of Trustees. Holders of Common Shares do not have the
right to cumulate their votes in the election of Trustees, which means that
the holders of a majority of the outstanding Common Shares can elect all of
the Trustees then standing for election. Holders of Common Shares are entitled
to such distributions as may be declared from time to time by the Board out of
funds legally available therefor. Holders of Common Shares have no conversion,
redemption, preemptive or exchange rights to subscribe to any securities of
SCI. In the event of a liquidation, dissolution or winding up of the affairs
of SCI, the holders of the Common Shares are entitled to share ratably in the
assets of SCI remaining after provision for payment of all liabilities to
creditors and payment of liquidation preferences and accrued dividends, if
any, on the Series A Preferred Shares, and subject to the rights of holders of
other series of Preferred Shares, if any. The right of holders of the Common
Shares are subject to the rights and preferences established by the Board for
the Series A Preferred Shares and any other series of Preferred Shares which
may subsequently be issued by SCI. See "Description of Preferred Shares."
PURCHASE RIGHTS
On December 7, 1993, the Board declared a dividend of one preferred share
purchase right (a "Purchase Right") for each Common Share outstanding, payable
to holders of Common Shares of record at the close of business on December 31,
1993. The holders of any additional Common Shares issued after such date and
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before the redemption or expiration of the Purchase Rights are also entitled
to receive one Purchase Right for each such additional Common Share. Each
Purchase Right entitles the holder under certain circumstances to purchase
from SCI one one-hundredth of a share of Series A Junior Participating
Preferred Shares, par value $0.01 per share (the "Participating Preferred
Shares") at a price of $40.00 per one one-hundredth of a Participating
Preferred Share, subject to adjustment. Purchase Rights are exercisable when a
person or group of persons (other than SCG) acquires 20% or more of the
outstanding Common Shares or announces a tender offer or exchange offer for
25% or more of the outstanding Common Shares. Under certain circumstances,
each Purchase Right entitles the holder to purchase, at the Purchase Right's
then current exercise price, a number of Common Shares having a market value
of twice the Purchase Right's exercise price. The acquisition of SCI pursuant
to certain mergers or other business transactions would entitle each holder to
purchase, at the Purchase Right's then current exercise price, a number of the
acquiring company's common shares having a market value at that time equal to
twice the Purchase Right's exercise price. The Purchase Rights held by certain
20% shareholders (other than SCG) would not be exercisable. The Purchase
Rights will expire on December 7, 2003 and are subject to redemption in whole,
but not in part, at a price of $0.01 per Purchase Right payable in cash,
shares of SCI or any other form of consideration determined by the Board.
TRANSFER AGENT
The transfer agent and registrar for the Common Shares is The First National
Bank of Boston, 150 Royall Street, Canton, Massachusetts 02021. The Common
Shares are listed on the NYSE under the symbol "SCN."
RESTRICTION ON SIZE OF HOLDINGS
The Declaration of Trust restricts beneficial ownership of SCI's outstanding
shares of beneficial interest by a single person, or persons acting as a
group, to 9.8% of such shares. The purposes of the restriction are to assist
in protecting and preserving SCI's REIT status and to protect the interest of
shareholders in takeover transactions by preventing the acquisition of a
substantial block of shares unless the acquiror makes a cash tender offer for
all outstanding shares. For SCI to qualify as a REIT under the Code, not more
than 50% in value of its outstanding shares of beneficial interest may be
owned by five or fewer individuals at any time during the last half of any
taxable year. The restriction permits five persons to acquire up to a maximum
of 9.8% each, or an aggregate of 49% of the outstanding shares, and, thus,
assists the Board in protecting and preserving SCI's REIT status for tax
purposes. This restriction does not apply to SCG, which counts as numerous
holders for purposes of the tax rule, because its shares are attributed to its
shareholders for purposes of this rule.
Shares of beneficial interest owned by a person or group of persons in
excess of 9.8% (other than SCG and 30% in the case of certain shareholders who
acquired shares prior to SCI's initial public offering) of the outstanding
shares of beneficial interest ("Excess Shares") are subject to redemption by
SCI, at its option, upon 30 days' notice, at a price equal to the average
daily per share closing sale price during the 30-day period ending on the
business day prior to the redemption date. SCI may make payment of the
redemption price at any time or times up to the earlier of five years after
the redemption date or liquidation of SCI. SCI may refuse to effect the
transfer of any shares of beneficial interest which would make the transferee
a holder of Excess Shares. Shareholders of SCI are required to disclose, upon
demand of the Board, such information with respect to their direct and
indirect ownership of shares of SCI as the Board deems necessary to comply
with the provisions of the Code pertaining to qualification, for tax purposes,
of REITs, or to comply with the requirements of any other appropriate taxing
authority.
The 9.8% restriction does not apply to acquisitions by an underwriter in a
public offering and sale of shares of beneficial interest of SCI or to any
transaction involving the issuance of shares of beneficial interest in which a
majority of the Board determines that the eligibility of SCI to qualify as a
REIT for federal income tax purposes will not be jeopardized or the
disqualification of SCI as a REIT is advantageous to the shareholders. SCG's
ownership of shares is attributed for tax purposes to its shareholders. The
Board has exempted SCG from this
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restriction and has permitted certain other shareholders who acquired shares
prior to SCI's initial public offering to acquire up to 30% of the outstanding
shares of beneficial interest.
TRUSTEE LIABILITY
The Declaration of Trust provides that Trustees shall not be individually
liable for any obligation or liability incurred by or on behalf of SCI or by
Trustees for the benefit and on behalf of SCI. Under the Declaration of Trust
and Maryland law governing REITs, Trustees are not liable to SCI or the
shareholders for any act or omission except for acts or omissions which
constitute bad faith, willful misfeasance or gross negligence in the conduct
of his duties.
SHAREHOLDER LIABILITY
Both Maryland statutory law governing REITs organized under the laws of that
state and the Declaration of Trust provide that shareholders shall not be
personally or individually liable for any debt, act, omission or obligation of
SCI or the Board. The Declaration of Trust further provides that SCI shall
indemnify and hold each shareholder harmless from all claims and liabilities
to which the shareholder may become subject by reason of his being or having
been a shareholder and that SCI shall reimburse each shareholder for all legal
and other expenses reasonably incurred by the shareholder in connection with
any such claim or liability, except to the extent that such claim or liability
arises out of the shareholder's bad faith, willful misconduct or gross
negligence and provided that such shareholder gives SCI prompt notice of any
such claim or liability and permits SCI to conduct the defense thereof. In
addition, SCI is required to, and as a matter of practice does, insert a
clause in its management and other contracts providing that shareholders
assume no personal liability for obligations entered into on behalf of SCI.
Nevertheless, with respect to tort claims, contractual claims where
shareholder liability is not so negated, claims for taxes and certain
statutory liability, the shareholders may, in some jurisdictions, be
personally liable to the extent that such claims are not satisfied by SCI.
Inasmuch as SCI carries public liability insurance which it considers
adequate, any risk of personal liability to shareholders is limited to
situations in which SCI's assets plus its insurance coverage would be
insufficient to satisfy the claims against SCI and its shareholders.
FEDERAL INCOME TAX CONSIDERATIONS
SCI intends to operate in a manner that permits it to satisfy the
requirements for taxation as a REIT under the applicable provisions of the
Code. No assurance can be given, however, that such requirements will be met.
The following is a description of the federal income tax consequences to SCI
and its shareholders of the treatment of SCI as a REIT. Since these provisions
are highly technical and complex, each prospective purchaser of the Offered
Securities is urged to consult his or her own tax advisor with respect to the
federal, state, local, foreign and other tax consequences of the purchase,
ownership and disposition of the Offered Securities.
Based upon certain representations of SCI with respect to the facts as set
forth and explained in the discussion below, in the opinion of Mayer, Brown &
Platt, counsel to SCI, SCI has been organized in conformity with the
requirements for qualification as a REIT beginning with its taxable year
ending December 31, 1993, and its proposed method of operation described in
this Prospectus and as represented by management will enable it to satisfy the
requirements for such qualification.
This opinion is based on certain assumptions relating to the organization
and operation of SCI Limited Partnership--I, SCI Limited Partnership--II, SCI
Limited Partnership--III and SCI Limited Partnership--IV (the "Partnerships")
and of any other partnerships in which SCI will hold an interest, and is
conditioned upon certain representations made by SCI as to certain factual
matters relating to SCI's organization and intended or expected manner of
operation. In addition, this opinion is based on the law existing and in
effect on the date hereof. SCI's qualification and taxation as a REIT will
depend upon SCI's ability to meet on a continuing basis, through actual
operating results, asset composition, distribution levels and diversity of
stock ownership, the
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various qualification tests imposed under the Code discussed below. Mayer,
Brown & Platt will not review compliance with these tests on a continuing
basis. No assurance can be given that SCI will satisfy such tests on a
continuing basis.
In brief, if certain detailed conditions imposed by the REIT provisions of
the Code are met, entities, such as SCI, that invest primarily in real estate
and that otherwise would be treated for federal income tax purposes as
corporations, are generally not taxed at the corporate level on their "REIT
taxable income" that is currently distributed to shareholders. This treatment
substantially eliminates the "double taxation" (at both the corporate and
shareholder levels) that generally results from the use of corporations.
If SCI fails to qualify as a REIT in any year, however, it will be subject
to federal income taxation as if it were a domestic corporation, and its
shareholders will be taxed in the same manner as shareholders of ordinary
corporations. In this event, SCI could be subject to potentially significant
tax liabilities, and therefore the amount of cash available for distribution
to its shareholders would be reduced or eliminated.
SCI elected REIT status effective beginning with its taxable year ended
December 31, 1993 and the Board believes that SCI has operated and currently
intends that SCI will operate in a manner that permits it to qualify as a REIT
in each taxable year thereafter. There can be no assurance, however, that this
expectation will be fulfilled, since qualification as a REIT depends on SCI
continuing to satisfy numerous asset, income and distribution tests described
below, which in turn will be dependent in part on SCI's operating results.
The following summary is based on existing law, is not exhaustive of all
possible tax considerations and does not give a detailed discussion of any
state, local, or foreign tax considerations, nor does it discuss all of the
aspects of federal income taxation that may be relevant to a prospective
shareholder in light of his or her particular circumstances or to certain
types of shareholders (including insurance companies, tax-exempt entities,
financial institutions or broker-dealers, foreign corporations and persons who
are not citizens or residents of the United States) subject to special
treatment under the federal income tax laws.
TAXATION OF SCI
To qualify as a REIT under the Code for a taxable year, SCI must meet
certain organizational and operational requirements.
ASSET TESTS
At the close of each quarter of SCI's taxable year, SCI must satisfy certain
tests relating to the nature of its assets (determined in accordance with
generally accepted accounting principles). First, at least 75% of the value of
SCI's total assets must be represented by interests in real property,
interests in mortgages on real property, shares in other REITs, cash, cash
items, and government securities, and qualified temporary investments. Second,
although the remaining 25% of SCI's assets generally may be invested without
restriction, securities in this class may not exceed either (i) in the case of
securities of any non-government issuer, 5% of the value of SCI's total assets
or (ii) 10% of the outstanding voting securities of any one issuer.
GROSS INCOME TESTS
For each taxable year at least 75% of SCI's gross income must be derived
from certain real estate sources, including rents from real property and
interest on mortgage obligations. Real estate sources for purposes of those
requirements also include gains from the sale of real property not held
primarily for sale to customers in the ordinary course of business, dividends
on REIT shares, interest on loans secured by mortgages on real property and
income from foreclosure property. For rents to qualify, they may not be based
on the income or profits of any person, except that they may be based on a
percentage or percentages of gross income or receipts, and, subject to certain
limited exceptions, the REIT's management of the property and rendering of
services to tenants must either be with respect to usual or customary services
or furnished through a qualified independent contractor.
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In addition to deriving 75% of its gross income from the sources listed
above, at least 95% of SCI's gross income for the taxable year must be derived
from real estate sources described above or from dividends, interest, gains
from the sale or disposition of stock or other securities that are not dealer
property and specified other items. Dividends (including SCI's share of any
dividends paid by SCI Development Services Incorporated) and interest on any
obligations not collateralized by an interest in real property qualify for
purposes of the 95% test, but not for purposes of the 75% test.
SCI must also derive less than 30% of its gross income for each taxable year
from the sale or other disposition of: (i) real property held for less than
four years (other than foreclosure property and by reason of involuntary
conversion); (ii) stock or securities held for less than one year; and (iii)
property in a prohibited transaction.
For purposes of the gross income tests, where SCI invests in a partnership,
including the Partnerships, SCI will be treated as receiving its share of the
income and loss of the partnership, and the gross income of the partnership
will retain the same character in the hands of SCI as it has in the hands of
the partnership.
Ownership Restrictions
SCI must satisfy certain ownership restrictions under the Code that limit
(i) concentration of ownership of its shares of capital stock by specified
persons and (ii) ownership by SCI of its tenants. The Declaration of Trust
restricts the transfer of shares when necessary to maintain SCI's
qualification as a REIT under these standards. See "Description of Common
Shares--Restrictions on Size of Holdings." However, because the Code imposes
broad attribution rules in determining constructive ownership, no assurance
can be given that these restrictions would be effective in maintaining SCI's
REIT status.
Annual Distribution Requirements
So long as SCI qualifies for taxation as a REIT and distributes at least 95%
of its real estate investment trust taxable income (computed without respect
to net capital gains or the dividends paid deduction) for each taxable year to
its shareholders annually, SCI itself will not be subject to federal income
tax on that portion of such income distributed to shareholders. SCI will be
taxed at regular corporate rates on all income not distributed to
shareholders. Nevertheless, it is SCI's policy to distribute at least 95% of
its taxable income. REITs may also incur taxes for certain other activities.
Tax Aspects of SCI's Investments in the Partnerships
A significant portion of SCI's investments are through the Partnerships. SCI
will include its proportionate share of (i) each Partnership's income, gains,
losses, deductions and credits for purposes of the various REIT gross income
tests and in its computation of its REIT taxable income and (ii) the assets
held by each Partnership for purposes of the REIT asset tests.
SCI's interest in the Partnerships involves special tax considerations,
including the possibility of a challenge by the Internal Revenue Service (the
"IRS") of the status of the Partnerships as partnerships (as opposed to
associations taxable as corporations) for federal income tax purposes. If a
Partnership were to be treated as an association, such Partnership would be
taxable as a corporation and therefore subject to an entity-level tax on its
income. In such a situation, the character of SCI's assets and items of gross
income would change, which may preclude SCI from satisfying the REIT asset
tests and may preclude SCI from satisfying the REIT gross income tests (see
"--Failure to Qualify" below, for a discussion of the effect of SCI's failure
to meet such tests). Based on certain representations of SCI, in the opinion
of Mayer, Brown, & Platt, under existing federal income tax law and
regulations, the Partnerships will be treated for federal income tax purposes
as partnerships, and not as associations taxable as corporations. Such
opinion, however, is not binding on the IRS.
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Failure to Qualify
If SCI fails to qualify for taxation as a REIT in any taxable year and
certain relief provisions do not apply, SCI will be subject to tax (including
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Distributions to shareholders in any year in which SCI fails to qualify
as a REIT will not be deductible by SCI, nor generally will they be required
to be made under the Code. In such event, to the extent of current and
accumulated earnings and profits, all distributions to shareholders will be
taxable as ordinary income, and subject to certain limitations in the Code,
corporate distributees may be eligible for the dividends-received deduction.
Unless entitled to relief under specific statutory provisions, SCI also will
be disqualified from re-electing taxation as a REIT for the four taxable years
following the year during which qualification was lost.
TAXATION OF SCI'S SHAREHOLDERS
Distributions paid to SCI's shareholders out of current or accumulated
earnings and profits of SCI will generally be taxed to them as ordinary
income. Such distributions are not eligible for the dividends-received
deduction for corporations. SCI's earnings and profits will first be allocated
to any outstanding Preferred Shares. A distribution of net capital gains by
SCI will generally be treated as a long-term capital gain to shareholders to
the extent properly designated by SCI as a capital gain distribution and
regardless of the length of time a shareholder has held his shares. Capital
gains distributions are not eligible for the dividends-received deduction for
corporations. Any loss on a sale of shares that were held for six months or
less and with respect to which a capital gain distribution was received will
be treated as a long-term capital loss, up to the amount of the capital gain
distribution received with respect to such shares. A distribution in excess of
current or accumulated earnings and profits will constitute a nontaxable
return of capital, to the extent of the shareholder's basis in his shares. To
the extent such a distribution exceeds such basis, it will be treated as
capital gain to those shareholders holding their shares as capital assets. SCI
will notify each shareholder as to the portions of each distribution that, in
its view, constitute ordinary income, capital gain or return of capital.
Should SCI incur ordinary or capital losses, shareholders will not be entitled
to include such losses in their own income tax returns.
OTHER TAX CONSIDERATIONS
SCI Development Services Incorporated
SCI Development Services Incorporated will pay Federal and state income
taxes at the full applicable corporate rates on its income prior to payment of
any dividends. SCI Development Services Incorporated will attempt to minimize
the amount of such taxes, but there can be no assurance whether or the extent
to which measures taken to minimize taxes will be successful. To the extent
that SCI Development Services Incorporated is required to pay Federal, state
or local taxes, the cash available for distribution by SCI Development
Services Incorporated to its shareholders will be reduced accordingly.
Tax on Built-in Gain
Pursuant to Notice 88-19. 1988-1 C.B. 486, a C corporation that elects to be
taxed as a REIT has to recognize any gain that would have been realized if the
C corporation had sold all of its assets for their respective fair market
values at the end of its last taxable year before the taxable year in which it
qualifies to be taxed as a REIT and immediately liquidated unless the REIT
elects to be taxed under rules similar to the rules of Section 1374 of the
Code.
Since SCI has made this election, if during the 10-year period beginning on
the first day of the first taxable year for which SCI qualifies as a REIT (the
"Recognition Period"), SCI recognizes gain on the disposition of any asset
held by SCI as of the beginning of such Recognition Period, then, to the
extent of the excess of (a) the
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fair market value of such asset as of the beginning of such Recognition Period
over (b) SCI's adjusted basis in such asset as of the beginning of such
Recognition Period (the "Built-in Gain"), such gain will be subject to tax at
the highest regular corporate rate. Because SCI acquires many of its
properties in fully taxable transactions and presently expects to hold each
property beyond the Recognition Period, it is not anticipated that SCI will
pay a substantial corporate level tax on its Built-in Gain.
Backup Withholding
SCI will report to its domestic shareholders and to the IRS the amount of
distributions paid during each calendar year, and the amount of tax withheld,
if any, with respect thereto. Under the backup withholding rules, a
shareholder may be subject to backup withholding at applicable rates with
respect to distributions paid unless such shareholder (i) is a corporation or
comes within certain other exempt categories and, when required, demonstrates
this fact or (ii) provides a taxpayer identification number, certifies as to
no loss of exemption from backup withholding, and otherwise complies with
applicable requirements of the backup withholding rules. A shareholder that
does not provide SCI with its correct taxpayer identification number may also
be subject to penalties imposed by the IRS. Any amount paid as backup
withholding will be credited against the shareholder's income tax liability.
In addition, SCI may be required to withhold a portion of capital gain
distributions made to any shareholders who fail to certify their non-foreign
status to SCI.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE,
OWNERSHIP, AND SALES OF COMMON SHARES, PREFERRED SHARES OR DEBT SECURITIES IN
AN ENTITY ELECTING TO BE TAXED AS A REAL ESTATE INVESTMENT TRUST, INCLUDING
THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH
PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE
TAX LAWS.
PLAN OF DISTRIBUTION
SCI may sell the Offered Securities to one or more underwriters for public
offering and sale by them or may sell the Offered Securities to investors
directly or through agents, which agents may be affiliated with SCI. Direct
sales to investors may be accomplished through subscription offerings or
through subscription rights distributed to SCI's shareholders. In connection
with subscription offerings or the distribution of subscription rights to
shareholders, if all of the underlying Offered Securities are not subscribed
for, SCI may sell such unsubscribed Offered Securities to third parties
directly or through agents and, in addition, whether or not all of the
underlying Offered Securities are subscribed for, SCI may concurrently offer
additional Offered Securities to third parties directly or through agents,
which agents may be affiliated with SCI. Any underwriter or agent involved in
the offer and sale of the Offered Securities will be named in the applicable
Prospectus Supplement.
The distribution of the Offered Securities may be effected from time to time
in one or more transactions at a fixed price or prices, which may be changed,
or at prices related to the prevailing market prices at the time of sale or at
negotiated prices (any of which may represent a discount from the prevailing
market price). SCI also may, from time to time, authorize underwriters acting
as SCI's agents to offer and sell the Offered Securities upon the terms and
conditions set forth in the applicable Prospectus Supplement. In connection
with the sale of Offered Securities, underwriters may be deemed to have
received compensation from SCI in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of Offered
Securities for whom they may act as agent. Underwriters may sell Offered
Securities to or through dealers, and such dealers may receive compensation in
the form of discounts, concessions or commissions from the underwriters and/or
commissions from the purchasers for whom they may act as agent.
Any underwriting compensation paid by SCI to underwriters or agents in
connection with the offering of Offered Securities, and any discounts,
concessions or commissions allowed by underwriters to participating
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dealers, will be set forth in the applicable Prospectus Supplement.
Underwriters, dealers and agents participating in the distribution of the
Offered Securities may be deemed to be underwriters, and any discounts and
commissions received by them and any profit realized by them on resale of the
Offered Securities may be deemed to be underwriting discounts and commissions,
under the Securities Act. Underwriters, dealers and agents may be entitled,
under agreements entered into with SCI, to indemnification against and
contribution toward certain civil liabilities, including liabilities under the
Securities Act. Any such indemnification agreements will be described in the
applicable Prospectus Supplement.
If so indicated in the applicable Prospectus Supplement, SCI will authorize
dealers acting as SCI's agents to solicit offers by certain institutions to
purchase Offered Securities from SCI at the public offering price set forth in
such Prospectus Supplement pursuant to Delayed Delivery Contracts
("Contracts") providing for payment and delivery on the date or dates stated
in such Prospectus Supplement. Each Contract will be for an amount not less
than, and the aggregate principal amount of Offered Securities sold pursuant
to Contracts shall be not less nor more than, the respective amounts stated in
the applicable Prospectus Supplement. Institutions with whom Contracts, when
authorized, may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions, and other institutions but will in all cases be subject to the
approval of SCI. Contracts will not be subject to any conditions except (i)
the purchase by an institution of the Offered Securities covered by its
Contracts shall not at the time of delivery be prohibited under the laws of
any jurisdiction in the United States to which such institution is subject,
and (ii) if the Offered Securities are being sold to underwriters, SCI shall
have sold to such underwriters the total principal amount of the Offered
Securities less the principal amount thereof covered by Contracts.
Certain of the underwriters and their affiliates may be customers of, engage
in transactions with and perform services for SCI and its subsidiaries in the
ordinary course of business.
EXPERTS
The financial statements and related schedules of SCI incorporated by
reference herein and in the Registration Statement have been audited or
reviewed by Arthur Andersen LLP, independent public accountants, to the extent
and for the periods indicated in their reports, and have been incorporated by
reference herein and in the Registration Statement in reliance upon the
authority of that firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Offered Securities will be passed upon for SCI by Mayer,
Brown & Platt, Chicago, Illinois. Mayer, Brown & Platt has in the past
represented and is currently representing SCI and certain of its affiliates,
including SCG.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN
THE SECURITIES TO WHICH THEY RELATE OR ANY OFFER TO SELL OR THE SOLICITATION OF
ANY OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR
THE PROSPECTUS NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF SCI SINCE THE DATE HEREOF OR THEREOF OR THAT THE INFORMATION
CONTAINED OR INCORPORATED BY REFERENCE HEREIN OR THEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Introduction.............................................................. S-3
Security Capital Industrial Trust......................................... S-3
Business.................................................................. S-6
Strategic and Operating Accomplishments................................... S-10
Use of Proceeds........................................................... S-10
Capitalization............................................................ S-11
Price Range of Common Shares and Distributions............................ S-12
Selected Financial Data................................................... S-14
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... S-15
REIT Management........................................................... S-22
The Offering.............................................................. S-34
PROSPECTUS
Available Information..................................................... 2
Incorporation by Reference................................................ 2
Security Capital Industrial Trust......................................... 3
Use of Proceeds........................................................... 3
Description of Debt Securities............................................ 3
Description of Preferred Shares........................................... 18
Description of Common Shares.............................................. 23
Federal Income Tax Considerations......................................... 25
Plan of Distribution...................................................... 29
Experts................................................................... 30
Legal Matters............................................................. 30
</TABLE>
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LOGO
A REAL ESTATE INVESTMENT TRUST
2,036,342 COMMON SHARES OF BENEFICIAL INTEREST
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PROSPECTUS SUPPLEMENT
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SEPTEMBER 24, 1996
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