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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Security Capital Industrial Trust
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
LOGO
To Shareholders of Security Capital Industrial Trust
You are cordially invited to attend the Annual Meeting of Shareholders of
Security Capital Industrial Trust (SCI) to be held on Wednesday, June 30,
1998, at 10:30 a.m. at SCI's World Headquarters at 14100 East 35th Place,
Aurora, Colorado.
At the Annual Meeting you will be asked to elect two Trustees and approve an
amendment to the Amended and Restated Articles of Trust which will change the
name of SCI to ProLogis Trust and increase the authorized capital of the
company. There will also be a report on SCI's business, and shareholders will
have an opportunity to ask questions.
The name change to ProLogis is important to the company and is intended to
create stronger awareness of the company's customer-driven strategy and
services as it continues its U.S. and global expansion. ProLogis is expected
to become an internationally recognizable name that conveys our distribution
services expertise around the world. This shift to a more universal identity
will be especially important as customers continue to search for ways to
streamline and optimize their distribution functions in the highly competitive
world markets.
The Board unanimously recommends that you vote FOR the election of the
Trustees and FOR the amendment to the Amended and Restated Articles of Trust.
Whether or not you plan to attend the Annual Meeting, please complete, sign
and date your enclosed proxy card and return it to us in the accompanying
envelope as soon as possible.
We look forward to seeing you at the Annual Meeting.
Sincerely,
K.Dane Brooksher
Co-Chairman and
Chief Operating Officer
Irving F. Lyons, III
Co-Chairman and
Chief Investment Officer
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
14100 EAST 35TH PLACE
AURORA, COLORADO 80011
----------------
NOTICE OF 1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 30, 1998
To the shareholders:
The 1998 annual meeting of shareholders of Security Capital Industrial Trust
("SCI") will be held on Tuesday, June 30, 1998, at the Denver headquarters,
14100 E. 35th Place, Aurora, Colorado at 10:30 a.m. (Mountain time) for the
following purposes:
1. To elect two Class II Trustees to serve until the annual meeting of
shareholders in 2001, and until their successors are duly elected and
qualify;
2. To approve an amendment to SCI's Amended and Restated Declaration of
Trust to (a) change SCI's name to ProLogis Trust; and (b) increase the
authorized capitalization from 180,000,000 to 230,000,000 shares of
beneficial interest; and
3. To transact such other business as properly may come before the
meeting and any adjournment or postponement thereof.
Further information regarding the business to be transacted at the meeting
is given in the accompanying Proxy Statement.
Shareholders of record at the close of business on May 4, 1998 are entitled
to notice of, and to vote at, the meeting.
Please help SCI by promptly marking, dating, signing and returning the
enclosed proxy card in the envelope provided for your convenience. If you
attend the meeting and decide to vote in person, you may revoke your proxy.
Jeffrey A. Klopf
Secretary
May 28, 1998
YOUR VOTE IS IMPORTANT.
PLEASE PROMPTLY MARK, DATE, SIGN AND RETURN
YOUR PROXY IN THE ENCLOSED ENVELOPE.
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
14100 EAST 35TH PLACE
AURORA, COLORADO 80011
----------------
PROXY STATEMENT
FOR
1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 30, 1998
----------------
GENERAL INFORMATION
The Board of Trustees (the "Board") of Security Capital Industrial Trust
("SCI") is soliciting the accompanying proxy for use at the 1998 annual
meeting of shareholders to be held on Tuesday, June 30, 1998 and at any and
all adjournments or postponements thereof. Any shareholder giving a proxy has
the right to revoke it at any time before it is voted by giving written notice
to the Secretary of SCI by delivering to the Secretary of SCI a duly executed
proxy bearing a later date, or by attending and voting in person at the
meeting. The designated proxy holders will vote Common Shares of Beneficial
Interest, par value $.01 per share (the "Common Shares"), represented by a
proxy which is received and not revoked. If the shareholder specifies a choice
with respect to any matter to be acted upon and for which a ballot is provided
in the proxy, the Common Shares will be voted in accordance with his or her
specifications. If the shareholder signs and returns a proxy without
specifying choices, the Common Shares will be voted in accordance with the
recommendations of the Board.
This Proxy Statement and the accompanying proxy card are expected to first
be mailed to shareholders on or about May 28, 1998.
If you are a registered owner and plan to attend the meeting in person,
please detach and retain the admission ticket which is attached to your proxy
card. Beneficial owners who plan to attend the meeting in person may obtain
admission tickets in advance by sending written requests, along with proof of
ownership, such as a bank or brokerage firm account statement, to: Lucinda G.
Marker, Assistant Secretary, Security Capital Industrial Trust, 125 Lincoln
Avenue, Santa Fe, New Mexico 87501. Record owners and beneficial owners
(including the holders of valid proxies therefrom) who do not present
admission tickets at the meeting will be admitted upon verification of
ownership at the admissions counter at the annual meeting.
The cost of soliciting proxies will be borne by SCI. In addition to
solicitation by mail, and without additional compensation for those services,
proxies may be solicited personally, or by telephone or telegraph, by officers
or employees of SCI. SCI will also request banking institutions, brokerage
firms, custodians, trustees, nominees, fiduciaries and other like parties to
forward the solicitation material to the beneficial owners of Common Shares
held of record by such persons, and SCI will upon request of such record
holders reimburse forwarding charges and expenses.
SHARES OUTSTANDING AND VOTE REQUIRED
At the close of business on May 4, 1998, approximately 122,907,744 Common
Shares were outstanding. Each whole Common Share outstanding on May 4, 1998,
the record date for determination of shareholders entitled to notice of, and
to vote at, the meeting, is entitled to one vote, and each fractional Common
Share is entitled to its fraction of one vote. There is no right to cumulative
voting. A majority of the outstanding Common Shares represented in person or
by proxy will constitute a quorum at the meeting.
<PAGE>
Assuming the existence of a quorum, the affirmative vote of the holders of
(i) a majority of the Common Shares entitled to vote and represented in person
or by proxy at the meeting is required to elect each nominee for Trustee and
(ii) a majority of the outstanding Common Shares is required to approve the
amendment to the Amended and Restated Declaration of Trust ("Declaration of
Trust"). Representatives of SCI's transfer agent will assist SCI in the
tabulation of the votes. Abstentions and broker non-votes are counted as
Common Shares represented at the meeting for purposes of determining a quorum.
Abstentions and broker non-votes have the effect of a vote "withheld" with
respect to the election of Trustees and of a vote "against" the proposed
amendment to the Declaration of Trust.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding ownership of
Common Shares as of April 30, 1998 by (i) each person known to SCI to have
been the beneficial owner of more than five percent of the outstanding Common
Shares on such date, (ii) each Trustee of SCI, (iii) each Named Executive
Officer (defined below) and (iv) all Trustees and executive officers of SCI as
a group. Unless otherwise indicated in the footnotes, all of such interests
are owned directly and the indicated person or entity has sole voting and
dispositive power. The following table assumes that, for the purpose of
calculating the number and percent of Common Shares beneficially owned by a
person, (i) all Series B Cumulative Convertible Redeemable Preferred Shares of
Beneficial Interest, par value $.01 per share, of SCI ("Series B Preferred
Shares") and limited partnership interests in SCI Limited Partnership--I, SCI
Limited Partnership--II, SCI Limited Partnership--III and SCI Limited
Partnership--IV owned by such person (but not any other such securities) have
been converted into or exchanged for Common Shares and (ii) all options held
by that person which are exercisable within 60 days have been exercised, but
that no options or convertible securities held by other persons have been
exercised, converted or exchanged. Fractional Common Shares have been rounded
to the nearest whole Common Share in the table below and elsewhere in this
Proxy Statement.
<TABLE>
<CAPTION>
NUMBER OF COMMON
SHARES PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED COMMON SHARES
------------------------------------ ------------------ -------------
<S> <C> <C>
Security Capital Group Incorporated..... 49,903,814(1) 40.6%
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Scudder Kemper Investments, Inc......... 7,749,590(2) 6.3%
Two International Place
Boston, Massachusetts 02110-4103
K. Dane Brooksher....................... 125,294(3) *
14100 East 35th Place
Aurora, Colorado 80011
Stephen L. Feinberg..................... 158,577(4)(5) *
4855 North Mesa, Suite 120
El Paso, Texas 79912
Donald P. Jacobs........................ 6,197(4) *
J.L. Kellogg Graduate School of
Management
Northwestern University
2001 Sheridan Road
Evanston, Illinois 60208-2003
Irving F. Lyons, III.................... 359,216(6) *
47775 Fremont Boulevard
Fremont, California 94538
</TABLE>
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<TABLE>
<CAPTION>
NUMBER OF COMMON
SHARES PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED COMMON SHARES
------------------------------------ ------------------ -------------
<S> <C> <C>
William G. Myers........................ 163,154(4)(7) *
1114 State Street, Suite 232
Santa Barbara, California 93101
John E. Robson.......................... 25,643(4)(8) *
555 California Street, Suite 2600
San Francisco, California 94101
Jeffrey H. Schwartz..................... 185,917(9) *
14100 East 35th Place
Aurora, Colorado 80011
John W. Seiple.......................... 50,798(10) *
14100 East 35th Place
Aurora, Colorado 80011
Robert J. Watson........................ 65,393(11) *
14100 East 35th Place
Aurora, Colorado 80011
Thomas G. Wattles....................... 26,253(12) *
125 Lincoln Avenue
Santa Fe, New Mexico 87501
All Trustees and Executive Officers as a
Group (18 persons)..................... 1,395,235 *
</TABLE>
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* Less than 1%
(1) These Common Shares are owned of record by SC Realty Incorporated, a
wholly owned subsidiary of Security Capital Group Incorporated ("Security
Capital"), and are pledged to secure Security Capital's $700 million
revolving line of credit facility with a syndicate of banks. As of May 4,
1998, there were $358 million of borrowings outstanding under the line of
credit. The line of credit is also secured by securities owned by Security
Capital of Security Capital Pacific Trust, a publicly traded real estate
investment trust ("REIT"), Security Capital Atlantic Incorporated, a
publicly traded REIT, Homestead Village Incorporated, a publicly traded
extended-stay lodging company, and Security Capital U.S. Realty, a
publicly traded entity based in Luxembourg which invests in real estate
operating companies in the United States. Security Capital estimates that
the aggregate market value of the pledged securities exceeded $3.6 billion
as of May 4, 1998. Security Capital was in compliance with all covenants
under the line of credit at March 31, 1998.
(2) Information with respect to beneficial ownership of Scudder Kemper
Investments, Inc. is included herein in reliance on a Schedule 13G dated
February 12, 1998 filed with the Securities and Exchange Commission. The
Schedule 13G indicates that Scudder Kemper Investments, Inc. has sole
power to vote or direct the vote of 1,845,715 Common Shares, shared power
to vote or direct the vote of 5,559,086 Common Shares and sole power to
dispose or direct the disposition of 7,749,590 Common Shares. Scudder
Kemper Investments, Inc. disclaims beneficial ownership of these Common
Shares.
(3) Includes 740 Common Shares held by Mr. Brooksher's wife.
(4) Includes for Messrs. Feinberg, Jacobs, Myers and Robson beneficial
ownership of 8,000, 4,000, 6,000 and 8,000 Common Shares, respectively,
that are issuable upon exercise of options granted under the Outside
Trustees Plan. See "Election of Trustees--Trustee Compensation."
(5) 50,000 of these Common Shares and 11,000 Series B Preferred Shares
convertible into an aggregate of 14,102 Common Shares are owned by Dorsar
Partners, L.P.; as a result of his position with this entity, Mr. Feinberg
may be deemed to share voting and dispositive power with respect to Common
Shares owned by this entity. 6,000 of these Common Shares are owned by a
trust for the benefit of Mr. Feinberg, and an
3
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additional 6,000 of these Common Shares are owned by a trust for the
benefit of a relative of which Mr. Feinberg is a trustee.
(6) 7,624 of these Common Shares are owned by trusts for the benefit of Mr.
Lyons and other family members of which Mr. Lyons is a trustee and 269 of
these Common Shares are owned by Mr. Lyons' daughters. 256,530 of these
Common Shares are issuable upon exchange of units in SCI Limited
Partnership--I. Mr. Lyons is a partner of certain limited partners of such
partnership. By virtue of such position, Mr. Lyons may be deemed to
beneficially own these Common Shares.
(7) 34,814 of these Common Shares are owned by an entity with which Mr. Myers
may be deemed to share voting and dispositive power with respect to Common
Shares as a result of his position with this entity. 118,181 of these
Common Shares are owned by Mr. Myers' Profit Sharing Plan.
(8) 13,939 of these Common Shares are owned by Mr. Robson's IRA and 3,260 of
these Common Shares are owned by the John and Margaret Robson Living
Trust. Mrs. Robson owns 444 of these Common Shares.
(9) 128,264 of these Common Shares are issuable upon exchange of units in a
partnership owned by Mr. Schwartz.
(10) Mr. Seiple's shareholdings include 772 Common Shares owned by his
children.
(11) Includes 866 Common Shares held in trust accounts for Mr. Watson's
children and 1,150 Common Shares held by the estate of Mr. Watson's late
father.
(12) 7,424 of these Common Shares are held by Mr. Wattles' IRA, 2,093 of these
Common Shares are held by Mr. Wattles' children and 5 Common Shares are
held by Mr. Wattles' wife.
ELECTION OF TRUSTEES
(PROPOSAL 1)
NOMINEES
The Common Shares represented by the accompanying proxy will be voted to
elect the two nominees named below as Class II Trustees, unless otherwise
indicated on the proxy. Messrs. Feinberg and Jacobs, if elected, will serve as
Trustees until the annual meeting of shareholders in 2001. Any vacancies
occurring during any calendar year will be filled by the remaining Trustees in
office. Any Trustee elected by the Trustees to fill a vacancy will hold office
until the next annual meeting of shareholders, at which time the shareholders
will elect a Trustee to fill the unexpired term of the class of Trustees in
which the vacancy occurred. Should any of the nominees named below become
unavailable for election, which is not anticipated, the Common Shares
represented by the accompanying proxy will be voted for the election of
another person recommended by the Board. THE BOARD RECOMMENDS THAT THE
SHAREHOLDERS VOTE FOR THE ELECTION OF EACH NOMINEE NAMED BELOW FOR TRUSTEE.
<TABLE>
<CAPTION>
TRUSTEE AGE BUSINESS EXPERIENCE TERM EXPIRES
------- --- ------------------- ------------
<S> <C> <C> <C>
Stephen L. Feinberg..... 53 Mr. Feinberg has served as a Trustee since January 2001
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 Security Capital Pre-
ferred Growth Incorporated, Continental Transmission
Corporation (private investment company), Harvill
Press Limited, the Santa Fe Institute and Feinberg
Foundation, Inc., and is a former director of
Farrar, Strauss and Giroux, Inc. (private publishing
company). Mr. Feinberg was formerly Chairman of the
Board and a member of the Board of Visitors and Gov-
ernors of St. John's College and a director of many
other charitable organizations.
</TABLE>
4
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<TABLE>
<CAPTION>
BUSINESS EXPERIENCE
TRUSTEE AGE AND DIRECTORSHIPS OF PUBLICLY HELD COMPANIES TERM EXPIRES
------- --- -------------------------------------------- ------------
<S> <C> <C> <C>
Donald P. Jacobs........ 70 Mr. Jacobs has served as a Trustee since February 2001
1996. Mr. Jacobs has been a member of the J.L.
Kellogg Graduate School of Management of Northwest-
ern University since 1957, and Dean since 1975. Mr.
Jacobs is a director of Commonwealth Edison and its
parent company, Unicom, First National Bank of Chi-
cago, Hartmarx Corporation, Unocal Corporation, and
Whitman Industries. Mr. Jacobs is Chairman of the
Public Review Board of Andersen Worldwide. 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 Commis-
sion on Financial Structure and Regulation; from
1963 to 1964, Senior Economist for the Banking and
Currency Committee of the U.S. House of Representa-
tives.
</TABLE>
Security Capital has the right to nominate up to three Trustees, depending
upon its level of beneficial ownership of Common Shares. See "Certain
Relationships and Transactions--Amended and Restated Investor Agreement."
Messrs. K. Dane Brooksher, Irving F. Lyons, III and Thomas G. Wattles, due to
their relationship with Security Capital, are deemed to be the nominees of
Security Capital. The Declaration of Trust requires that a majority of the
Trustees be independent Trustees.
CONTINUING TRUSTEES
The following persons will continue to hold positions as Trustees as
described below:
K. DANE BROOKSHER--59--Mr. Brooksher has served as a Trustee since October
1993. Mr. Brooksher is Co-Chairman and Chief Operating officer of SCI; prior
to the merger of Security Capital Industrial Incorporated (the "REIT Manager")
with and into SCI on September 8, 1997, Co-Chairman and Chief Operating
Officer of the REIT Manager since November 1993, and director of the REIT
Manager. Prior thereto, Area Managing Partner and Chicago Office Managing
Partner of KPMG Peat Marwick (independent public accountants), member of the
Board of Directors and Management Committee. Mr. Brooksher's term as Trustee
expires in 1999.
IRVING F. LYONS, III--48--Mr. Lyons has served as a Trustee since March
1996. Mr. Lyons is the Co-Chairman and Chief Investment Officer of SCI; prior
to the merger of the REIT Manager with and into SCI on September 8, 1997, Co-
Chairman and Chief Investment Officer of the REIT Manager since March 1997,
and director of the REIT Manager. Prior thereto, from December 1993 to March
1997, Managing Director of SCI and the REIT Manager, where he was responsible
for the Pacific region of the United States. 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' term as Trustee expires in 2000.
WILLIAM G. MYERS--70--Mr. Myers has served as a Trustee since January 1995.
Mr. Myers is a Trustee of Security Capital Pacific Trust; Chief Executive
Officer of Ojai Ranch and Investment Company, Inc., Santa Barbara, California,
which he founded in 1963 (agri-business and other investments); and Director,
Chalone Wine Group, Napa, California. Mr. Myers' term as Trustee expires in
2000.
JOHN E. ROBSON--67--Mr. Robson has served as a Trustee since April 1994.
Since October 1993, Mr. Robson has served as Senior Advisor of BankAmerica
Robertson, Stephens & Company, a San Francisco-based investment banking
company. From 1989 to 1992, Mr. Robson served as Deputy Secretary of the
United States
5
<PAGE>
Treasury. From 1986 to 1989, Mr. Robson was Dean and Professor of Management,
Emory University School of Business Administration. From 1975 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 Northrop Grumman Corporation (aerospace) and
Monsanto Company. Mr. Robson's term as Trustee expires in 2000.
THOMAS G. WATTLES--46--Mr. Wattles has served as a Trustee since January
1993. He was a director of SCI's predecessor since its formation in June 1991
and was non-executive Chairman of SCI from March 1997 to May 1998. Prior to
the merger of the REIT Manager with and into SCI on September 8, 1997, he was
a director of the REIT Manager. Mr. Wattles has been Managing Director of
Security Capital since March 1991; prior thereto, Mr. Wattles was Co-Chairman
and Chief Investment Officer of SCI and the REIT Manager from November 1993 to
March 1997; from January 1991 to December 1992, Managing Director of Security
Capital (Pacific) Incorporated. Mr. Wattles' term as Trustee expires in 1999.
MEETINGS AND COMMITTEES
The Board held ten meetings during 1997, including five telephonic meetings.
The Audit Committee of the Board, composed of Messrs. Feinberg, Myers and
Robson, is responsible for recommending to the Board the appointment of
independent auditors, reviewing all recommendations of the auditors with
respect to accounting methods and internal controls of SCI, reviewing and
approving non-audit services, and reviewing the scope of the audits conducted
by the auditors. The Audit Committee held two meetings during 1997.
In April 1994, the Board established an Investment Committee to approve
asset acquisitions and other SCI investment decisions between meetings of the
full Board. Any decisions made by the Investment Committee are reported to the
full Board at its next quarterly meeting. The Investment Committee is
comprised of Messrs. Feinberg, Lyons, Myers and Wattles, and held 16 meetings
during 1997. Also, in January 1997, the Board established a Management
Development and Compensation Committee (the "Compensation Committee")
consisting of Messrs. Myers (Chairman), Feinberg and Robson, with Messrs.
Brooksher and Wattles serving as non-voting members. The Compensation
Committee reviews and approves SCI's compensation arrangements and plans. The
Compensation Committee held three meetings during 1997. SCI has no standing
nominating committee.
During 1997, each Trustee attended at least 75 percent of the total number
of meetings of the Board and the committees on which he served.
TRUSTEE COMPENSATION
SCI pays an annual retainer of $20,000 to Trustees who are not officers of
SCI. These fees are paid to the Trustees in Common Shares (quarterly on each
dividend payment date) based on the then current market price of the Common
Shares pursuant to SCI's dividend reinvestment and share purchase plan as
described below. Such Trustees also receive $1,000 for each meeting attended,
which is also paid in Common Shares. Members of the Investment Committee
receive an additional annual retainer of $4,000 and members of the Audit,
Compensation and Special Committees receive an additional annual retainer of
$2,000, which retainers are also paid in Common Shares. SCI's dividend
reinvestment and share purchase plan commenced in April 1995. Both the
retainer and meeting fees payable to Trustees are paid directly into such plan
on behalf of the Trustees as optional cash payments, and the Common Shares
purchased remain in the plan. Common Shares purchased with the retainer and
committee fees may not be sold or otherwise transferred so long as the Trustee
remains a Trustee. The Board may grant an individual Trustee a waiver of the
requirement that Trustees' fees be used to purchase Common Shares or that such
Common Shares be held so long as the Trustee remains a Trustee. Trustees are
reimbursed for any out-of-town travel expenses incurred in connection with
attendance at Board meetings.
Messrs. Brooksher, Lyons and Wattles are not separately compensated for
serving as Trustees.
6
<PAGE>
In addition, pursuant to the Outside Trustees Plan (described below), each
Trustee who is not an employee of SCI on the date of each annual meeting of
shareholders is entitled to receive an option to purchase 2,000 Common Shares
at a price per Common Share equal to the closing price on the New York Stock
Exchange (the "NYSE") on such date.
OUTSIDE TRUSTEES PLAN
At the 1994 annual meeting, shareholders approved the issuance of up to
100,000 Common Shares under SCI's Common Share Option Plan for Outside
Trustees (the "Outside Trustees Plan"). Options granted under the Outside
Trustees Plan are for a five-year term and are immediately exercisable in
whole or in part. The exercise price of options granted may not be less than
the fair market value of Common Shares on the date of grant. There are
currently 74,000 Common Shares available for future options under the Outside
Trustees Plan.
Options granted under the Outside Trustees Plan provide that the option
holder may, in the event of the acquisition of 50% or more of the outstanding
Common Shares as the result of any cash tender offer or exchange offer (other
than one made by SCI), exercise the options immediately or surrender the
options, or any unexercised portion thereof, to SCI and receive cash from SCI
equal to the difference between the exercise price of each option and the per
Common Share price of the tender offer or exchange offer, multiplied by the
number of Common Shares for which options are held.
AMENDMENT TO DECLARATION OF TRUST
(PROPOSAL 2)
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR APPROVAL OF THE
AMENDMENT TO DECLARATION OF TRUST.
The Board has approved, subject to shareholder approval, an amendment to the
Declaration of Trust (the "Amendment") which would change SCI's name to
ProLogis Trust and increase the number of authorized shares of beneficial
interest from 180,000,000 to 230,000,000 shares.
Name Change
The Board believes that SCI has a unique opportunity to increase awareness
of its brand by adopting a name that is distinctive, representative of SCI's
business and memorable. Increased brand awareness among SCI's customers should
assist SCI in attracting and retaining customers and in further developing SCI
as the global leader in its industry. The Board believes that the name
ProLogis Trust meets these criteria and in so doing will help SCI advance its
long-term business objectives.
Increase in Authorized Shares
The Declaration of Trust authorizes the issuance of 180,000,000 shares of
beneficial interest, $0.01 par value per share. As of April 30, 1998, there
were approximately 122,907,744 Common Shares outstanding, 5,400,000 Series A
Cumulative Redeemable Preferred Shares of Beneficial Interest outstanding,
7,947,100 Series B Preferred Shares outstanding, 2,000,000 Series C Cumulative
Redeemable Preferred Shares of Beneficial Interest outstanding and 10,000,000
Series D Cumulative Redeemable Preferred Shares of Beneficial Interest
outstanding, totaling approximately 148,254,844. The Board believes that it is
important to have a sufficient number of authorized but unissued shares of
beneficial interest available to provide for the future raising of capital,
for use in connection with acquisitions and for issuance under SCI benefit
plans. Raising the number of authorized shares to 230,000,000 will provide SCI
with the flexibility to provide for such circumstances. The terms of any such
shares, including dividends or distributions, conversion prices, voting
rights, redemption prices, maturity dates and similar matters will be
determined by the Board. Further issuance of shares of beneficial interest
could have a dilutive effect on shareholders' voting and economic interests in
SCI. Furthermore, issuance of newly authorized shares of beneficial interest
could be used by the Board to delay or hinder a hostile acquisition proposal.
The Amendment is being submitted to the shareholders for their approval. The
Amendment will be adopted if approved by the vote of the holders of a majority
of the outstanding Common Shares.
7
<PAGE>
EXECUTIVE COMPENSATION
The following table presents the compensation for 1997 and 1996 of each of
the Co-Chairmen and the three other most highly compensated executive officers
of SCI (the "Named Executive Officers"). Each Named Executive Officer was an
employee of Security Capital Industrial Incorporated, SCI's former REIT
Manager, which was a wholly owned subsidiary of Security Capital, and was
compensated by Security Capital during 1996 and from January 1, 1997 through
the closing of the merger transaction described below (the "Merger") on
September 9, 1997 (see "Certain Relationships and Transactions--Merger with
SCI's REIT Manager and Property Manager").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
--------------------------------------- ------------------------------------------------------
SHARES OF
SECURITY CAPITAL
COMMON CLASS A
RESTRICTED SHARES COMMON STOCK
NAME AND OTHER ANNUAL STOCK UNDERLYING UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) AWARDS($) OPTIONS(#) OPTIONS(#)(1) COMPENSATION($)
------------------ ---- --------- -------- --------------- ---------- ---------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
K. Dane Brooksher....... 1997 250,000 350,000 -- (2) 202,650 469 --
Co-Chairman 1996 207,000 268,000 -- -- -- 658 --
Irving F. Lyons, III.... 1997 250,000 275,000 -- (2) 202,650 892 --
Co-Chairman 1996 145,000 230,000 -- -- -- 571 --
Jeffrey H. Schwartz..... 1997 227,462 250,000 -- (2) 122,531 208 --
Managing Director 1996 150,000 140,000 -- -- -- 417 --
Robert J. Watson........ 1997 200,000 215,000 -- (2) 122,531 219 --
Managing Director 1996 162,000 125,000 -- -- -- 439 --
John W. Seiple.......... 1997 200,000 200,000 -- (2) 103,681 208 --
Managing Director 1996 135,000 165,000 -- -- -- 527 --
</TABLE>
- --------
(1) These options to acquire shares of Security Capital's Class A Common Stock
(the "Class A Common Stock") were awarded by Security Capital under
Security Capital's 1995 Option Plan. At the time of the award of these
options, each of the Named Executive Officers was an employee of the REIT
Manager.
(2) Under the share purchase program of the 1997 Incentive Plan, the Named
Executive Officers purchased Common Shares as follows in 1997: Mr.
Brooksher, 94,256 Common Shares; Mr. Lyons, 94,256 Common Shares; Mr.
Schwartz, 56,553 Common Shares; Mr. Watson, 56,553 Common Shares; and Mr.
Seiple, 47,128 Common Shares. All of these purchases were at the price and
upon the other terms, conditions and restrictions described under "--Share
Purchase Program."
1997 LONG-TERM INCENTIVE PLAN
General
In 1997 SCI adopted the 1997 Long-Term Incentive Plan which contains the
following terms and conditions. The number of Common Shares which may be
awarded under the 1997 Incentive Plan may not exceed 9,410,000 Common Shares
in the aggregate and no individual may be granted awards with respect to more
than 500,000 Common Shares in any one-year period. Common Shares issued under
the 1997 Incentive Plan may be authorized and unissued shares, or treasury
shares. In the event of certain transactions affecting the type or number of
outstanding shares, the number of shares subject to the 1997 Incentive Plan,
the number or type of shares subject to outstanding awards and the exercise
price thereof will be appropriately adjusted. The 1997 Incentive Plan
authorizes the establishment of one or more option programs and share purchase
programs and authorizes the award of share grants (any of which may be subject
to restrictions). All employees of SCI or any of its affiliates are eligible
to participate in the 1997 Incentive Plan. The Compensation Committee
administers the 1997 Incentive Plan. Subject to the terms of the 1997
Incentive Plan, the Compensation Committee determines which employees shall be
eligible to receive awards under the 1997 Incentive Plan, and the amount,
price, timing and other terms and conditions applicable to such awards. Non-
employee trustees of SCI are not eligible to participate in the 1997 Incentive
Plan.
8
<PAGE>
Options awarded under the 1997 Incentive Plan may be either incentive share
options which are intended to satisfy the requirements of Section 422 of the
Code, or non-qualified share options which are not intended to satisfy Section
422 of the Code. Options become exercisable in accordance with the terms
established by the Compensation Committee, which may include conditions
relating to completion of a specified period of service or achievement of
performance standards or such other criteria as the Compensation Committee
deems appropriate. Options expire on the date determined by the Compensation
Committee which shall not be later than the earliest to occur of (i) the tenth
anniversary of the grant date, (ii) the first anniversary of the participant's
termination of employment by reason of death, disability or retirement or
(iii) the three month anniversary of the participant's termination of
employment for any other reason. Common Shares transferred to a participant
pursuant to the exercise of an option may be subject to such additional
restrictions or limitations as the Compensation Committee may determine. The
1997 Incentive Plan provides generally that participants who are awarded
options will also receive dividend equivalent units with respect to the
options. The dividend equivalent units will be subject to the same vesting
schedule as the options and will be payable when the options are exercised,
unless the participant elects to defer receipt, or will expire. Generally,
each participant will be credited with dividend equivalent units at the end of
each calendar year in an amount equal to (i) the average dividend yield during
such year with respect to a Common Share that is in excess of the S&P 500
average dividend yield for such year, multiplied by (ii) the number of Common
Shares underlying the participant's outstanding options that were granted with
dividend equivalent units. Each dividend equivalent unit also accumulates
additional dividend equivalent units on an annual basis. All dividend
equivalent units are paid in the form of Common Shares at the rate of one
Common Share per dividend equivalent unit.
The 1997 Incentive Plan provides that the Compensation Committee may award
participants performance stock, the distribution of which is subject to
achievement of performance objectives. The number of shares and the
performance measures and periods shall be established by the Compensation
Committee at the time the award is made, provided that any performance period
shall be at least one year.
Non-Qualified Options
The Compensation Committee may grant non-qualified options to acquire Common
Shares. Concurrently with the consummation of the merger of SCI's REIT Manager
and SCI Client Services Incorporated (the "Property Manager") with SCI (the
"Merger"), the Named Executive Officers and certain other officers of SCI were
granted options to purchase Common Shares at a price of $21.21825 per share
(the average of the high and low price of Common Shares on September 8, 1997,
the date the 1997 Incentive Plan was approved by shareholders). The options
will become exercisable 25% on the second anniversary of the date of grant and
an additional 25% on each of the third, fourth and fifth anniversaries of the
date of grant and expire ten years after the date of grant. The participants
have no rights as shareholders with respect to the shares subject to the
options until the option is exercised. No income will be recognized by a
participant at the time the options or the dividend equivalent units are
granted. The exercise of a non-qualified stock option is generally a taxable
event that requires the participant to recognize, as ordinary income, the
difference between the fair market value of the shares at the time of exercise
and the option price. Receipt of a dividend equivalent unit by the participant
is generally a taxable event that requires the participant to recognize, as
ordinary income, the fair market value of the shares at the time of receipt.
SCI ordinarily will be entitled to claim a federal income tax deduction on
account of the exercise of a non-qualified option and payment of dividend
equivalent units. The amount of the deduction is equal to the ordinary income
recognized by a participant. SCI has adopted the provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS No. 123") "Accounting for Stock
Based Compensation." Under the provisions of this statement, SCI will continue
to account for its share options under the provisions of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations.
Share Purchase Program
Concurrently with the consummation of the Merger, SCI permitted the Named
Executive Officers and certain other officers and employees to purchase a
total of 1,356,834 Common Shares at a price of $21.21875
9
<PAGE>
per share (the average of the high and low price of the Common Shares on
September 8, 1997, the date the 1997 Incentive Plan was approved by
shareholders) with two matching options for each share purchased. Each
matching option has an exercise price equal to $21.21875. No dividend
equivalent units were issued with respect to such matching options. The share
purchases provide for a one-year restricted period during which the
participants may not, while employed, sell the purchased shares. If a
participant leaves the employ of SCI prior to the end of the restricted
period, SCI has the right to repurchase the shares at the fair market value of
such shares at the time the participant's employment is terminated. At the end
of the restricted period, the participant will own the shares without further
restriction. However, if the participant sells the restricted shares after the
end of the restricted period, the participant's matching options may be
adversely affected. SCI made loans for up to 95% of the purchase price
available to participants. Each loan is fully recourse to the participant and
is secured by the purchased shares. Each loan has a 10 year term and an
interest rate equal to the lower of SCI's dividend yield or 6%. The loan will
become due and payable (i) immediately upon sale of the purchased shares or
SCI's termination of the participant's employment for cause, (ii) 90 days
following the participant's termination of employment with SCI for any reason
other than death, disability, retirement or following a change in control of
SCI, (iii) 180 days following SCI's termination of the participant's
employment following a change in control or (iv) 365 days following the
participant's termination of employment with SCI by reason of death,
disability or retirement. See "--Loans to Executive Officers."
Option Grants in 1997
The following table sets forth certain information with respect to
individual grants of options during 1997 to each of the Named Executive
Officers.
<TABLE>
<CAPTION>
COMMON SHARES SHARES OF SECURITY CAPITAL CLASS A COMMON STOCK
------------------------------------------------- -------------------------------------------------
INDIVIDUAL GRANTS INDIVIDUAL GRANTS
------------------------------------------------- -------------------------------------------------
PERCENT PERCENT
OF TOTAL OF TOTAL
SECURITIES OPTIONS GRANT SECURITIES OPTIONS GRANT
UNDERLYING GRANTED EXERCISE DATE UNDERLYING GRANTED EXERCISE DATE
OPTIONS TO OR BASE PRESENT OPTIONS TO OR BASE PRESENT
GRANTED EMPLOYEES PRICE EXPIRATION VALUE GRANTED EMPLOYEES PRICE EXPIRATION VALUE
NAME (#)(1) IN 1997 ($/SHARE) DATE ($)(2) (#)(3) IN 1997 ($/SHARE) DATE ($)(4)
---- ---------- --------- --------- ---------- ------- ---------- --------- --------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
K. Dane Brooksher.. 202,650 6.56% 21.22 9/8/07 439,751 469 0.88% 1,600 12/04/07 291,752
Irving F. Lyons,
III............... 202,650 6.56% 21.22 9/8/07 439,751 486 0.92% 1,236 12/31/97 46,630
406 0.77% 1,600 12/04/07 252,851
Jeffrey H.
Schwartz.......... 122,531 3.97% 21.22 9/8/07 265,892 208 0.39% 1,600 12/04/07 129,343
Robert J. Watson... 122,531 3.97% 21.22 9/8/07 265,892 219 0.41% 1,600 12/04/07 136,151
John W. Seiple..... 103,681 3.36% 21.22 9/8/07 224,988 208 0.39% 1,600 12/04/07 129,343
</TABLE>
- --------
(1) The options vest 25% on the second anniversary of the date of grant and an
additional 25% on each of the third, fourth and fifth anniversaries of the
date of the grant. As described under "--General," the following number of
these options granted to the Named Executive Officers in 1997 have
dividend equivalent units: Mr. Brooksher, 14,138 options; Mr. Lyons,
14,138 options; Mr. Schwartz, 9,425 options; Mr. Watson, 9,425 options;
and Mr. Seiple, 9,425 options. The remaining options granted to the Named
Executive Officers in 1997 were matching options granted pursuant to the
share purchase program and do not have matching dividend equivalent units,
as described under "--Share Purchase Program."
(2) The amounts shown are based on the Black-Scholes option pricing model. The
material assumptions incorporated in the Black-Scholes model in estimating
the value of the options include the following: an expected option life of
6.75 years; a risk-free interest rate of 6.35%; an expected dividend yield
of 7.36%; and expected volatility of 19.20%. The actual value, if any, an
optionee will realize upon exercise of an option will depend on the excess
of the market value of the Common Shares over the exercise price on the
date the option is exercised. There can be no assurance that the value
realized by an optionee will be at or near the value estimated by using
the Black-Scholes model.
(3) The options vest 25% on the second anniversary of the date of grant and an
additional 25% on each of the third, fourth and fifth anniversaries of the
date of grant.
10
<PAGE>
(4) The amounts shown are based on the Black-Scholes option pricing model. The
material assumptions incorporated in the Black-Scholes model in estimating
the value of the options include the following: a weighted-average
expected option life of 6.75 years; a risk-free interest rate of 5.87%;
expected volatility of 22.09%; and no dividend yield. The actual value, if
any, an optionee will realize upon exercise of an option will depend on
the excess market value of the shares over the exercise price on the date
the option is exercised. There can be no assurance that the value realized
by an optionee will be at or near the value estimated by using the Black-
Scholes model.
Aggregated Option Exercises in 1997 and Year-End Option Values
The following table sets forth certain information concerning exercises of
options during 1997 by each of the Named Executive Officers and the year-end
value of unexercised options owned by those executive officers.
<TABLE>
<CAPTION>
COMMON SHARES
---------------------------------------------------
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
YEAR-END(#) YEAR-END($)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
K. Dane
Brooksher...... -- 202,650 -- 740,939
Irving F. Lyons,
III............ -- 202,650 -- 740,939
Jeffrey H.
Schwartz....... -- 122,531 -- 448,004
Robert J.
Watson......... -- 122,531 -- 448,004
John W. Seiple.. -- 103,681 -- 379,084
<CAPTION>
SHARES OF SECURITY CAPITAL CLASS A COMMON STOCK
----------------------------------------------------------------------
SHARES SECURITIES UNDERLYING VALUE OF UNEXERCISED
ACQUIRED UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
ON VALUE YEAR-END(#) YEAR-END($)
EXERCISE REALIZED ------------------------- -------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
K. Dane
Brooksher...... -- -- 1,684 4,592 1,859,998 3,771,220
Irving F. Lyons,
III............ 2,711 1,836,757 -- 1,484 -- 544,997
Jeffrey H.
Schwartz....... -- -- 841 1,066 529,291 476,980
Robert J.
Watson......... -- -- 1,471 1,627 1,583,987 1,079,030
John W. Seiple.. -- -- -- 1,176 -- 525,382
</TABLE>
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
SCI has no employment contracts with any Named Executive Officer and no
plans or arrangements by which any such executive officer will be compensated
as a result of his resignation or retirement or any other termination of his
employment with SCI or in connection with a change in control of SCI, except
that in the event a "Change in Control," as such term is defined in either the
1997 Long-Term Incentive Plan or the Outside Trustees Plan, occurs, options to
purchase Common Shares granted under either of the loans become immediately
exercisable and restrictions on purchased Common Shares lapse.
LOANS TO EXECUTIVE OFFICERS
On October 3, 1995, Security Capital entered into an unsecured, full
recourse promissory note with K. Dane Brooksher, Co-Chairman and Chief
Operating Officer of SCI. Under the terms of the promissory note, Security
Capital lent Mr. Brooksher $249,997, which amount is due on the earlier of
January 4, 2005 or 120 days after Mr. Brooksher is no longer an officer of
SCI. Interest on the unpaid balance accrues at a floating rate per annum equal
to the lowest rate charged by Morgan Guaranty Trust Company of New York to its
most creditworthy corporate customers for unsecured loans having a maturity of
ninety days or less, in effect from time to time, plus .25%, and is payable
semi-annually on each July 4 and January 4. The proceeds of the promissory
note were used by Mr. Brooksher to purchase Common Shares.
On April 1, 1997, Security Capital entered into a secured promissory note
and related pledge agreement with Thomas G. Wattles, a Trustee of SCI. Under
the terms of the secured promissory note, Security Capital lent Mr. Wattles
$411,000, which amount may be increased by Mr. Wattles up to $536,000. The
principal amount of the note is due on the earlier of January 15, 2000 or 120
days after Mr. Wattles is no longer an officer of Security Capital or an
affiliate thereof. Interest on the unpaid balance accrues at six percent per
year and is payable annually on January 15 each year the secured promissory
note is outstanding. The proceeds of the secured promissory note were used by
Mr. Wattles to repay principal and interest on earlier notes issued by Mr.
Wattles to Security Capital between January 1991 and October 1995, aggregating
approximately $362,000, for repayment of other obligations and for the payment
of taxes. The secured promissory note is secured by Class A Shares of Security
Capital and Common Shares of SCI owned by Mr. Wattles. The secured promissory
note is also secured by a life insurance policy on Mr. Wattles in the amount
of $536,000 which policy has been assigned to Security Capital. Mr. Wattles
has also agreed that if he exercises any options for Security Capital
securities prior to
11
<PAGE>
repayment of the secured promissory note, any securities obtained upon
exercise of such options shall become subject to the pledge agreement and the
net proceeds (after payment of minimum withholding taxes) of any securities
obtained upon exercise of such options and disposed of by Mr. Wattles shall be
immediately applied to the outstanding and unpaid interest and principal on
the secured promissory note.
SCI made loans to the Named Executive Officers as follows during 1997 for
the purchase price of Common Shares pursuant to the share purchase program:
Mr. Brooksher, $1,899,995; Mr. Lyons, $1,899,995; Mr. Schwartz, $1,139,984;
Mr. Watson, $1,139,984; and Mr. Seiple, $949,997. Each loan is full recourse
to the executive officer and is secured by the purchased Common Shares. The
loans bear interest at 6.0% per annum and have a ten-year term. The loans will
become due and payable (i) immediately upon the sale of the purchased Common
Shares or SCI's termination of the executive officer's employment for cause,
(ii) 180 days after SCI's termination of the executive officer's employment
following a change in control, (iii) 365 days after termination of the
executive officer's employment by reason of death, disability or retirement or
(iv) 90 days after termination of the executive officer's employment for any
other reason.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee consists entirely of non-employee Trustees and is
responsible for acting on behalf of the Board with respect to (i) SCI's
compensation practices, (ii) SCI's benefits programs, (iii) review and
approval of salaries and other compensation of SCI's senior executive officers
and (iv) adopting, administering and approving awards under incentive
compensation and stock plans. The Compensation Committee determines the Co-
Chairmen's compensation and the compensation of executive officers of SCI
based on an examination of competitive market data, an evaluation of
individual performances and SCI's performance and consultation with senior
management, which compensation is ratified by the full Board. Payment of cash
compensation and option grants by SCI to its executive officers began on
September 9, 1997, the date the Merger occurred. Grants of options to purchase
Security Capital Class A Common Stock were made by Security Capital to the Co-
Chairmen and to certain executive officers while they were employed by the
REIT Manager.
COMPENSATION PHILOSOPHY
SCI's compensation program is designed to:
. Attract, reward and retain highly qualified executives.
. Align shareholder and employee interests.
. Reward long-term career contributions to SCI.
. Emphasize the variable portion of total compensation (cash bonuses and
stock appreciation through the Long-Term Incentive Plan) as an
individual's level of responsibility increases.
The Compensation Committee is committed to a compensation philosophy which
rewards employees on the basis of SCI's success in attaining corporate
financial objectives as well as on the basis of the employee's success in
attaining financial and qualitative performance objectives.
COMPENSATION PRACTICES
SCI's compensation practices regarding its executive officers have the
following components:
. Individual performance reviews every 12 months.
. Base salary which is paid annually and reviewed not less frequently than
every 24 months.
. A target bonus which is set after review at the same time the base salary
is reviewed with an actual bonus being paid in varying percentages of the
target bonus (based on individual and company performance) every 12
months.
. Option awards at fair market value which are annual awards based on the
responsibility band of the executive and an individual performance
assessment.
12
<PAGE>
Executive officers of SCI who had been employed by the REIT Manager were
paid by Security Capital prior to the Merger. Security Capital established
base salaries and target bonuses for 1997, which were approved by the
Compensation Committee and remained in effect after the Merger.
Performance Reviews
With respect to the 1997 bonus and option compensation for individual
executive officers, the Compensation Committee reviewed SCI's financial
performance, as well as objectives and a subjective assessment of the
executive's performance. In the case of particular individuals, circumstances
unique to such individual, such as increased responsibilities or extraordinary
effort, were also considered.
Base Salary
Security Capital set the base salaries for SCI's executive officers for 1997
prior to the Merger, which were approved by the Compensation Committee and
remained in effect after the Merger. In the future, base salary will be
established when an executive officer joins SCI and will be reviewed for all
executive officers in December of even numbered years. The next salary review
will occur in late 1998, and will become effective in January 1999. With
respect to the executive officers of SCI, the Compensation Committee will base
its salary compensation decisions primarily on its overall assessment of the
executive's potential contribution to SCI on both a short-term and long-term
basis and competitive market considerations.
Annual Bonus
Security Capital set the target bonuses for SCI's executive officers for
1997 prior to the Merger, which were approved by the Compensation Committee
and remained in effect after the Merger. In the future, the Compensation
Committee will establish target bonuses for each executive officer at the same
time that base salary is established. The actual percentage of target bonus
for each year is up to the discretion of the Compensation Committee. The
actual amount of a bonus is based primarily upon the individual's performance
and SCI's performance during the prior year. The Compensation Committee made
the determination for actual bonuses paid for 1997.
Option Awards and Share Purchase Awards
The Compensation Committee believed it was appropriate in 1997 to make long-
term incentive awards to SCI's executive officers. Option awards to purchase
shares of Security Capital Class A Common Stock had been awarded annually to
the officers and employees of the REIT Manager and the Property Manager since
SCI was organized and constituted an important component of senior executive
compensation. In connection with the Merger, the Compensation Committee
granted option awards and shares purchase awards for SCI Common Shares. In
arriving at the 1997 award levels, the Compensation Committee gave
consideration to the executive's relative position, responsibilities and
performance, the change from being employees of Security Capital to becoming
employees of SCI, as well as option awards for shares of Security Capital
Class A Common Stock granted by Security Capital in 1997. After the Merger,
SCI employees will no longer receive option awards from Security Capital.
The purpose of the awards is to furnish long-term incentives to executive
officers to build shareholder value and to motivate and retain the personnel
critical to SCI's long-term success. Awards vest over a five-year period, with
no awards vested until the end of the second anniversary of the grant. It is
the intention of the Compensation Committee to continue to emphasize long-term
incentives as an important component of the compensation provided to SCI
executive officers.
CO-CHAIRMEN COMPENSATION
The Compensation Committee met this year and plans to meet annually without
the Co-Chairmen present to evaluate their individual performances and to
determine their compensation. In considering the Co-Chairmen's compensation,
the Compensation Committee considered their positions as principal executive
officers of SCI. In considering Mr. Brooksher's compensation, the Compensation
Committee considered his principal responsibilities, which are to provide
overall vision and strategic direction for SCI, to attract and retain highly
qualified employees and to develop and maintain key capital relationships for
SCI. In considering Mr. Lyons' compensation, the Compensation Committee
considered his principal responsibilities, which are to provide the overall
strategic direction for SCI's capital deployment.
13
<PAGE>
In reviewing and determining Mr. Brooksher's and Mr. Lyons' compensation for
1997, the Compensation Committee reviewed the overall performance of SCI and
their performances. During 1997, SCI had a variety of financial and operations
achievements in which the Compensation Committee believed Mr. Brooksher and
Mr. Lyons were instrumental. In 1997, SCI, through affiliates, entered into
two key extensions of its service platform, refrigerated logistics and site
optimization consulting, which are expected to make significant contributions
to SCI's growth and funds from operations. During the year, SCI became a
global company with operations in Mexico and two countries in Europe. In 1997,
SCI generated funds from operations per share of $1.52, compared to $1.30 per
share in 1996. Additionally, during 1997, SCI redeployed over $135 million in
gross proceeds from dispositions of properties in markets which management
believed had less attractive long-term growth prospects to new properties in
markets with more attractive fundamentals. During the year, SCI also acquired
$850 million of distribution facilities and land and had $370 million in
development starts. In addition, on September 9, 1997, SCI became an
internally managed REIT when it acquired the operations and business of the
REIT Manager and the Property Manager. Each of these developments was
considered by the Compensation Committee in determining Mr. Brooksher's and
Mr. Lyons' compensation.
Based on their individual contributions as well as SCI's performance, during
1997, Mr. Brooksher received a base salary of $250,000 and a bonus of
$350,000. Of those amounts, $166,667 and $153,750, respectively, were paid by
Security Capital for contributions to Security Capital prior to the Merger.
During 1997, Mr. Lyons received a base salary of $250,000 and a bonus of
$275,000. Of those amounts, $166,667 and $103,750, respectively, were paid by
Security Capital for contributions to Security Capital prior to the Merger.
The Compensation Committee determined to award Mr. Brooksher options to
acquire 202,650 Common Shares and share purchase awards of 94,256 Common
Shares and to lend Mr. Brooksher $1,899,995 to assist in the purchase of those
Common Shares. In addition, Mr. Brooksher received options to purchase 469
shares of Security Capital Class A Common Stock from Security Capital. The
Compensation Committee determined to award Mr. Lyons options to acquire
202,650 Common Shares and share purchase awards of 94,256 Common Shares and to
lend Mr. Lyons $1,899,995 to assist in the purchase of those Common Shares. In
addition, Mr. Lyons received options to purchase 892 shares of Security
Capital Class A Common Stock from Security Capital. The long-term incentives
received by Mr. Brooksher and Mr. Lyons from SCI are in the form of share
options and share purchase awards which are identical in structure to those
which are offered to SCI's other officers and key employees.
The Compensation Committee expects to conduct a complete review of SCI's
compensation practices during 1998 to determine whether the compensation
philosophy, general amounts and combination of base salary, target bonus and
options should be materially changed.
SECTION 162(M)
The Committee is aware of the limitations imposed by Section 162(m) of the
Internal Revenue Code of 1986, as amended, on the deductibility of
compensation paid to certain senior executives to the extent it exceeds
$1,000,000 per executive. The law exempts compensation paid under plans which
relate compensation to performance. Although SCI's plans are designed to
relate compensation to performance, certain elements of the plans do not meet
the tax law's requirements because they allow the Compensation Committee to
exercise discretion in setting compensation. It may be appropriate in the
future to recommend changes in SCI's compensation program to take into
consideration the tax law. However, the Compensation Committee is of the
current opinion that it is better to retain discretion than to give it up in
exchange for the tax deduction.
This report is submitted by the members of the Compensation Committee:
William G. Myers, Chairman, Stephen L. Feinberg and John E. Robson.
The Report of the Compensation Committee on Executive Compensation and
related disclosure, including the Performance Graph, shall not be deemed
incorporated by reference by any general statement incorporating this Proxy
Statement into any filing under the Securities Acts of 1933 or under the
Securities Exchange Act of 1934, except to the extent SCI specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such Acts.
14
<PAGE>
PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total shareholder return on the Common Shares against the
cumulative total return of the Standard & Poor's Composite--500 Stock Index
and the National Association of Real Estate Investment Trusts, Inc. ("NAREIT")
Equity REIT Index for the period commencing March 31, 1994, the date that
SCI's initial public offering was completed, and ended December 31, 1997. The
Common Share price performance shown on the graph is not necessarily
indicative of future price performance.
COMPARISON OF CUMULATIVE TOTAL RETURN(1)
SCI COMMON SHARES, S&P COMPOSITE--500 STOCK INDEX &
NAREIT EQUITY REIT INDEX
LOGO
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994(2) 1994 1995 1996 1997
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
SCI........... $100.00 $123.03 $134.16 $173.26 $215.09
S&P 500....... $100.00 $105.31 $144.89 $178.16 $237.59
NAREIT........ $100.00 $ 99.77 $115.01 $155.57 $187.08
</TABLE>
- --------
(1) Assumes that the value of the investment in Common Shares and each index
was $100 on March 31, 1994 and that all dividends were reinvested. For
purposes of calculating total return on the Common Shares, the Warrant
Issuance described below in "Certain Relationships and Transactions--
Merger with SCI's REIT Manager and Property Manager" was valued based on
the closing price of the warrants distributed on the NYSE on September 18,
1997, the date the warrants were issued to the distribution agent.
(2) SCI's initial public offering was completed, and the Common Shares
commenced trading, on March 31, 1994.
15
<PAGE>
CERTAIN RELATIONSHIPS AND TRANSACTIONS
MERGER WITH SCI'S REIT MANAGER AND PROPERTY MANAGER
In January 1997, Security Capital made a proposal to the Board that Security
Capital exchange the REIT Manager and the Property Manager for Common Shares,
with the result that SCI would become an internally managed REIT. On March 24,
1997, Security Capital and SCI entered into a Merger and Issuance Agreement,
as amended (the "Merger Agreement"), which was approved by the shareholders of
SCI on September 8, 1997, pursuant to which the Merger was consummated and the
REIT Manager and the Property Manager were merged into a newly formed
subsidiary of SCI. The employees of the REIT Manager and the Property Manager
became employees of SCI as a result of the Merger. In exchange for the
transfer of those businesses, SCI issued to Security Capital 3,692,023 Common
Shares. The number of Common Shares issued to Security Capital was based on
the average closing price of the Common Shares over the five-day period prior
to the record date for determining SCI's shareholders entitled to vote at the
meeting in connection with the Merger, subject to a maximum and minimum number
of Common shares. The average closing price of the Common Shares over the
five-day period prior to that record date was $22.175 per Common Share.
In order to allow SCI's shareholders to maintain their relative ownership in
SCI, SCI conducted a rights offering entitling its shareholders (other than
Security Capital) to purchase up to approximately $104.4 million of additional
Common Shares. A total of 4,970,352 Common Shares were purchased by
shareholders of SCI pursuant to this rights offering. In addition, as part of
the Merger transaction, and in order to permit holders of Common Shares to
benefit from the Merger transaction on the same terms as equity holders in
Security Capital, on September 16, 1997 Security Capital issued warrants (the
"Warrant Issuance") to purchase 3,608,202 shares of Security Capital's Class B
Common Stock to SCI's shareholders other than Security Capital. The Warrant
Issuance was made by Security Capital in order to induce holders of Common
Shares to vote in favor of the 1997 Merger transaction, to broaden Security
Capital's shareholder base, to enable Security Capital to raise additional
equity capital at a relatively low cost through exercises of warrants and to
enable Security Capital to raise additional equity capital in the long run by
preserving and enhancing its goodwill with the shareholders of SCI. The number
of shares of Class B Common Stock subject to the warrants was based on the
closing price of the Class B Common Stock on September 18, 1997, the date the
warrants were issued to the agent for the Warrant Issuance for subsequent
distribution to holders of Common Shares, other than Security Capital. The
warrants will expire on September 18, 1998 and contain customary provisions to
protect shareholders from dilution in certain events, including certain
distributions and sales of shares of Class B Common Stock at less than market
price.
AMENDED AND RESTATED INVESTOR AGREEMENT
SCI and Security Capital are parties to an Amended and Restated Investor
Agreement, dated as of November 18, 1993 and amended and restated as of
September 9, 1997 (the "Investor Agreement"). Pursuant to the Investor
Agreement, Security Capital has the right, so long as it owns between 10% and
25% of the Common Shares, to nominate one person to the Board. So long as
Security Capital owns 25% or more of the Common Shares, Security Capital will
be entitled to nominate a proportionate number of persons to the Board subject
to a maximum of three nominees if the size of the Board does not increase
above the current size. In addition, SCI is required to consult with Security
Capital's nominees to the Board prior to taking any action with respect to the
following: (i) finalization of the annual budget and substantial deviations
therefrom; (ii) the acquisition or sale of assets in a single transaction
where the price exceeds $25 million; (iii) any contract for investment,
property management or leasing services and (iv) any service contract
providing for payments in excess of $1.0 million. SCI has no obligation to
follow the advice of Security Capital with respect to the foregoing matters.
Under the Investor Agreement, Security Capital also has the right of prior
approval with respect to the following matters: (i) the issuance of equity
securities or securities convertible into equity securities (other than
16
<PAGE>
issuances in connection with option, dividend reinvestment and similar plans)
for less than the fair market value of such securities; (ii) the issuance of
any preferred shares which would result in the Fixed Charge Coverage Ratio (as
defined therein) being less than 1.4 to 1.0; (iii) adopting any employee
benefit plans under which Common Shares may be issued; (iv) the compensation
of senior officers of SCI; (v) incurring additional indebtedness which would
result in the Interest Expense Coverage Ratio (as defined therein) being less
than 2.0 to 1.0. Finally, Security Capital has the right to call a special
meeting of shareholders to consider a Security Capital proposed slate of
nominee Trustees in the event that any of its approval rights are held to be
unenforceable by a court.
Security Capital is permitted to make job opportunities with its affiliates
available to the officers and employees of SCI; provided that Security Capital
gives the Board two weeks' notice prior to making an opportunity available to
a senior officer of SCI.
ADMINISTRATIVE SERVICES AGREEMENT; PROTECTION OF BUSINESS AGREEMENT
In connection with the terms of the Merger Agreement, SCI entered into an
administrative services agreement dated as of September 9, 1997 with a
subsidiary of Security Capital. Under this agreement, Security Capital will
provide SCI with certain administrative services requested by SCI. SCI will
not be required to purchase any services. The fees payable to Security Capital
will be equal to Security Capital's cost of providing such services plus an
overhead factor of 20%. For the initial term of the agreement (through
December 31, 1998), the fees payable to Security Capital will not exceed
approximately $7.1 million, but may be less than such amount. For the period
September 9, 1997 to December 31, 1997, SCI paid $1.1 million in fees to
Security Capital.
In addition, pursuant to a protection of business agreement dated as of
September 9, 1997 entered into with Security Capital in connection with the
Merger Agreement, Security Capital agreed that, for a three-year term, neither
it nor any affiliate will provide substantially the same advice and services
as those having been provided by the REIT Manager and the Property Manager to
any person within the United States owning or operating real property that is
or is planned to be used primarily for distribution and light manufacturing
properties.
PLACEMENT AGENT FEES
On December 22, 1997, SCI raised net proceeds of $200 million from a direct
placement of 8,416,667 Common Shares of which Security Capital purchased
3,125,067 shares. SCI paid Security Capital Markets Group Incorporated, an
affiliate of Security Capital, a $2.0 million fee for their services in
connection with the offering.
PARTNERSHIP AFFILIATIONS
As part of its acquisition program of industrial properties, SCI has
consummated four transactions pursuant to which it contributed cash, and
third-party partnerships contributed a portfolio of properties, to SCI Limited
Partnership--I, SCI Limited Partnership--II, SCI Limited Partnership--III and
SCI Limited Partnership--IV. Irving F. Lyons, III, Co-Chairman and Chief
Investment Officer and Trustee of SCI, is a partner in SCI Limited
Partnership--I. Mr. Lyons also owns minority interests in a substantial amount
of undeveloped industrial land near SCI's industrial parks in the San
Francisco Bay Area. SCI has purchase options and rights of first refusal with
respect to all sales of land and build-to-suit opportunities involving this
property. The SCI Limited Partnership--I transaction and the prices for such
options (which are fixed or determined pursuant to formulas) were negotiated
at arms' length prior to Mr. Lyons' affiliation with SCI. Jeffrey H. Schwartz,
a Managing Director of SCI, has an ownership interest in partnerships that are
limited partners in SCI Limited Partnership--III and SCI Limited Partnership--
IV. The SCI Limited Partnership--III and SCI Limited Partnership--IV
transaction was negotiated at arms' length prior to Mr. Schwartz's affiliation
with SCI.
17
<PAGE>
OTHER TRANSACTIONS WITH AFFILIATES
Prior to the consummation of the Merger on September 9, 1997, SCI paid REIT
management fees to the REIT Manager in an amount equal to $17.8 million, and
property management fees to the Property Manager in an amount equal to $3.9
million, for the period from January 1, 1997 to September 8, 1997.
On April 24, 1997, SCI Logistics Services Incorporated ("SCI Logistics"), an
entity in which SCI owns a majority of the economic interest, acquired the
refrigerated warehouse and distribution operations of Christian Salvesen, Inc.
and related companies located in the United States and Canada for $122.4
million. The acquired companies were subsequently transferred to a new entity,
CS Integrated LLC ("CSI"), which is 77.1% owned by SCI Logistics and 22.9%
owned by an affiliate of Hunt Financial Corporation. SCI Logistics paid
approximately $73.4 million for its interest in CSI and the affiliate of Hunt
Financial Corporation paid approximately $49.0 million for its interest in
CSI, with approximately 80% being funded through debt and 20% being funded
through equity capital by each entity. Under the terms of its agreement with
Hunt Financial Corporation's affiliate, SCI Logistics has the option to
increase its ownership interest in CSI to 80% as that entity invests
additional equity capital. Hunt Financial Corporation is a wholly owned
subsidiary of Hunt Consolidated, Inc., which is part of the Hunt family
interests headed by Ray L. Hunt, who is a Director of Security Capital.
SCI leases space to related parties on market terms no less favorable to SCI
than those that could be obtained with unaffiliated third parties. These
transactions are summarized as follows:
<TABLE>
<CAPTION>
SECURITY REIT PROPERTY
CAPITAL MANAGER(1) MANAGER TOTAL
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Rental revenue during the year ended
December 31, 1997.................. $833,150 $145,244 $550,092 $1,528,486
Square feet leased as of December
31, 1997........................... 122,856 25,007 97,077 244,940
Annualized revenue for leases in
effect at December 31, 1997........ $870,324 N/A N/A $ 870,324
</TABLE>
- --------
(1) For the REIT Manager and the Property Manager, amounts included for the
year ended December 31, 1997 are for the period January 1, 1997 through
September 8, 1997.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act of 1934 requires SCI's Trustees, officers
and beneficial owners of more than ten percent of the outstanding Common
Shares to file reports of ownership and changes in ownership of the Common
Shares with the Securities and Exchange Commission and to send copies of those
reports to SCI. Based solely on a review of those reports and amendments
thereto furnished to SCI and on written representations of certain of such
persons that they were not required to file certain of those reports, SCI
believes that no such person failed to file any such report on a timely basis
during 1997, except that Security Capital, K. Dane Brooksher, Kent W. Johnson,
Irving F. Lyons III, Steven K. Meyer, Walter C. Rakowich, Jeffrey H. Schwartz
and Robin von Weiler each filed one late report with respect to one
transaction.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board has selected Arthur Andersen LLP, certified public accountants,
who have served as auditors for SCI since 1991, to serve again as the auditors
of SCI's books and records for the coming year. A representative of Arthur
Andersen LLP is expected to be present at the annual meeting, and he or she
will be given an opportunity to make a statement if he or she desires to do so
and will be available to respond to appropriate questions.
18
<PAGE>
ANNUAL REPORT
SCI's 1997 Annual Report, which includes financial statements, has
previously been mailed to shareholders or is being mailed to shareholders
together with this Proxy Statement. The Annual Report does not constitute a
part of the proxy solicitation material.
SHAREHOLDER PROPOSALS
Any proposal by a shareholder of SCI intended to be presented at the 1999
annual meeting of shareholders must be received by SCI at its principal
executive offices not later than January 28, 1998, for inclusion in SCI's
proxy statement and form of proxy relating to that meeting.
OTHER MATTERS
SCI is not aware of any business or matter other than those indicated above
which may properly be presented at the meeting. If, however, any other matter
properly comes before the meeting, the proxy holders will, in their
discretion, vote thereon in accordance with their best judgment.
Jeffrey A. Klopf
Secretary
May 28, 1998
19
<PAGE>
SKU# 3640-PS-98
<PAGE>
DETACH HERE
PROXY
SECURITY CAPITAL INDUSTRIAL TRUST
THIS PROXY IS SOLICITED BY AND ON BEHALF OF
THE BOARD OF TRUSTEES
1998 ANNUAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints each of K. Dane Brooksher, Thomas G.
Wattles, Irving F. Lyons, III, and Jeffry A. Klopf, as proxies with full power
of substitution, to represent the undersigned at the annual meeting of
shareholders of Security Capital Industrial Trust to be held on June 30, 1998,
and at any and all adjournments or postponements thereof, and to vote at such
meeting the common shares of beneficial interest that the undersigned would be
entitled to vote if present at such meeting, in accordance with the instructions
indicated on the reverse side of this card; if no instructions are indicated,
the shares represented by this proxy will be voted for the election of the
listed nominees for Trustee, for the amendment to SCI's Amended and Restated
Declaration of Trust and, at the direction of the proxies named above, on any
other matter which may properly come before the meeting.
The undersigned acknowledges receipt of the Notice of Annual Meeting and
the Proxy Statement together with this Proxy.
You are encouraged to specify your choices by marking the appropriate
boxes -- SEE REVERSE SIDE, but you need not mark any boxes if you wish to vote
in accordance with the Board of Directors' recommendations. The proxies cannot
vote your shares unless you sign and return this card.
(Continued and to be signed and dated on the reverse side.)
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
Annual Meeting of Shareholders
ADMISSION TICKET
Tuesday, June 30, 1998
10:30 a.m. (Mountain time)
Security Capital Industrial Trust (SCI)
14100 East 35th Place
Aurora, Colorado 80011
Please present this ticket for admittance.
DETACH HERE
[X] Please mark votes as in this example.
1. The election of the following persons as Class II Trustees:
Stephen L. Feinberg and Donald P. Jacobs
FOR WITHHOLD
BOTH FROM BOTH
NOMINEES NOMINEES
[_] [_]
FOR BOTH Nominees except as noted below
[_]
------------------------------------
2. To approve an amendment to SCI's Amended and Restated Declaration of Trust to
(a) change SCI's name to ProLogis Trust and (b) increase SCI's authorized
capitalization from 180,000,000 to 230,000,000 shares of beneficial interest:
FOR AGAINST ABSTAIN
[_] [_] [_]
3. To vote upon any other matters that may properly be presented at the meeting
according to their best judgment and in their discretion.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [_]
[Insert Recordholder Information]
Please sign, date and return this proxy card promptly using the enclosed
postage-paid envelope whether or not you plan to attend the meeting.
Please sign exactly as name(s) appears to the left. If shares are held jointly,
each joint tenant should sign. If signing as attorney, executor, administrator,
trustee or guardian or as officer of a corporation or other entity, please give
full title and capacity in which you are signing.
Signature:_____________________ Date:___________
Signature:_____________________ Date:___________
