- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A-1
(Amendment No. 1)
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31, 1997
OR
[__] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the transition period from
_______________ to _______________
Commission File Number 1-12846
SECURITY CAPITAL INDUSTRIAL TRUST
(Exact Name of Registrant as Specified in Its Charter)
Maryland 74-2604728
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
14100 East 35th Place
Aurora, Colorado 80011
(Address of Principal Executive Offices and Zip Code)
(303) 375-9292
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
<S> <C>
Common Shares of Beneficial Interest, par value $.01 New York Stock Exchange
per share
Series A Cumulative Redeemable Preferred Shares of New York Stock Exchange
Beneficial Interest, par value $.01 per share
Series B Cumulative Convertible Redeemable Preferred New York Stock Exchange
Shares of Beneficial Interest, par value $.01 per share
Preferred Share Purchase Rights New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
<PAGE>
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [__]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [__]
Based on the closing price of the registrant's shares on March 12, 1998,
the aggregate market value of the voting shares held by non-affiliates of
the registrant was $1,657,026,451.
At March 12, 1998, there were outstanding approximately 117,388,358 common
shares of beneficial interest of the registrant.
<PAGE>
TABLE OF CONTENTS
Item Description Page
- ---- -----------
PART III*
Item 10. Directors and Executive Officers of the Registrant......... 1
Item 11. Executive Compensation..................................... 1
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................. 6
Item 13. Certain Relationships and Related Transactions............. 8
- -----------
* Note: the purpose of this Amendment No. 1 is to include the
information required by Items 10, 11, 12 and 13 of Security Capital
Industrial Trust's Form 10-K for the fiscal period ended
December 31, 1997.
i
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information regarding SCI's executive officers and Trustees,
see "Item 1. Business--Officers and Trustees of SCI."
Security Capital Group Incorporated ("Security Capital") has the right to
nominate up to three Trustees, depending upon its level of beneficial ownership
of common shares of beneficial interest of SCI, par value $0.01 per share
(the "Common Shares"). See "Item 13. 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. SCI's Amended and Restated Declaration of Trust, as amended
and supplemented, requires that a majority of the Trustees be independent
Trustees.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities 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.
ITEM 11. EXECUTIVE COMPENSATION
Trustee Compensation
Through December 31, 1997, SCI paid an annual retainer of $14,000
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 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. Booksher, Lyons and Wattles are not separately compensated
for serving as Trustees.
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
1
<PAGE>
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.
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 (the "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 "Item 13. Certain Relationships and
Transactions--Merger with SCI's REIT Manager and Property Manager").
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
----------------------------------------- --------------------------------------------------------
Shares of
Restricted Common Security Capital All
Other Annual Stock Shares Class A Common Other
Name and Compensation Awards Underlying Stock Underlying Compensation
Principal Position Year Salary($) Bonus($) ($) ($) Options(#) Options (#)(1) ($)
------------------ ---- --------- -------- --- --- ---------- -------------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
K. Dane Brooksher,
Co-Chairman......... 1997 250,000 350,000 -- (2) 202,650 469 --
1996 207,000 268,000 -- -- -- 658 --
Irving F. Lyons III
Co-Chairman......... 1997 250,000 275,000 -- (2) 202,650 892 --
1996 145,000 230,000 -- -- -- 571 --
Robert J. Watson
Managing 1997 200,000 215,000 -- (2) 122,531 219 --
Director............. 1996 162,000 125,000 -- -- -- 439 --
Jeffrey H. Schwartz
Managing 1997 227,462 160,546 -- (2) 122,531 208 --
Director............. 1996 150,000 140,000 -- -- -- 417 --
John W. Seiple
Managing 1997 200,000 200,000 -- (2) 103,681 208 --
Director............ 1996 135,000 165,000 -- -- -- 527 --
</TABLE>
- -------------
(1) These options to acqurie 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 Long-Term 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. Seiple,
47,128 Common Shares; and Mr. Watson, 56,553 Common Shares. All
of these purchases were at the price and upon the other terms,
conditions and restrictions described under "--Share Purchase
Program."
2
<PAGE>
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 of
Total 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
Robert J. Watson...... 122,531 3.97% 21.22 9/8/07 265,892 219 0.41% 1,600 12/04/07 136,151
Jeffrey H. Schwartz... 122,531 3.97% 21.22 9/8/07 265,892 208 0.39% 1,600 12/04/07 129,343
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.
Watson, 9,425 options; Mr. Schwartz, 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.
(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.
3
<PAGE>
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.
Common Shares
---------------------------------------------------
Securities Value of Unexercised
Underlying Unexercised in-the-Money Options at
Options at Year-End(#) Year-End($)
---------------------- -----------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
K. Dane Brooksher..... -- 202,650 -- 740,939
Irving F. Lyons III... -- 202,650 -- 740,939
Robert J. Watson...... -- 122,531 -- 448,004
Jeffrey H. Schwartz... -- 122,531 -- 448,004
John W. Seiple........ -- 103,681 -- 379,084
<TABLE>
<CAPTION>
Shares of Security Capital Class A Common Stock
------------------------------------------------------------------------------
Securities Value of Unexercised
Class A Underlying Unexercised in-the-Money Options at
Shares Options at Year-End(#) Year-End($)
Acquired on Value ---------------------- -----------
Name Exercise (#) Realized ($) 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 1,657,928 -- 1,484 -- 544,997
Robert J. Watson...... -- -- 1,471 1,627 1,583,987 1,079,030
Jeffrey H. Schwartz... -- -- 841 1,066 529,291 476,980
John W. Seiple........ -- -- -- 1,176 -- 525,382
</TABLE>
<PAGE>
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.
1997 Long-Term Incentive Plan
General
In 1997 SCI adopted the 1997 Long-Term Incentive Plan (the "1997
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.
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
4
<PAGE>
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 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 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
5
<PAGE>
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
"Item 13. Certain Relationships and Transactions--Loans to Executive
Officers."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding
ownership of Common Shares as of April 10, 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 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 or converted or exchanged. Fractional Common Shares have
been rounded to the nearest whole Common Share in the table below and elsewhere
in this document.
<TABLE>
<CAPTION>
Number of Percent
Common Shares of
Beneficially Common
Name and Address of Beneficial Owner Owned Shares
- ----------------------------------------------------- ------------------ ----------
<S> <C> <C>
Security Capital Group Incorporated.................. 49,903,814 (1) 41.1%
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Scudder Kemper Investments, Inc...................... 7,749,590 (2)
Two International Place 6.4%
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
6
<PAGE>
<CAPTION>
Number of Percent
Common Shares of
Beneficially Common
Name and Address of Beneficial Owner Owned 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>
- ------------
* Less than 1%
(1) These Common Shares are owned of record by SC Realty Incorporated,
a wholly owned subsidiary of Security Capital and are pledged to
secure Security Capital's $700 million revolving line of credit
facility with a syndicate of banks. As of April 22, 1998, there were
$351 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
April 22, 1998. Security Capital was in compliance with all
covenants under the line of credit at December 31, 1997.
(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 "Item 11. Executive
Compensation--Trustee Compensation."
7
<PAGE>
(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 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'
daughter. 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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED 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 SCI Client
Services Incorporated (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 Security Capital caused the
REIT Manager and the Property Manager to be merged into a newly formed
subsidiary of SCI (the "Merger"). 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 sharesholders 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 the 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. 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 Merger, to broaden Security Capital's sharesholder 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.
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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 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, including Security Capital Atlantic Incorporated and
Security Capital Pacific Trust, 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.
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
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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 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
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. Watson,
$1,139,984; Mr. Schwartz, $1,139,984; and Mr. Seiple, $949,997. Each
loan is fully 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.
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, a
Managing Director and director of the REIT Manager and Managing Director
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.
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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 and director of the REIT Manager and 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.
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
Capital REIT Property
Group Manager(1) Manager (1) 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.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934 and pursuant to the authorization granted
by that certain Power of Attorney filed by the registrant with its Form
10-K for the fiscal period ended December 31, 1997, the registrant has
duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SECURITY CAPITAL INDUSTRIAL TRUST
By: /s/ Jeffrey A. Klopf
Its: Secretary
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