<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
----------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 0-22455
SECURITY CAPITAL GROUP INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 36-3692698
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
125 LINCOLN AVENUE, SANTA FE, NEW 87501
MEXICO (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
(505) 982-9292
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicated 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 for the past 90 days. Yes X No
--- ---
The number of shares outstanding of the Registrant's common stock as of
November 11, 1997 was:
Class A Common Shares, $.01 par value--1,894,126 shares
Class B Common Shares, $.01 par value--22,569,710 shares
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER(S)
---------
<C> <S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets--September 30, 1997 and
December 31, 1996 ....................................... 1
Consolidated Statements of Operations--Three and nine
months ended September 30, 1997 and 1996................. 2
Consolidated Statement of Shareholders' Equity--Nine
months ended September 30, 1997.......................... 3
Consolidated Statements of Cash Flows--Nine months ended
September 30, 1997 and 1996.............................. 4
Notes to Consolidated Financial Statements................ 5-16
Report of Independent Public Accountants.................. 17
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 18-26
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................... 27
</TABLE>
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED) (AUDITED)
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
ASSETS
Investments, at equity:
Security Capital Industrial Trust............. $ 588,983 $ 548,194
Security Capital Pacific Trust................ 434,485 374,317
Security Capital U.S. Realty.................. 756,247 516,426
Strategic Hotel Capital Incorporated.......... 93,171 --
Security Capital Preferred Growth
Incorporated................................. 19,843 --
---------- ----------
1,892,729 1,438,937
---------- ----------
Real estate, less accumulated depreciation, held
by:
Security Capital Atlantic Incorporated........ 1,203,270 1,116,069
Homestead Village Incorporated................ 523,910 249,304
---------- ----------
1,727,180 1,365,373
---------- ----------
Investments in publicly traded real estate
securities, at market value.................... 130,211 10,247
---------- ----------
Total real estate investments............... 3,750,120 2,814,557
Cash and cash equivalents....................... 333,785 23,662
Other assets.................................... 152,036 91,065
---------- ----------
Total assets................................ $4,235,941 $2,929,284
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Lines of credit............................... $ 112,210 $ 262,000
Mortgage notes payable........................ 323,396 257,099
Convertible debt.............................. 1,038,862 940,197
Unsecured notes payable....................... 150,000 --
Accrued interest on convertible debt.......... 78,421 42,450
Accounts payable and accrued expenses......... 112,738 83,427
Deferred income taxes......................... 101,751 30,872
---------- ----------
Total liabilities........................... 1,917,378 1,616,045
---------- ----------
Minority interests.............................. 586,189 394,537
SHAREHOLDERS' EQUITY:
Class A common shares, $.01 par value;
20,000,000 shares authorized, 1,328,359 and
1,209,009 shares issued and outstanding in
1997 and 1996, respectively.................. 13 12
Class B common shares, $.01 par value;
229,861,000 shares authorized; 22,569,710
shares issued and outstanding................ 226 --
Series A Preferred shares, $.01 par value;
139,000 shares issued and outstanding in 1997
and 1996; stated liquidation preference of
$1,000 per share............................. 139,000 139,000
Additional paid-in capital.................... 1,748,543 985,392
Accumulated deficit........................... (155,408) (205,702)
---------- ----------
Total shareholders' equity.................. 1,732,374 918,702
---------- ----------
Total liabilities and shareholders' equity.. $4,235,941 $2,929,284
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ----------------------
1997 1996 1997 1996
----------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
INCOME:
Equity in earnings (loss) of:
Security Capital Industrial
Trust........................ $ (24,164) $ 6,219 $ (6,505) $ 17,663
Security Capital Pacific
Trust........................ (14,330) 16,478 10,996 32,293
Security Capital U.S. Realty.. 55,683 22,395 90,781 34,874
Strategic Hotel Capital
Incorporated................. (1,423) -- (1,423) --
Security Capital Preferred
Growth Incorporated.......... 4,843 -- 4,843 --
Rental revenues................. 58,865 35,959 164,186 99,644
Services Division revenues from
related parties................ 28,254 22,303 77,272 55,956
Change in unrealized
appreciation on investments.... 15,501 -- 18,749 --
Other income, net............... 4,081 2,101 8,872 4,613
----------- ---------- ---------- ----------
127,310 105,455 367,771 245,043
----------- ---------- ---------- ----------
EXPENSES:
Rental expenses................. 23,780 14,458 65,150 39,692
Services Division expenses...... 19,983 19,393 62,455 52,198
Depreciation and amortization... 11,358 6,406 30,084 17,537
Interest expense--convertible
debt........................... 28,271 24,029 82,894 69,029
Interest expense--other
obligations.................... 8,323 5,137 20,333 16,341
General, administrative and
other.......................... 16,257 8,252 52,057 22,648
----------- ---------- ---------- ----------
107,972 77,675 312,973 217,445
----------- ---------- ---------- ----------
Earnings from operations........ 19,338 27,780 54,798 27,598
Gain on sale of management
companies...................... 93,395 -- 93,395 --
----------- ---------- ---------- ----------
Earnings before income taxes and
minority interests............. 112,733 27,780 148,193 27,598
Provision for income taxes...... 54,656 10,272 70,879 13,074
Minority interests in net
earnings of subsidiaries....... 7,054 3,993 18,710 9,265
----------- ---------- ---------- ----------
Net earnings.................... 51,023 13,515 58,604 5,259
Less Preferred Share dividends.. 3,097 2,607 8,310 5,213
----------- ---------- ---------- ----------
Net earnings attributable to
common shares and common
equivalent shares.............. $ 47,926 $ 10,908 $ 50,294 $ 46
=========== ========== ========== ==========
EARNINGS PER SHARE:
Weighted average Class B shares
and Class B equivalent shares
outstanding.................... 72,400,217 58,215,100 69,368,575 55,487,450
=========== ========== ========== ==========
Primary earnings per Class B
share and Class B equivalent
share.......................... $ .66 $ .19 $ .73 $ .001
=========== ========== ========== ==========
Fully diluted weighted average
Class B shares outstanding..... 126,643,425
===========
Fully diluted earnings per Class
B share........................ $ .55
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------------- SERIES A
CLASS A CLASS B PREFERRED
------------------- -------------------- SHARES AT
SHARES SHARES AGGREGATE ADDITIONAL TOTAL
SHARES AT PAR SHARES AT PAR LIQUIDATION PAID-IN ACCUMULATED SHAREHOLDERS'
OUTSTANDING VALUE OUTSTANDING VALUE PREFERENCE CAPITAL DEFICIT EQUITY
----------- ------- ----------- -------- ----------- ---------- ----------- -------------
(IN THOUSANDS, EXCEPT SHARES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996
(Audited).................... 1,209,009 $12.090 -- $ -- $139,000 $ 985,392 $(205,702) $ 918,702
Issuance of Class A shares... 112,055 1.121 -- -- -- 103,260 -- 103,261
Issuance of Class B shares,
Initial Public Offering..... -- -- 22,569,710 225.697 -- 592,822 -- 593,048
Issuance of Class B Warrants. -- -- -- -- -- 61,428 -- 61,428
Interest Reinvestment Plans.. 3,741 0.037 -- -- -- 4,624 -- 4,624
Exercise of stock options.... 4,574 0.046 -- -- -- 1,920 -- 1,920
Repurchase of common shares.. (1,020) (0.010) -- -- -- (1,129) -- (1,129)
Income tax benefit from stock
options exercised........... -- -- -- -- -- 226 -- 226
Net earnings................. -- -- -- -- -- -- 58,604 58,604
Series A Preferred Share
dividends................... -- -- -- -- -- -- (8,310) (8,310)
--------- ------- ---------- -------- -------- ---------- --------- ----------
Balances at September 30, 1997
(Unaudited).................. 1,328,359 $13.284 22,569,710 $225.697 $139,000 $1,748,543 $(155,408) $1,732,374
========= ======= ========== ======== ======== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1997 1996
--------- --------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings............................................. $ 58,604 $ 5,259
Adjustments to reconcile net earnings to cash flows
provided by operating activities:
Provision for deferred income taxes.................... 70,879 13,074
Minority interests..................................... 18,710 9,265
Equity in earnings of unconsolidated investees......... (98,692) (84,830)
Distributions from unconsolidated investees............ 61,283 55,282
Change in unrealized appreciation on investments....... (18,749) --
Depreciation and amortization.......................... 30,084 17,537
Gain on sale of management companies................... (93,395) --
Other.................................................. 7,907 (175)
Increase in other assets................................. (23,617) (18,401)
Increase in accrued interest on convertible debt......... 40,595 34,888
Increase in accounts payable and accrued expenses........ 13,244 17,273
--------- --------
Net cash flows provided by operating activities...... 66,853 49,172
--------- --------
INVESTING ACTIVITIES:
Real estate properties................................... (407,615) (208,851)
Proceeds from disposition of real estate properties...... 49,792 24,224
Investment in shares of:
Security Capital Industrial Trust...................... -- (64,527)
Security Capital U.S. Realty........................... (149,040) (285,527)
Strategic Hotel Capital Incorporated................... (54,000) --
Security Capital Preferred Growth Incorporated......... (15,000) --
Purchases of publicly traded real estate securities,
net..................................................... (101,510) --
Purchase of Strategic Hotel Capital Incorporated
convertible debt........................................ (40,500) --
Purchases of Homestead Village Incorporated warrants..... (23,859) --
Purchase of Security Capital Atlantic Incorporated
minority interest....................................... -- (30,700)
Other.................................................... (21,091) (7,205)
--------- --------
Net cash flows used in investing activities.......... (762,823) (572,586)
--------- --------
FINANCING ACTIVITIES:
Proceeds from lines of credit............................ 684,401 580,500
Payments on lines of credit.............................. (834,191) (531,500)
Proceeds from unsecured note and mortgage notes payable.. 211,250 20,500
Principal payments on mortgage notes payable............. (1,145) (752)
Proceeds from issuance of convertible debt............... 98,729 123,510
Repurchase of convertible debt........................... (64) (7,412)
Proceeds from issuance of common shares, net of
expenses................................................ 691,629 118,970
Repurchase of common shares.............................. (1,129) (9,687)
Proceeds from issuance of preferred shares............... -- 139,000
Distributions paid to minority interest holders.......... (22,269) (12,714)
Proceeds from issuance of common shares to minority
interest holders........................................ 190,297 118,896
Preferred dividends paid................................. (7,819) (5,213)
Other.................................................... (3,596) (4,898)
--------- --------
Net cash flows provided by financing activities...... 1,006,093 529,200
--------- --------
Net increase in cash and cash equivalents................. 310,123 5,786
Cash and cash equivalents, beginning of period............ 23,662 13,709
--------- --------
Cash and cash equivalents, end of period.................. $ 333,785 $ 19,495
========= ========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Shares issued to acquire SCGPB Incorporated (see note
5)...................................................... $ (6,600) $ --
========= ========
Shares received from PTR in exchange for management
companies............................................... $ 75,838 $ --
========= ========
Shares received from SCI in exchange for management
companies............................................... $ 81,871 $ --
========= ========
Issuance of warrants to ATLANTIC shareholders............ $ 11,530 $ --
========= ========
Issuance of common stock under debenture interest
reinvestment plans...................................... $ 4,624 $ 2,263
========= ========
Assumption of existing mortgage notes payable in
conjunction with real estate acquired................... $ 5,521 $ 11,947
========= ========
Dividends accrued on ATLANTIC preferred shares........... $ 491 $ --
========= ========
Decrease in Homestead's deferred tax asset and deferred
tax liability........................................... $ (1,657) $ --
========= ========
Increase in property and equipment and development cost
payable................................................. $ 14,488 $ --
========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
(1) GENERAL
Security Capital Group Incorporated (Security Capital) is a real estate
research, investment and operating management company. Its strategy is to
create the optimal organization to lead and profit from global real estate
securitization. Security Capital has invested in various operating and other
entities (the Capital Division) (see note 3) and provides various management
and financial services through a Services Division (see note 2). The Capital
Division invests in real estate-related companies with the objective of
generating capital appreciation and growing dividends. The Services Division
provides strategic guidance, research, investment analysis, asset and fund
management, capital markets and legal and accounting services for the
companies in which Security Capital and its affiliates have invested. Security
Capital is a Maryland corporation.
The accompanying consolidated financial statements include the results of
Security Capital, its majority-owned Capital Division investees (Security
Capital Atlantic Incorporated, Homestead Village Incorporated, Security
Capital U.S. Real Estate Shares Incorporated and Security Capital EuroPacific
Real Estate Shares Incorporated) and its wholly-owned Services Division
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation. Minority interest is comprised of the minority
shareholders of Security Capital Atlantic Incorporated, Homestead Village
Incorporated, and Security Capital U.S. Real Estate Shares Incorporated.
Security Capital accounts for its 20% or greater (but not more than 50%) owned
investees by the equity method. For an investee accounted for under the equity
method, Security Capital's share of net earnings or losses of the investee is
reflected in income as earned and dividends are credited against the
investment as received.
The consolidated financial statements of Security Capital as of September
30, 1997 are unaudited and, pursuant to the rules of the Securities and
Exchange Commission (SEC), certain information and footnote disclosures
normally included in financial statements have been omitted. While management
of Security Capital believes that the disclosures presented are adequate,
these interim consolidated financial statements should be read in conjunction
with Security Capital's 1996 consolidated financial statements.
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of Security Capital's
consolidated financial statements for the interim periods presented. Certain
reclassifications have been made in the 1996 consolidated financial statements
and notes to consolidated financial statements for the interim periods
presented in order to conform to the 1997 presentation. The results of
operations for the three- and nine-month periods ended September 30, 1997 are
not necessarily indicative of the results to be expected for the entire year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(2) SERVICES DIVISION
REIT Managers and Property Managers
Prior to September 1997, certain Security Capital Services Division
subsidiaries, under the terms of separate agreements, managed the operations
(REIT Managers) of various Real Estate Investment Trusts (REITs) in which the
Capital Division is a principal owner, and other subsidiaries (Property
Managers) provided property management services to those REITs. Each REIT
Manager was paid a REIT management fee based on a
5
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
percentage of the REIT's pre-management fee cash flow, after deducting actual
and assumed regularly scheduled principal payments for long-term debt and
dividends paid on non-convertible preferred shares, as defined in the REIT
Management Agreements. The fee was generally 16% of cash flow, as so defined,
of the REIT. Property management fees were at market rates and were paid
separately to Security Capital's property management subsidiaries.
In late January 1997, Security Capital made a proposal to Security Capital
Industrial Trust (SCI), Security Capital Pacific Trust (PTR) and Security
Capital Atlantic Incorporated (ATLANTIC) to exchange their REIT and Property
Managers for additional shares of the respective REITs (the Mergers),
resulting in each of the REITs becoming internally managed. Following review
and approval by special committees, trustees, directors and shareholders of
the participating companies, the transactions closed on September 9, 1997.
SCI, PTR, and ATLANTIC issued $81,870,626 (3,692,024 shares), $75,838,457
(3,295,533 shares) and $51,754,136 (2,306,591 shares) of their common stock,
respectively, in exchange for the respective REIT management and property
management companies and operating systems. Security Capital recorded a gain
on the sale of the management companies to PTR and SCI totaling $143,293,000.
For financial reporting purposes, the gain was reduced by the value
($49,898,000) of the Warrants for Class B common stock issued to PTR and SCI
shareholders, as described below, resulting in a net gain of $93,395,000.
Since Security Capital consolidates ATLANTIC's accounts, no gain was
recognized on the sale to ATLANTIC and the value ($11,530,000) of the Class B
Warrants issued to ATLANTIC's shareholders is included in other assets in the
accompanying consolidated September 30, 1997 balance sheet.
As part of the transactions, Security Capital issued registered warrants to
acquire $250 million of Class B shares (8,928,572 warrants) to the common and
convertible preferred shareholders of SCI, PTR and ATLANTIC, and limited
partnership unit holders of SCI as of September 16, 1997. The exercise price
of a Warrant is $28 per Class B share, and the Warrants will expire on
September 18, 1998. The Warrants are listed on the New York Stock Exchange
(NYSE) under the symbol SCZ.WS.
Operating Advisor
Another Services Division subsidiary domiciled in Luxembourg (Operating
Advisor) advises on all investment and operational activities of Security
Capital U.S. Realty, a Luxembourg corporation (SC-USREALTY). The Operating
Advisor is paid an operating advisor fee of 1.25% of SC-USREALTY's average
monthly investments at fair value (other than liquid short-term investments
and investments in Security Capital). Another Services Division subsidiary is
being formed to serve as the operating advisor to Security Capital Global
Realty (SC-GLOBAL REALTY), a Luxembourg corporation which commenced its
initial offering in November 1997. SC-GLOBAL REALTY seeks to be the leading
publicly-traded European real estate company focused on making strategic
investments in non-U.S. real estate companies. The operating advisor to SC-
GLOBAL REALTY will be paid an operating advisor fee of 1.25% of SC-GLOBAL
REALTY'S average monthly investments at fair value.
(3) REAL ESTATE INVESTMENTS
Security Capital holds investments at September 30, 1997 through its wholly-
owned subsidiary, SC Realty Incorporated (SC Realty), as follows:
. Security Capital Industrial Trust (SCI), a publicly held REIT, acquires,
develops, operates and owns distribution facilities throughout the
United States and in Mexico and Europe. At September 30, 1997 and
December 31, 1996, Security Capital owned 43.0% and 46.0%, respectively,
of the issued and
6
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
outstanding common shares of beneficial interest of SCI. Security
Capital accounts for its investment in SCI by the equity method.
. Security Capital Pacific Trust (PTR), a publicly held REIT, owns,
develops, acquires and operates income-producing multifamily properties
in the western United States. At September 30, 1997 and December 31,
1996, Security Capital owned 33.2% and 36.3%, respectively, of the
issued and outstanding common shares of beneficial interest of PTR.
Security Capital accounts for its investment in PTR by the equity
method.
. Security Capital Atlantic Incorporated (ATLANTIC), a publicly held REIT,
owns, acquires, develops and operates income-producing multifamily
properties in the southeastern and near mid-western United States. At
September 30, 1997 and December 31, 1996, Security Capital owned 50.3%
and 56.9%, respectively, of the issued and outstanding common shares of
ATLANTIC. Security Capital consolidates ATLANTIC's accounts in the
accompanying consolidated financial statements.
. Security Capital U.S. Realty (SC-USREALTY) is a Luxembourg real estate
corporation formed with the sponsorship of Security Capital with the
objective of becoming one of Europe's preeminent publicly held real
estate entities. It principally owns real estate through strategic
positions in both public and private real estate operating companies in
the United States. During the nine months ended September 30, 1997,
Security Capital purchased additional common shares of SC-USREALTY at a
total cost of $149,040,000. At September 30, 1997 and December 31, 1996
Security Capital owned 31.3% and 39.4%, respectively, of the issued and
outstanding common shares of SC-USREALTY. Security Capital accounts for
its investment in SC-USREALTY by the equity method.
. Homestead Village Incorporated (Homestead), a publicly held corporation,
is a developer, owner and operator of moderate priced, extended stay
lodging properties throughout the United States. During the first nine
months of 1997, Security Capital exercised $56,133,000 of warrants and
purchased 2,810,607 Homestead warrants in the open market for
$23,859,000. Unexercised warrants of $2,989,000 (383,727 warrants) are
included in other assets in the accompanying September 30, 1997
consolidated balance sheet. Security Capital purchased additional
Homestead warrants in October 1997 totaling $2,823,000 and exercised all
of its Homestead warrants by the expiration date of October 29, 1997 for
a total exercise price of $7,583,000. At September 30, 1997 and December
31, 1996, Security Capital owned 68.1% and 59.1%, respectively, of the
issued and outstanding common shares of Homestead. Security Capital
consolidates Homestead's accounts in the accompanying consolidated
financial statements.
. Security Capital U.S. Real Estate Shares Incorporated (SC-US), formerly
known as Security Capital Employee REIT Fund Incorporated, is an
investment fund that invests in securities of publicly traded real
estate companies in the United States. During the nine months ended
September 30, 1997, Security Capital invested $90,073,000 in SC-US.
Security Capital's ownership of SC-US outstanding common shares as of
September 30, 1997 and December 31, 1996 was 98.4% and 100%,
respectively. Security Capital consolidates SC-US accounts in the
accompanying consolidated financial statements.
. Strategic Hotel Capital Incorporated (SHC), a privately held
corporation, was formed in May 1997 and is focused on becoming the
preeminent owner of upscale hotel properties on a global basis. Security
Capital has committed to invest $300,000,000 of capital in SHC. At
September 30, 1997, Security Capital had invested $94,500,000 consisting
of $54,000,000 in common shares, and $40,500,000 of 8.5% convertible
subordinated debentures. Security Capital owned 49.4% of SHCs
outstanding common shares as of September 30, 1997. Security Capital
accounts for its investment in SHC by the equity method.
7
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
. Security Capital Preferred Growth Incorporated (SC-PG), a private real
estate company formed in January 1997, makes intermediate-term
investments in undervalued real estate operating companies primarily
through convertible securities. Security Capital has committed to invest
$55,000,000 of capital in SC-PG. As of September 30, 1997 Security
Capital has invested $15,000,000 and owned 12.0% of SC-PG's outstanding
common shares. Security Capital accounts for its investment in SC-PG by
the equity method.
. Security Capital EuroPacific Real Estate Shares Incorporated (SC-EP) is
a newly formed investment fund that intends to invest in securities of
publicly-traded companies which are engaged in real estate activities in
Europe and the Asia Pacific region. Security Capital has committed to
invest up to $50,000,000 of capital in SC-EP. At September 30, 1997,
Security Capital had invested $11,000,000 and owned 100% of SC-EP's
outstanding common shares. Security Capital consolidates SC-EP's
accounts in the accompanying consolidated financial statements.
Security Capital received dividends from its investees for the nine months
ended September 30, 1997 and 1996 as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
SCI......................................................... $ 34,577 $29,809
PTR......................................................... 26,706 25,473
ATLANTIC.................................................... 25,209 25,572
SC-US....................................................... 3,575 --
-------- -------
$ 90,067 $80,854
======== =======
</TABLE>
The following summarizes real estate investments of Security Capital's
consolidated investees as of September 30, 1997 and December 31, 1996 (in
thousands):
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Multifamily properties (ATLANTIC):
Operating properties................................ $1,085,786 $ 952,770
Developments under construction..................... 159,784 194,587
Developments in planning............................ 12,939 7,795
Land held for future development.................... 4,248 2,083
---------- ----------
Subtotal.............................................. $1,262,757 $1,157,235
---------- ----------
Extended-stay lodging properties (Homestead):
Operating properties................................ $ 256,539 $ 129,035
Developments under construction..................... 214,714 108,691
Developments in planning............................ 57,276 12,256
Land held for future development.................... 1,452 1,448
Land held for sale.................................. 8,046 5,590
---------- ----------
Subtotal.............................................. 538,027 257,020
---------- ----------
Total real estate, at cost............................ 1,800,784 1,414,255
Less accumulated depreciation......................... 73,604 48,882
---------- ----------
Total real estate..................................... $1,727,180 $1,365,373
========== ==========
</TABLE>
8
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
Presented below is summary earnings information for SCI for the nine months
ended September 30, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Rental and other income.................................. $228,571 $166,527
-------- --------
Expenses:
Rental expenses, net of recoveries..................... 19,530 19,475
Depreciation and amortization.......................... 58,241 43,187
Interest............................................... 39,188 28,723
General and administrative, including REIT management
fee................................................... 22,563 18,026
Costs incurred in acquiring management companies from
Security Capital...................................... 75,376 --
-------- --------
214,898 109,411
-------- --------
Net earnings before minority interest.................... 13,673 57,116
Minority interest share in net earnings................ 2,763 2,499
-------- --------
Net earnings............................................. 10,910 54,617
Less Preferred Share dividends......................... 26,488 18,062
-------- --------
Net earnings (loss) attributable to common shares........ $(15,578) $ 36,555
======== ========
Security Capital share of net earnings (loss)............ $ (6,505) $ 17,663
======== ========
</TABLE>
Presented below is summary earnings information for PTR for the nine months
ended September 30, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Rental and other income.................................. $260,550 $240,821
-------- --------
Expenses:
Rental expenses........................................ 92,063 96,545
Depreciation........................................... 38,052 32,230
Interest............................................... 45,702 22,401
General and administrative, including REIT management
fee................................................... 16,542 18,416
Costs incurred in acquiring management companies from
Security Capital...................................... 71,707 --
-------- --------
264,066 169,592
-------- --------
Earnings (loss) from operations.......................... (3,516) 71,229
Gain on sale of investments............................ 47,930 33,340
-------- --------
Net earnings............................................. 44,414 104,569
Less Preferred Share dividends......................... 14,625 18,956
-------- --------
Net earnings attributable to common shares............... $ 29,789 $ 85,613
======== ========
Security Capital share of net earnings................... $ 10,996 $ 32,293
======== ========
</TABLE>
9
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
Presented below is summary earnings information for SC-USREALTY for the nine
months ended September 30, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Revenues:
Dividends................................................ $ 70,736 $16,270
Increase in unrealized gains............................. 213,395 76,276
Realized gains........................................... 22,416 892
Other income............................................. 2,491 2,243
-------- -------
309,038 95,681
-------- -------
Expenses:
Interest on line of credit............................... 10,188 1,074
General and administrative, including advisory fee....... 21,179 5,860
-------- -------
31,367 6,934
-------- -------
Net earnings............................................... $277,671 $88,747
======== =======
Security Capital share of net earnings..................... $ 90,781 $34,874
======== =======
</TABLE>
A condensed consolidating balance sheet of Security Capital as of September
30, 1997 follows (in thousands):
<TABLE>
<CAPTION>
SECURITY CAPITAL
SECURITY CAPITAL SECURITY CAPITAL HOMESTEAD U.S. AND EURO-
GROUP ATLANTIC VILLAGE PACIFIC REAL
INCORPORATED(A) INCORPORATED(B) INCORPORATED(B) ESTATE SHARES(B) CONSOLIDATED(C)
---------------- ---------------- --------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Investments, at equity.. $2,643,350 $ -- $ -- $ -- $1,892,729
Net real estate
investments............ -- 1,203,270 532,513 -- 1,727,180
Investments in publicly
traded real estate
securities, at market
value.................. -- -- -- 119,211 130,211
Cash and other assets... 380,297 158,213 97,811 5,641 485,821
---------- ---------- -------- -------- ----------
Total assets.......... $3,023,647 $1,361,483 $630,324 $124,852 $4,235,941
========== ========== ======== ======== ==========
Long-term debt.......... $1,038,862 $ 310,166 $259,981 $ -- $1,512,258
Line of credit.......... -- 84,802 27,408 -- 112,210
Other liabilities....... 244,490 42,751 51,066 3,242 292,910
---------- ---------- -------- -------- ----------
Total liabilities..... 1,283,352 437,719 338,455 3,242 1,917,378
Minority interests...... -- -- -- -- 586,189
Shareholders' equity.... 1,740,295 923,764 291,869 121,610 1,732,374
---------- ---------- -------- -------- ----------
Total Liabilities and
Shareholders' Equity. $3,023,647 $1,361,483 $630,324 $124,852 $4,235,941
========== ========== ======== ======== ==========
</TABLE>
- --------
(a) Includes ATLANTIC, Homestead, SC-US and SC-EP on the equity method.
(b) Reflects the carrying amount prior to elimination entries.
(c) Consolidated amounts include effect of elimination entries.
10
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
A condensed consolidating statement of operations for Security Capital for
the nine months ended September 30, 1997 follows (in thousands):
<TABLE>
<CAPTION>
SECURITY CAPITAL
SECURITY CAPITAL SECURITY CAPITAL HOMESTEAD U.S. AND EURO-
GROUP ATLANTIC VILLAGE PACIFIC REAL
INCORPORATED(A) INCORPORATED(B) INCORPORATED(B) ESTATE SHARES(B) CONSOLIDATED(C)
---------------- ---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Equity in earnings of
investees.............. $143,797 $ -- $ -- $ -- $98,692
Rental revenues......... -- 123,765 40,421 -- 164,186
Services Division
revenues from related
parties................ 91,696 -- -- -- 77,272
Other income............ 2,750 2,877 1,250 24,139 27,621
-------- -------- ------- ------- -------
238,243 126,642 41,671 24,139 367,771
-------- -------- ------- ------- -------
Rental expenses......... 3,778 47,851 17,369 -- 65,150
Services Division
expenses............... 62,455 -- -- -- 62,455
Depreciation and
amortization........... 3,860 19,453 7,831 -- 30,084
Interest expense........ 88,655 14,572 -- -- 103,227
General, administrative
and other.............. 40,883 9,785 10,988 565 52,057
-------- -------- ------- ------- -------
199,631 91,661 36,188 565 312,973
-------- -------- ------- ------- -------
Earnings from
operations............. 38,612 34,981 5,483 23,574 54,798
Gain on sale of
management companies... 93,395 -- -- -- 93,395
-------- -------- ------- ------- -------
Earning before income
taxes and minority
interests.............. 132,007 34,981 5,483 23,574 148,193
Provision for income
taxes................ 70,879 -- -- -- 70,879
Minority interests.... -- -- -- -- 18,710
-------- -------- ------- ------- -------
Net earnings............ 61,128 34,981 5,483 23,574 58,604
Less Preferred Share
dividends............ 7,819 491 -- -- 8,310
-------- -------- ------- ------- -------
Net earnings
attributable to common
shares and common
equivalent shares...... $ 53,309 $ 34,490 $ 5,483 $23,574 $50,294
======== ======== ======= ======= =======
</TABLE>
- --------
(a) Includes ATLANTIC, Homestead, SC-US and SC-EP on the equity method.
(b) Reflects the carrying amount prior to elimination entries.
(c) Consolidated amounts include effect of elimination entries.
(4) INDEBTEDNESS
Lines of Credit:
At September 30, 1997, Security Capital and its consolidated subsidiaries
(ATLANTIC and Homestead), had revolving bank lines of credit. Security Capital
has a $400,000,000 revolving line of credit with Wells Fargo Realty Advisors,
Incorporated (Wells Fargo) as agent for a group of lenders. The agreement is
effective through November 15, 1998 with an option to renew for successive one-
year periods, with the approval of Wells Fargo and the participating lenders.
Borrowings bear interest, at Security Capital's option, at either LIBOR plus
1.50%
11
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
or a base rate (defined as the higher of Wells Fargo prime rate or the Federal
Funds Rate plus .50%) with interest payable monthly in arrears. Commitment
fees range from 0.125% to 0.25% per annum based on the average unfunded line
of credit balance. Security Capital's line is secured by its holdings in SCI,
PTR, ATLANTIC, SC-USREALTY and Homestead.
The Security Capital line of credit is a primary obligation of SC Realty.
Security Capital guarantees the line. SC Realty is a legal entity which is
separate and distinct from Security Capital and its affiliates, and has
separate assets, liabilities, business functions and operations. There was no
outstanding balance on Security Capital's line of credit at September 30,
1997.
On December 18, 1996, ATLANTIC obtained a $350,000,000 unsecured line of
credit from Morgan Guaranty Trust Company of New York (Morgan Guaranty), as
agent for a group of lenders. Borrowings bear interest at prime, or at
ATLANTIC's option, LIBOR plus a margin (1.375% through July 2, 1997 and 1.125%
thereafter). ATLANTIC currently pays a commitment fee on the average unfunded
line of credit balance ranging from 0.125% to 0.25% per annum, depending on
the amount of undrawn commitments. The line of credit matures December 1998
and may be extended for one year with the approval of Morgan Guaranty and the
other participating lenders. The outstanding balance on ATLANTIC's line of
credit at September 30, 1997 was $66,502,000.
On June 30, 1997, ATLANTIC entered into a $25,000,000 short-term, unsecured
borrowing agreement with Texas Commerce Bank National Association. The loan
matures on June 30, 1998 and bears interest at an overnight rate. At September
30, 1997, the outstanding balance under this agreement was $18,300,000.
On May 6, 1997 Homestead entered into a secured revolving line of credit
facility with Commerzbank AG, New York Branch (Commerzbank), which provided
for borrowings of up to $50,000,000, which has been increased to $100,000,000,
subject to collateral requirements. Borrowings bear interest at the Eurodollar
rate plus 1.95% per annum. Additionally, there is a commitment fee of 0.325%
per annum on the average unfunded line of credit balance. The line of credit
matures May 1998 and may be extended with the approval of the lenders. At
September 30, 1997, borrowings under the line of credit totaled $27,408,000.
Each line requires maintenance of certain financial covenants. Security
Capital, SC Realty, ATLANTIC and Homestead were in compliance with all such
covenants at September 30, 1997.
Notes Payable:
On August 20, 1997, ATLANTIC completed an offering of $100 million of 7.25%
debt securities due 2009 (the 2009 Notes) and $50 million of 7.86% debt
securities due 2017 (the 2017 Notes and together with the 2009 Notes, the
Notes). The Notes are direct, senior unsecured obligations of ATLANTIC and
rank equally with all other unsecured and unsubordinated indebtedness of
ATLANTIC from time to time outstanding. The Notes bear interest at the rates
stated above, payable semiannually in arrears. Principal installments on the
Notes will be paid each year beginning in 2002 for the 2009 Notes and 2013 for
the 2017 Notes, so that the Notes will amortize beginning in such years. The
Notes are redeemable at any time at the option of ATLANTIC, in whole or in
part, at a redemption price equal to the principal amount of the Notes being
redeemed plus accrued interest thereon to the redemption date plus a make-
whole amount, if any. The Notes are governed by the terms and provisions of an
indenture. Net proceeds from the offering were approximately $148.8 million,
net of underwriters' commissions and other costs, and were used to repay
borrowings under ATLANTIC's $350 million unsecured line of credit.
12
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
Mortgage Notes Payable:
Mortgage notes payable, which are obligations of ATLANTIC and Homestead,
consisted of the following at September 30, 1997 and December 31, 1996 (in
thousands):
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Mortgage Type
Conventional fixed rate (a)........................... $ 39,328 $ 34,168
Tax exempt fixed and variable rate (a)................ 120,838 121,622
--------- --------
160,166 155,790
--------- --------
Convertible fixed rate (b)............................ 180,820 112,639
Less discount......................................... (17,590) (11,330)
--------- --------
163,230 101,309
--------- --------
$ 323,396 $257,099
========= ========
</TABLE>
- --------
(a) Real estate with an aggregate undepreciated cost at September 30, 1997 of
$59,538,000 and $205,189,000 serves as collateral for the conventional
mortgage notes payable and the tax exempt mortgages, respectively.
(b) In connection with the October 1996 Homestead spin-out transaction,
Homestead executed a funding commitment agreement with PTR which provides
borrowing capability in the amount of $199,000,000. Under this funding
agreement, Homestead may call for funding from PTR through March 31, 1998
for the development of the projects acquired from PTR in the transaction.
As a result of the fundings, PTR will receive convertible mortgage notes
in stated amounts of up to $221,000,000. The notes are collaterized by
Homestead properties. PTR's convertible mortgage notes are convertible
into Homestead common stock on the basis of one share of Homestead common
stock for every $11.50 of principal amount outstanding. None of the
mortgage notes were converted as of September 30, 1997.
Convertible Debt:
Security Capital's convertible subordinated debentures due June 30, 2014
(the 2014 Convertible Debentures) were called for redemption on September 29,
1997. The principal amount outstanding totaled $715,838,000 at September 30,
1997 and $713,677,000 at December 31, 1996. The 2014 Convertible Debentures
will be redeemed on December 1, 1997, at a redemption price of $1,000 per
$1,000 principal amount of 2014 Convertible Debentures plus accrued and unpaid
interest through December 1, 1997.
In lieu of redemption, 2014 Convertible Debenture holders may elect to
convert their debentures into shares of Security Capital Class A common stock
at the conversion price of $1,046 per share, beginning October 10, 1997, and
until the close of business November 28, 1997. On conversion of the 2014
Convertible Debentures, any accrued and unpaid deferred interest shall be
deemed to be paid in full upon delivery of the common shares to the debenture
holder. As of November 11, 1997 $591,791,832 principal amount of 2014
Convertible Debentures had been converted into 565,767 shares of Security
Capital Class A common stock.
In addition, the Board of Directors approved a payment of deferred interest
($37,535,418) to holders of 2014 Convertible Debentures of record as of
October 8, 1997. The payment was made October 9, 1997. The payment equals a
semi-annual payment of interest at a 10.535% annualized rate earlier approved
by the Board for 1997.
13
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
Security Capital's convertible subordinated debentures due March 29, 2016
(the 2016 Convertible Debentures) totaling $323,024,000 at September 30, 1997
and $226,520,000 at December 31, 1996 accrue interest at 6.5% per annum and
require semi-annual interest payments on the last business day of each June
and December.
The 2016 Convertible Debentures are convertible into Security Capital common
stock at $1,153.90 per share, at the option of the holder any time after the
earlier to occur of (i) one year after Security Capital's initial public
offering of Class B Shares (September 18, 1998) (ii) March 29, 2001 (iii) the
consolidation or merger of Security Capital with another entity (other than a
merger in which Security Capital is the surviving entity) or any sale or
disposition of substantially all the assets of Security Capital or (iv) notice
of redemption of the debentures by Security Capital. Security Capital may
redeem the 2016 Convertible Debentures at any time after March 29, 1999, upon
not less than 60 days nor more than 90 days prior written notice to the
holders. The redemption price is par plus any accrued and unpaid interest to
the redemption date.
Interest:
Security Capital capitalizes interest of its consolidated subsidiaries as
part of the cost of real estate projects under development. During the nine
months ended September 30, 1997 and 1996, the total interest paid on all
outstanding debt was $74,843,000 and $55,535,000, respectively, including
$22,026,000 and $7,587,000, respectively, which was capitalized. Costs
incurred in connection with the issuance or renewal of debt are capitalized,
included with other assets and amortized over the term of the related loan in
the case of issuance costs or twelve months in the case of renewal costs.
Amortization of deferred financing costs included in interest expense for the
nine months ended September 30, 1997 and 1996 was $2,651,000 and $2,080,000,
respectively.
(5) SHAREHOLDERS' EQUITY
On April 17, 1997 Security Capital shareholders approved an amended and
restated charter which created Class A and Class B Shares. All outstanding
common stock as of April 18, 1997 was automatically reclassified as Class A
Shares.
Included in general, administrative and other expenses, for the nine months
ended September 30, 1997, is a $6.6 million charge associated with an exchange
of Security Capital Class A shares for shares of a corporate entity (SCGPB
Incorporated) owned by Security Capital's chairman, whose sole assets were
warrants and options to purchase Security Capital shares. The above-described
charge represents the value applicable to the holder's ability to defer
exercising the warrants and options until 2002 in accordance with their terms.
Initial Public Offering:
On September 23, 1997, Security Capital completed an initial public offering
of 22,569,710 Class B Shares at an average price of $27.69 per share. The
proceeds from the sale of these shares, net of underwriters' commission and
other expenses, were approximately $593,048,000. The proceeds are being used
for the repayment of outstanding bank indebtedness, investment in new
businesses and for general corporate purposes. SC-USREALTY purchased 1,964,286
shares in the offering without payment of any underwriters' commission.
14
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
ATLANTIC Preferred Share Issuance:
On August 20, 1997 ATLANTIC completed an offering of 2,000,000 of its shares
of Series A Cumulative Redeemable Preferred Stock, par value $.01 per share
with a stated liquidation preference of $25.00 per share (the Series A
Preferred Shares). Holders of the Series A Preferred Shares are entitled to
receive cumulative preferential cash distributions at a rate of 8.625% per
annum. The Series A Preferred Shares will be redeemable on or after August 20,
2002 by ATLANTIC for cash at a redemption price to be determined, plus accrued
and unpaid distributions. Subject to certain exceptions, the holders of Series
A Preferred Shares will have no voting rights. The Series A Preferred Shares
will not be convertible into or exchangeable for any other property or
securities of ATLANTIC.
Per Share Data:
Per share data is computed based on weighted average shares outstanding
during the period. In the computation of net earnings per common share,
outstanding options and warrants are included as common stock equivalents
using the treasury stock method. The conversion of convertible debt and
preferred stock into common shares is not assumed, for the three and nine
months ended September 30, 1996 and the nine months ended September 30, 1997,
as the effect would be anti-dilutive.
In February 1997, the Financial Accounting Standards Board (FASB) released
Statement of Financial Accounting Standards No. 128, Earnings Per Share, (SFAS
No. 128). The new statement is effective December 31, 1997. At that time,
Security Capital will be required to change the method currently used to
compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect
of stock options and warrants will be excluded. The result would be an
increase in primary earnings per share of $.04 for both the three and nine
months ended September 30, 1997. The impact of SFAS No. 128 on the calculation
of Security Capital's earnings per share is immaterial for the three and nine
months ended September 30, 1996.
(6) INCOME TAXES
Security Capital accounts for income taxes under Statement of Financial
Accounting Standards No. 109, Accounting For Income Taxes (SFAS No. 109).
Security Capital files a consolidated federal income tax return. Homestead
also accounts for income taxes under SFAS No. 109 and its tax effects are
included in Security Capital's consolidated financial statements. Homestead
files a separate Federal income tax return. ATLANTIC has elected to be taxed
as a real estate investment trust under the Internal Revenue Code of 1986, as
amended. Accordingly, no provision has been made in Security Capital's
consolidated financial statements for federal income taxes for ATLANTIC's
operations. SC-US and SC-EP have complied with the provisions of the Internal
Revenue Code available to regulated investment companies and intend to
distribute investment company net taxable income and net capital gains to
shareholders. Therefore, no provision for federal income taxes has been made
in Security Capital's consolidated financial statements for SC-US or SC-EP.
Security Capital's effective tax rate for the nine months ended September
30, 1997 differs from the statutory rate primarily because of the value
($49,898,000) assigned to the nondeductible Class B Warrants which reduced the
gain on the sale of the management companies and the nondeductible, non-cash
charge ($6,600,000) as described in notes 2 and 5, respectively. The effective
tax rate for the three months ended September 30, 1997 is primarily affected
by the value assigned to the nondeductible Class B warrants.
15
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
Security Capital had tax net operating loss carryforwards of approximately
$44,000,000 (as adjusted for the Mergers) at December 31, 1996. If not
previously utilized, the loss carryforwards will expire beginning 2005 through
2010. Utilization of existing net operating loss carryforwards is limited by
Internal Revenue Code Section 382 (limitation on net operating loss
carryforwards following ownership change) and the Separate Return Limitation
Year (SRLY) rules.
Security Capital's deferred tax assets relate primarily to its net operating
loss carryforwards and such deferred tax assets are completely offset by a
valuation allowance. Deferred tax liabilities result from Security Capital's
investments in equity method operating companies.
(7) COMMITMENTS AND CONTINGENCIES
Security Capital and its investees are parties to various claims and routine
litigation arising in the ordinary course of business. Based on discussion
with legal counsel, Security Capital does not believe that the results of all
claims and litigation, individually or in the aggregate, will have a material
adverse effect on its business, financial position or results of operations.
Security Capital's investees are subject to environmental and health and
safety laws and regulations related to the ownership, operation, development
and acquisition of real estate. Under such laws and regulations, Security
Capital may be liable for, among other things, the costs of removal or
remediation of certain hazardous substances, including asbestos-related
liability. Such laws and regulations often impose liability without regard to
fault.
As part of their due diligence procedures, Security Capital's investees
conduct Phase I environmental assessments on each property prior to
acquisition. The cost of complying with environmental regulations was not
material to Security Capital's results of operations. Security Capital and its
investees are not aware of any environmental condition on any of their
properties which is likely to have a material adverse effect on its financial
condition or results of operations.
At September 30, 1997, Security Capital's consolidated subsidiaries had
approximately $317,000,000 of unfunded commitments for developments under
construction. ATLANTIC and Homestead's commitments were $118,000,000 and
$199,000,000 respectively.
(8) RECENT ACCOUNTING PRONOUNCEMENTS
In March 1997, the FASB released Statement of Financial Accounting Standards
No. 129, Disclosure of Information about Capital Structure. Security Capital
already complies with the requirements of the Statement which is effective for
periods ending after December 15, 1997.
The FASB also released Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income (SFAS No. 130), governing the reporting and
display of comprehensive income and its components, and Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information (SFAS No. 131), requiring that all public businesses
report financial and descriptive information about their reportable operating
segments. Both Statements are applicable to reporting periods beginning after
December 15, 1997. The impact of adopting SFAS No. 130 is not expected to
materially affect the consolidated financial statements or notes to
consolidated financial statements. Management is currently evaluating the
effect of SFAS No. 131 on consolidated financial statement disclosures.
16
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Security Capital Group Incorporated:
We have reviewed the accompanying consolidated balance sheet of Security
Capital Group Incorporated and subsidiaries (see note 1) as of September 30,
1997, and the related consolidated statements of operations for the three- and
nine-month periods ended September 30, 1997 and 1996, the statement of
shareholders' equity for the nine-month period ended September 30, 1997 and
the statements of cash flows for the nine-month periods ended September 30,
1997 and 1996. These financial statements are the responsibility of
Management. We were furnished with the reports of other accountants on their
reviews of the financial statements of Security Capital Pacific Trust,
Security Capital Atlantic Incorporated and Homestead Village Incorporated,
whose total assets represent 56.3% of the total assets of Security Capital
Group Incorporated and subsidiaries as of September 30, 1997 and whose income
represent 47.1% and 54.5% of the total income in the consolidated statements
of operations of Security Capital Group Incorporated and subsidiaries for the
nine-month periods ended September 30, 1997 and 1996, respectively.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review and the reports of other accountants, we are not aware
of any material modifications that should be made to the financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Security Capital Group
Incorporated and subsidiaries as of December 31, 1996, and, in our report
dated February 28, 1997, we expressed an unqualified opinion on that statement
based on our audit and reports of other auditors. In our opinion, the
information set forth in the accompanying consolidated balance sheet as of
December 31, 1996, is fairly stated, in all material respects, in relation to
the balance sheet from which it has been derived.
Arthur Andersen LLP
Chicago, Illinois
November 12, 1997
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with Security
Capital's consolidated financial statements and the notes thereto in Item 1 of
this report.
The statements contained in this discussion that are not historical facts
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
These forward-looking statements are based on current expectations,
managements beliefs, and assumptions made by management. Words such as
"expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates," variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements are not guarantees
of future performance and involve certain risks, uncertainties and assumptions
which are difficult to predict. Therefore, actual outcomes and results may
differ materially from what is expressed or forecasted in such forward-looking
statements. Security Capital undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise. Among the important factors that could cause Security
Capital's actual results to differ materially from those expressed in the
forward-looking statements are (i) changes in general economic conditions that
would affect the operating results of its Capital Division investees or the
revenues earned by its Services Division subsidiaries and (ii) changes in
financial markets and interest rates that could adversely affect Security
Capital's cost of capital and its ability to meet its financing needs and
obligations.
OVERVIEW
Security Capital is a real estate research, investment and operating
management company. Security Capital's strategy is to create the optimal
organization to lead and profit from global real estate securitization.
Security Capital has invested in various operating and other entities (the
Capital Division) and provides various management and financial services
through a Services Division. The Capital Division invests in real estate-
related companies with the objective of generating capital appreciation and
growing dividends. The Services Division provides strategic guidance,
research, investment analysis, asset and fund management, capital markets and
legal and accounting services for the companies in which Security Capital and
its affiliates have invested.
Security Capital obtains income from two sources: (1) its share of earnings
in ATLANTIC, PTR, SCI, SC-USREALTY, Homestead, SC-US, SC-PG, SC-EP and SHC,
some of which Security Capital accounts for by the equity method where it owns
less than a 50% controlling interest (PTR, SCI, SC-USREALTY, SC-PG and SHC)
and others of which are consolidated in Security Capital's consolidated
financial statements (ATLANTIC, Homestead, SC-US and SC-EP); and (2) financial
services revenues earned by the Real Estate Research Group, the Global Capital
Management Group and the Financial Services Group and, prior to the Mergers
(see note 2 to consolidated financial statements), the REIT management and
property management companies. Revenues from the Services Division are only
reflected in Security Capital's consolidated financial statements if they were
earned from investees accounted for by the equity method. Services Division
revenues earned from consolidated investees are eliminated in Security
Capital's consolidated financial statements.
Upon consummation of the Mergers, Security Capital exchanged its interests
in the applicable REIT management companies and property management companies
for common shares of ATLANTIC, PTR and SCI, respectively. Although the effects
of the Mergers on Security Capital's future consolidated results of operations
are complex, Security Capital expects reductions in Services Division revenues
relating to the exchange of the REIT management and property management
companies for PTR and SCI to be substantially offset by increases in Capital
Division revenues attributable to its ownership of additional common shares of
PTR and SCI.
SC-USREALTY, in accordance with generally accepted accounting principles,
accounts for its investments at market value or estimated fair value
(depending on whether the investment is publicly traded) and reflects changes
in such values in its statement of income pursuant to fair value accounting
principles. Security Capital accounts for its investment in SC-USREALTY using
the equity method and, as a consequence, Security Capital's results of
operations are affected by changes in the fair value of SC-USREALTY's
investments. SC-USREALTY
18
<PAGE>
values its investments in publicly traded companies at market determined by
using closing market prices as of the relevant balance sheet date. SC-USREALTY
values its investments in private companies at fair value, generally
determined at cost, or an appropriate lower value if the investment is not
performing as expected. If substantial additional capital is raised by an
investee from independent third parties in a private placement, SC-USREALTY
values its investment at the price at which that capital was raised when a
substantial percentage of the new subscriptions have been funded. In addition,
through an advisory relationship with SC-USREALTY, a Services Division
subsidiary also earns advisory fee revenues based on a percentage of the fair
value of SC-USREALTY's investments (not including short-term investments and
investments in Security Capital).
SC-US, in accordance with generally accepted accounting principles, accounts
for its investments at market value and reflects changes in such values in its
statement of income pursuant to fair value accounting principles. All of its
investments are in publicly traded real estate companies located in the United
States. Security Capital consolidates SC-US and, as a consequence, Security
Capital's results of operations are affected by changes in the fair value of
SC-US's investments.
SC-EP, in accordance with generally accepted accounting principles, accounts
for its investments at market value and reflects changes in such values in its
statement of income pursuant to fair value accounting principles. Security
Capital consolidates SC-EP and, as a consequence, Security Capital's results
of operations are affected by changes in the fair value of SC-EP's
investments.
SC-PG, in accordance with generally accepted accounting principles, accounts
for its investments at market value or estimated fair value (depending on
whether the investment is publicly traded). Security Capital accounts for its
investment in SC-PG using the equity method and, as a consequence, Security
Capital's results of operations are affected by changes in the fair value of
SC-PG's investments. SC-PG makes intermediate-term investments primarily in
the convertible securities of real estate operating companies. SC-PG values
its investments in publicly traded securities at market determined by using
closing market prices as of the relevant balance sheet date. SC-PG values its
investments in privately held securities by using closing market prices, as of
the relevant balance sheet date, of an identical class of publicly traded
securities if it exists. The fair value of other privately held securities is
determined by consistently applying policies and procedures which consider
many factors.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
CAPITAL DIVISION INVESTMENTS
Dividends Received
Security Capital's dividends received increased $9.2 million, or 11%, from
$80.9 million for the nine months ended September 30, 1996 to $90.1 million
for the nine months ended September 30, 1997. The increase results primarily
from (a) the purchase of additional shares in SCI and ATLANTIC, (b) dividends
from SC-US of approximately $3.6 million during the nine months ended
September 30, 1997 and (c) an increase in per share dividend rates.
Equity in Earnings of Less Than 50% Owned Investees
Security Capital's equity in SCI's earnings decreased 137% from $17.7
million to ($6.5) million for the nine months ended September 30, 1996 and
1997, respectively. This decrease was primarily attributable to a one-time
non-cash expense of approximately $75.4 million related to SCI's acquisition
of its REIT management and property management companies from Security Capital
(see note 2 to the consolidated financial statements). This was accounted for
as a one-time non-cash expense, rather than goodwill, since the REIT and
property management companies did not qualify as businesses for purposes of
applying APB Opinion No. 16 "Business Combinations". The impact of this one-
time expense was partially offset by a $7.4 million increase in Other
19
<PAGE>
Real Estate Income, $2.2 million of income from unconsolidated subsidiaries
acquired during 1997, a $6.5 million increase in gains on dispositions and an
increase in the amount of distribution space owned and leased by SCI. At
September 30, 1997 and 1996, Security Capital's ownership interest in the
outstanding common shares of beneficial interest of SCI was approximately
43.0% and 48.2%, respectively.
Security Capital's equity in PTR's earnings decreased 66% from $32.3 million
for the first nine months of 1996 to $11.0 million for the first nine months
of 1997. This decrease was primarily attributable to a one-time non-cash
expense of approximately $71.7 million related to PTR's acquisition of its
REIT management and property management companies from Security Capital (see
note 2 to the consolidated financial statements). This was accounted for as a
one-time non-cash expense, rather than goodwill, since the REIT and property
management companies did not qualify as businesses for purposes of applying
APB Opinion No. 16 "Business Combinations". There was also an increase in
interest expense ($23.3 million) primarily due to the issuance by PTR of Long-
Term Debt during the year-ended December 31, 1996 ($380 million) and in March
1997 ($50 million). The impact of these expenses was partially offset by an
increase ($14.6 million) in gains on sales of properties and interest income
on Homestead notes of $11.4 million. At September 30, 1997 and 1996, Security
Capital's ownership interest in the outstanding common shares of beneficial
interest of PTR was 33.2% and 37.6%, respectively.
Security Capital's share of SC-USREALTY's earnings increased from $34.9
million for the nine months ended September 30, 1996 to $90.8 million for the
nine months ended September 30, 1997. SC-USREALTY effectively commenced its
investment activities in October 1995, and at September 30, 1996, SC-USREALTY
had investments at cost of approximately $981 million with a fair market value
of approximately $1.1 billion. At September 30, 1997, SC-USREALTY had
investments at cost of $2.0 billion with a fair market value of $2.5 billion.
Unrealized appreciation on SC-USREALTY's investments increased by $213.4
million and $76.3 million for the nine months ended September 30, 1997 and
1996, respectively. In addition, SC-USREALTY recorded net investment income of
$64.3 million and $12.5 million for the nine months ended September 30, 1997
and 1996, respectively. At September 30, 1997 and 1996, Security Capital's
ownership interest in the outstanding common stock of SC-USREALTY was 31.3%
and 40.4%, respectively.
During the nine months ended September 30, 1997, Security Capital invested
$94.5 million in SHC, which was formed in May 1997. As of September 30, 1997,
SHC's portfolio consisted of eleven hotels. Nine of these hotels were
purchased on September 30, 1997. The total cost of the portfolio as of
September 30, 1997 was $768 million. At September 30, 1997 Security Capital's
ownership interest in the outstanding common stock of SHC was 49.4%.
During the nine months ended September 30, 1997, Security Capital invested
$15 million in SC-PG, which was formed in January 1997. At September 30, 1997,
SC-PG had investments and investment commitments at cost and fair value of
approximately $231.7 million and $271.9 million, respectively. At September
30, 1997 Security Capital's ownership interest in the outstanding common stock
of SC-PG was 12.0%.
Security Capital's initial investment (approximately $9.9 million) in SC-US
occurred in late December 1996. During the nine months ended September 30,
1997, Security Capital invested an additional $90.1 million in SC-US. At
September 30, 1997, SC-US had investments at cost and fair market value of
approximately $100.5 million and $119.2 million, respectively. Security
Capital owned 98.4% and 100% of the outstanding shares of SC-US at September
30, 1997 and December 31, 1996, respectively.
As of September 30, 1997 Security Capital had invested $11 million in SC-EP
and its ownership interest in the outstanding common stock of SC-EP was 100%.
RENTAL OPERATIONS--FROM GREATER THAN 50% OWNED CONSOLIDATED INVESTEES
Rental Revenues
Rental revenues increased $64.6 million, or 65%, from $99.6 million for the
nine months ended September 30, 1996 to $164.2 million for the same period in
1997. This increase was attributable to an increase in the
20
<PAGE>
number of multifamily units owned and operated by ATLANTIC (21,077 operating
units at September 30, 1997 compared to 17,535 operating units at September
30, 1996) and increased rental rates. This resulted in a $24.2 million
increase in rental revenues between the nine-month periods. Also accounting
for part of the increase in rental revenues is the consolidation of Homestead
after the spin-out transactions completed on October 17, 1996 by Security
Capital, ATLANTIC and PTR of their extended-stay lodging assets. Homestead
generated $40.4 million in rental revenues for the nine month period ended
September 30, 1997.
Rental Expenses
Rental expenses increased by $25.5 million, or 64%, to $65.2 million for the
nine months ended September 30, 1997 from $39.7 million for the same period in
1996. The increase is attributable to the increase in the number of ATLANTIC's
operating multifamily communities and the consolidation of Homestead as
discussed above under "Rental Revenues". ATLANTIC's rental expenses increased
$8.1 million (excluding REIT and property management fees) in the first nine
months of 1997 compared to the corresponding period of 1996. Homestead's
rental expenses were $17.4 million for the nine months ended September 30,
1997.
Other Income, net
The $4.3 million increase in Other Income primarily results from (a) the
inclusion of SC-US's dividend income (approximately $4.1 million) and realized
gains on sale of investments (approximately $1.2 million) for the nine months
ended September 30, 1997; (b) Homestead's other income of $1.3 million;
partially offset by (c) a $2.0 million reduction in gain on disposal of real
estate by ATLANTIC.
SERVICES DIVISION
Revenues
Services Division revenues increased by 38% from $56.0 million for the nine
months ended September 30, 1996 to $77.3 million for the same period in 1997.
The increase of $21.3 million in Services Division revenues in 1997 as
compared to 1996 was primarily attributable to growth in operations at SC-
USREALTY and SCI. In particular, operating advisory revenues earned from SC-
USREALTY increased $13.1 million and financial services revenues earned from
SCI increased $6.7 million. Additionally, fees earned by Security Capital
Markets Group Incorporated increased by $5.5 million and capital management,
research and administrative services fees, respectively, earned by Global
Capital Management Group and SC Group Incorporated increased by $1.3 million
during the nine months ended September 30, 1997 compared to the same period in
1996, offset by a $5.3 million decrease in fees earned by the PTR REIT and
property management companies as a result of the spin-out of Homestead assets
by PTR in October, 1996.
Effective September 9, 1997, the Services Division no longer receives REIT
management and property management revenues, and no longer incurs associated
operating expenses, as a result of the Mergers described in note 2 to the
consolidated financial statements. Growth in Services Division revenues is
expected to come primarily from growth in management and advisory revenues
earned by the Global Capital Management Group and, to a lesser extent, fees
earned by the Security Capital Markets Group, research and administrative
services groups. The Global Capital Management Group manages and advises with
respect to strategic investments and intermediate-term investments on behalf
of its customers, SC-USREALTY, SC-PG, SC-US and SC-EP, as well as new clients.
Such assets under management increased from $1.4 billion at December 31, 1996
to $2.9 billion at September 30, 1997. In November 1997, SC-GLOBAL REALTY was
formed and commenced its initial offering. It seeks to be the leading
publicly-traded European real estate company focused on making strategic
investments in non-US real estate companies.
Expenses
Services Division expenses increased by $10.3 million, or 20%, for the nine
months ended September 30, 1997, to $62.5 million from $52.2 million for the
same period in 1996. This increase resulted from the expansion
21
<PAGE>
of the Services Division, including the hiring of additional professionals
primarily for the REIT and property management companies and the Global
Capital Management Group. Services Division expenses amounting to $52.0
million represent expenses incurred by the REIT and property managers through
September 9, 1997 (date of sale to the REITs) which will not be incurred in
future periods.
DEPRECIATION AND AMORTIZATION
Total depreciation and amortization for Security Capital was $30.1 million
and $17.5 million for the nine months ended September 30, 1997 and 1996,
respectively. Of those amounts, $26.2 million and $15.0 million represented
depreciation and amortization from rental operations for those same periods in
1997 and 1996, respectively. Depreciation for ATLANTIC increased $4.5 million
to $19.5 million for the first nine months of 1997 from $15.0 million for the
first nine months of 1996, an increase of 30%, due to the increase in the
number of operating multifamily communities between those periods.
Depreciation for Homestead was $6.7 million for the nine months ended
September 30, 1997. The remaining depreciation and amortization of $3.9
million and $2.5 million in 1997 and 1996, respectively, is attributable to
the Services Division, representing an increase of $1.4 million over such
depreciation and amortization for the first nine months of 1996. This increase
is primarily a result of depreciation and amortization on additional computer
hardware and software and office leasehold improvements.
INTEREST EXPENSE
Interest expense on the Convertible Debentures increased $13.9 million or
20% to $82.9 million for the first nine months of 1997 compared to $69.0
million for the same period in 1996. The increase is primarily attributable to
receipt of the subscriptions for 2016 Convertible Debentures from a private
placement offering completed in March 1996, which totaled $323 million.
Interest expense on other obligations increased by $4.0 million from the
first nine months of 1996 to the same period in 1997, largely due to
ATLANTIC's increased weighted average mortgage debt outstanding during the
first nine months of 1997, ATLANTIC's issuance of senior notes payable in
August 1997 ($1.3 million of interest expense related to senior notes) and
Security Capital's increased weighted average line of credit balance ($79.5
million and $63.5 million for the nine months ended September 30, 1997 and
1996, respectively).
GENERAL, ADMINISTRATIVE AND OTHER
General, administrative and other expenses increased by $29.5 million, or
131%, for the nine months ended September 30, 1997, to $52.1 million from
$22.6 million for the same period in 1996. This increase resulted primarily
from (a) additional personnel and related costs and professional fees
applicable to researching new business opportunities, enhancing information
systems designed for global operations, and to a lesser extent, additional
personnel for human resources and other administrative support functions
($12.3 million), (b) a non-cash, non-recurring charge to earnings of $6.6
million in the second quarter of 1997 in connection with the transaction
discussed in note 5 to the consolidated financial statements, (c)
consolidation of Homestead's and SC-US's accounts in 1997 ($9.8 million and
$0.2 million, respectively), and (d) an increase in ATLANTIC's administrative
expenses ($0.6 million).
PROVISION FOR INCOME TAXES
The provision for income taxes increased by $57.8 million for the nine
months ended September 30, 1997 as compared to the same period in 1996. This
increase is primarily attributable to deferred income taxes on the equity in
earnings of Security Capital's unconsolidated investees and the gain on sale
of the management companies to PTR and SCI.
Prior to the second quarter of 1996, Security Capital did not record a
provision for income taxes as it had deferred tax assets that were completely
offset by a valuation allowance. Beginning in the second quarter of
22
<PAGE>
1996, a deferred tax liability was recorded primarily because of Security
Capital's equity in the earnings of SC-USREALTY. The effective rate for the
nine months ended September 30, 1997 is affected by the $6.6 million
nondeductible, non-cash charge described in note 5 to the consolidated
financial statements and the value ($49.9 million) assigned to the
nondeductible Class B warrants issued to the PTR and SCI shareholders as
described in note 2 to the consolidated financial statements. The effective
rate for the three months ended September 30, 1997 is primarily affected by
the value assigned to the nondeductible Class B warrants.
MINORITY INTERESTS
Minority interests increased from $9.3 million for the nine months ended
September 30, 1996 to $18.7 million for the nine months ended September 30,
1997 primarily due to increased earnings of ATLANTIC, coupled with an increase
in minority ownership interests in ATLANTIC in conjunction with its public
offerings in October 1996 and May 1997 and the spin-out of Homestead which
also occurred in October 1996.
PREFERRED SHARE DIVIDENDS
On April 1, 1996, Security Capital issued 139,000 Series A Preferred Shares
to a single investor. The Series A Preferred Shares carry a 7.5% preferential
cash dividend rate, payable when and if authorized by the Board of Directors
quarterly in arrears. Security Capital paid $7.8 million and $5.2 million in
dividends on the Series A Preferred Shares for the nine months ended September
30, 1997 and 1996, respectively.
On August 20, 1997, ATLANTIC issued 2,000,000 Series A Cumulative Redeemable
Preferred Shares. The Series A Cumulative Redeemable Preferred Shares carry a
8.625% cumulative preferential cash dividend rate per annum. ATLANTIC accrued
$0.5 million in dividends on the Series A Cumulative Redeemable Preferred
Shares as of September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
Security Capital's investment activities consist primarily of the investment
in the common shares of its Capital Division investees and capital
expenditures relating to expansion of its Services Division business. The
investment activities of Security Capital's operating companies consist
primarily of the acquisition and development of real estate. In addition, SC-
US and SC-EP invest in the securities of publicly traded real estate companies
and SC-PG makes intermediate-term investments primarily in the convertible
securities of publicly-traded real estate operating companies. Security
Capital has historically financed its investment activities primarily through
the sale of stock and debentures in private placements and borrowings under
its line of credit.
On September 23, 1997 Security Capital completed an initial public offering
of Class B shares (net proceeds of approximately $593 million). The proceeds
of the offering are being used for the repayment of outstanding borrowings
under the line of credit, investment in new businesses and general corporate
purposes.
Based on Security Capital's current level of operations and anticipated
growth as a result of pending new business initiatives, Security Capital
expects that cash flows from operations (including dividends and fees received
from its operating companies), proceeds from the initial public offering of
its Class B Shares and funds currently available under its $400 million
revolving line of credit will be sufficient to enable Security Capital to
satisfy its anticipated cash requirements for operating and investing
activities for existing businesses for the next twelve months. Security
Capital intends to finance its long-term business activities (including
investments in new business initiatives) through the proceeds from the
Offering of its Class B Shares, borrowings under an expanded line of credit
and the exercise of the Warrants issued as described below. In addition,
Security Capital anticipates that its operating companies will separately
finance their activities through cash flow from operations, sales of equity
and debt securities and the incurrence of mortgage debt or line of credit
borrowings.
Security Capital distributed Warrants to purchase $250 million of Class B
Shares to the shareholders of SCI, PTR and ATLANTIC pursuant to the Mergers.
The exercise price of a Warrant is $28 per Class B Share
23
<PAGE>
(compared to a market price of $32.00 per share as of November 11, 1997),
although no assurance can be given that Warrants will be exercised. The
Warrants will expire on September 18, 1998.
Security Capital's consolidated investees have undertaken the following
recent financing activities:
. In May 1997, ATLANTIC completed an $83 million (net proceeds) equity
offering to finance development and acquisition plans for 1997. In
connection with the Merger, ATLANTIC completed a fully subscribed rights
offering (net proceeds of $56.9 million). In addition, ATLANTIC has
completed public offerings of $50 million of preferred stock and $150
million of unsecured senior debt securities. Proceeds from these
offerings and borrowings under its $350 million line of credit are
expected to provide the capital for ATLANTIC's financing needs.
. Homestead plans a development program for its extended-stay lodging
properties which will be financed primarily through its funding
commitment agreements with PTR and ATLANTIC, which agreements will
provide up to $199 million and $111 million, respectively, in financing,
as well as through outstanding warrants to purchase Homestead common
stock outstanding as of September 30, 1997 (between October 1 and
October 29, the expiration date of the warrants, Security Capital
exercised $7.6 million in Homestead warrants). In May 1997, Homestead
obtained a $50 million (since increased to $100 million) revolving line
of credit. Also, on October 14, 1997 Homestead filed a shelf
registration statement with the Securities and Exchange Commission,
which has not yet been declared effective, for the sale of up to $300
million of common stock to meet its financing needs.
NINE MONTHS ENDED SEPTEMBER 30, 1997 INVESTING AND FINANCING ACTIVITIES
Security Capital recorded investments of $763 million for the nine months
ended September 30, 1997 consisting primarily of (i) $152 million invested by
ATLANTIC for the development and acquisition of multifamily communities; (ii)
$255 million invested by Homestead for the development of extended-stay
lodging properties; (iii) $149 million invested by Security Capital for common
shares of SC-USREALTY; (iv) $91 million invested by SC-US in publicly traded
real estate securities; and (v) $94 million, $15 million and $11 million
invested by Security Capital in the common shares and convertible debt of SHC
and the common shares of SC-PG and SC-EP, respectively.
Security Capital obtained financing of $1.0 billion during the nine months
ended September 30, 1997 primarily from (i) proceeds from the sale of common
stock of $690 million net of expenses and repurchases (including $593 million
in net proceeds from Security Capital's initial public offering) and
convertible debentures of $99 million; (ii) ATLANTIC's net proceeds from sale
of common shares to its minority interest owners ($190 million) and its net
proceeds from issuance of preferred shares ($48 million); (iii) Homestead's
issuance of convertible mortgage notes to PTR for $61 million; (iv) ATLANTIC's
issuance of unsecured senior debt securities for $150 million; offset by (v) a
net use of cash to repay line of credit borrowings of $150 million and (vi)
other financing transactions resulting in an aggregate use of cash of $35
million.
LINE OF CREDIT
Security Capital
SC Realty, a wholly owned subsidiary of Security Capital, has a $400 million
secured revolving line of credit with Wells Fargo. The line of credit matures
in November 1998 and may be extended for one year periods with the approval of
Wells Fargo and the other participating lenders. Borrowings on the line of
credit bear interest, at SC Realty's option, at either (i) LIBOR plus a margin
of 1.50%, or (ii) the higher of the federal funds rate plus a margin of .50%
or Wells Fargo's prime rate, with interest payable monthly in arrears. SC
Realty pays a commitment fee ranging from .125% to .25% per annum based on the
average unfunded line of credit balance. The line of credit is guaranteed by
Security Capital and is secured by shares of PTR, SCI, ATLANTIC, SC-USREALTY
and Homestead.
24
<PAGE>
The line of credit contains a restricted payments covenant which prohibits
dividends and distributions on SC Realty's capital stock in excess of 100% of
SC Realty's cash flow available for distribution (as defined). Security
Capital's guaranty of the line of credit also contains various financial and
other covenants applicable to Security Capital, including a minimum
shareholders' equity test, a total liabilities to net worth ratio and an
interest coverage ratio, as well as restrictions on Security Capital's ability
to incur indebtedness and effect consolidations, mergers (other than a
consolidation or merger in which Security Capital is the surviving entity) and
sales of assets. The guaranty also contains a restricted payments covenant
which prohibits dividends and distributions on Security Capital's capital
stock in excess of 95% of Security Capital's cash flow available for
distribution (as defined). As of September 30, 1997, there was no outstanding
balance on this line of credit and Security Capital and SC Realty were in
compliance with all financial covenants.
Homestead and ATLANTIC have lines of credit as described in note 4 to the
consolidated financial statements.
Mortgage Notes Payable
Mortgage notes payable totaled $323 million at September 30, 1997 and
consisted of the following: (i) conventional fixed rate mortgage obligations
of ATLANTIC in the amount of $39 million; (ii) tax exempt mortgage obligations
of ATLANTIC of $121 million; and (iii) convertible mortgage obligations of
Homestead of $163 million. Mortgage note obligations of ATLANTIC and Homestead
are not guaranteed by Security Capital.
The Homestead convertible mortgage notes are convertible, at the option of
PTR, into shares of Homestead common stock. The conversion price is equal to
one share of Homestead common stock for every $11.50 of principal amount
outstanding.
Unsecured Notes Payable
Notes payable totaled $150 million at September 30, 1997 and consisted of
the following: (i) ATLANTIC's 7.25% debt securities due 2009 in the amount of
$100 million and (ii) ATLANTIC's 7.86% debt securities due 2017 in the amount
of $50 million.
CONVERTIBLE DEBENTURES
2014 Convertible Debentures
At September 30, 1997, Security Capital had approximately $715.8 million
principal amount of 2014 Convertible Debentures outstanding. The 2014
Convertible Debentures will be redeemed on December 1, 1997, at a redemption
price of $1,000 per $1,000 principal amount of 2014 Convertible Debentures
plus accrued and unpaid interest through December 1, 1997. In lieu of
redemption, 2014 Convertible Debenture holders may elect to convert 2014
Convertible Debentures into Security Capital Class A common stock at the
conversion price of $1,046 per share, beginning October 10, 1997, and until
the close of business November 28, 1997. On conversion of the 2014 Convertible
Debentures, any accrued and unpaid deferred interest shall be deemed to be
paid in full upon delivery of the common shares to the debenture holder. As of
November 11, $591.8 million principal amount of debentures had been converted.
2016 Convertible Debentures
At September 30, 1997, Security Capital had approximately $323.0 million
principal amount of 2016 Convertible Debentures outstanding. The 2016
Convertible Debentures accrue interest at an annual rate of 6.5% and require
semi-annual cash interest payments. The principal amount of the 2016
Convertible Debentures are convertible into Class A Shares at $1,153.90 per
share at the option of the holder at any time after the earlier to occur of
(i) the first anniversary of Security Capital's initial public offering
(September 18, 1998), (ii) March 29,
25
<PAGE>
2001, (iii) the consolidation or merger of Security Capital with another
entity (other than a merger in which Security Capital is the surviving entity)
or any sale or disposition of substantially all the assets of Security Capital
or (iv) a recommendation by the Board of any tender offer or exchange offer
for 50% or more of Security Capital's outstanding common stock (provided that
the 2016 Convertible Debentures have then become convertible pursuant to their
terms) or (v) notice of redemption of the 2016 Convertible Debentures by
Security Capital. Security Capital may redeem the 2016 Convertible Debentures
at any time after March 29, 1999, in whole or in part, at par plus accrued and
unpaid interest to the date of redemption.
26
<PAGE>
PART II--OTHER INFORMATION
ITEM 76. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<C> <S> <C>
2.1 ATLANTIC Merger Agreement and Plan of Merger
2.2 PTR Merger Agreement and Plan of Merger
2.3 SCI Merger Agreement and Plan of Merger
4.1 Rights Agreement between Security Capital and The First
National Bank of Boston, as Rights Agent, including form
of Rights Certificate
4.2 Warrant Agreement by and between Security Capital and The
First National Bank of Boston, as warrant agent, including
form of warrant certificate
10.1 Amended and Restated Investor Agreement between ATLANTIC
and Security Capital
10.2 Third Amended and Restated Investor Agreement between PTR
and Security Capital
10.3 Third Amended and Restated Investor Agreement between SCI
and Security Capital
10.4 Administrative Services Agreement between ATLANTIC and Se-
curity Capital
10.5 Administrative Services Agreement between PTR and Security
Capital
10.6 Administrative Services Agreement between SCI and Security
Capital
11 Fully Diluted Earnings Per Common Share and Common Equiva-
lent Share
27 Financial Data Schedule
</TABLE>
(b) REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
FINANCIAL
DATE FILED ITEM REPORTED STATEMENTS
---------- ------------- ----------
<C> <S> <C>
October 1, 1997 On September 29, 1997, Security Capital called No
for redemption of all its 12% Convertible
Subordinated Debentures due 2014.
</TABLE>
27
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
Security Capital Group Incorporated
/s/ Paul E. Szurek
-------------------------------------
Paul E. Szurek,
Chief Financial Officer
(Principal Financial Officer)
/s/ Jayson C. Cyr
-------------------------------------
Jayson C. Cyr,
Vice President and Controller
(Principal Accounting Officer)
Date: November 13, 1997
28
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
OF
SECURITY CAPITAL (ATLANTIC) INCORPORATED
(a Nevada corporation)
AND
SCG REALTY SERVICES ATLANTIC INCORPORATED
(a Delaware corporation)
WITH AND INTO
SECURITY CAPITAL ATLANTIC MANAGEMENT INCORPORATED
(a Delaware corporation)
DATED AS OF SEPTEMBER 9, 1997
THIS AGREEMENT AND PLAN OF MERGER is made by and between Security Capital
(Atlantic) Incorporated, a Nevada corporation ("SCAI"), SCG Realty Services
Atlantic Incorporated, a Delaware corporation ("SCGR", and together with SCAI
the "Merging Corporations"), and Security Capital Atlantic Management
Incorporated, a Delaware corporation (the "Surviving Corporation").
WHEREAS, each of the Merging Corporations and the Surviving Corporation
desires that the Merging Corporations be merged pursuant to Sections 251 and 252
of the Delaware General Corporation Law ("DGCL") and Section 92A.100 of the
Nevada Business Corporation Act (the "Nevada Act") with and into the Surviving
Corporation, which shall be the surviving corporation and which shall continue
its existence under the name "SCG Realty Services Atlantic Incorporated" (the
"Mergers"); and
WHEREAS, the shareholders of each of the Merging Corporations and the
Surviving Corporation have approved the entering into and the execution of this
Agreement and Plan of Merger.
NOW THEREFORE:
1. Effective Time. As used in this Agreement and Plan of Merger, the term
"Effective Time" shall mean the date and time of the later to occur of (i) the
filing with the
<PAGE>
office of the Secretary of State of the State of Delaware of the certificate of
merger with respect to the Mergers (a form of which is attached hereto as
Exhibit A) and (ii) the filing with the office of the Secretary of State of the
State of Nevada of the articles of merger with respect to the Mergers (a form of
which is attached hereto as Exhibit B).
2. The Parties to the Mergers. The name, address and place of
organization and governing law of each of the Merging Corporations and the
Surviving Corporation are as follows:
<TABLE>
<CAPTION>
NAME ORGANIZATION ADDRESS
---- ------------ -------
<S> <C> <C>
SCG Realty Services Atlantic Six Piedmont Center
Incorporated Delaware Atlanta, Georgia 30305
Security Capital (Atlantic) Six Piedmont Center
Incorporated Nevada Atlanta, Georgia 30305
Security Capital Atlantic Six Piedmont Center
Management Incorporated Delaware Atlanta, Georgia 30305
</TABLE>
3. The Mergers. At the Effective Time, each of the Merging Corporations
shall be merged with and into the Surviving Corporation, which shall continue to
be governed by the laws of the State of Delaware and which shall continue its
existence under the name "SCG Realty Services Atlantic Incorporated," and the
separate legal existence of each of the Merging Corporations shall thereupon
cease.
4. Certificate of Incorporation and Bylaws. At the Effective Time,
Article 1 of the certificate of incorporation of the Surviving Corporation, as
in full force and effect immediately prior to the Effective Time (the
"Charter"), shall be amended to read in its entirety as follows and such
Charter, as so amended, shall become the Charter of the Surviving Corporation:
"1. The name of the Corporation is SCG Realty Services Atlantic
Incorporated."
The Bylaws of the Surviving Corporation, as in full force and effect
immediately prior to the Effective Time (the "Bylaws"), shall continue to be the
bylaws of the Surviving Corporation and thereafter may be amended as provided in
the Charter or Bylaws or by law. This Agreement and Plan of Merger shall effect
no other amendments or changes whatsoever to the Charter and the Bylaws.
5. Terms and Conditions of the Mergers. At the Effective Time, the
issued shares of common stock of SCAI shall automatically and without further
action by any of the parties hereto be converted into 2,030,474 common shares of
beneficial interest, par value
2
<PAGE>
$.01 per share ("ATLANTIC Common Shares"), of Security Capital Atlantic
Incorporated, a Maryland corporation. At the Effective Time, the issued shares
of common stock of SCGR shall automatically and without further action by any of
the parties hereto be converted into 276,117 ATLANTIC Common Shares. At the
Effective Time, each right, option or warrant to acquire a share of common stock
of either of the Merging Corporations shall automatically be canceled. At the
Effective Time, each issued share of common stock of the Surviving Corporation
outstanding immediately prior to the Effective Time shall automatically and
without further action by any of the parties remain an issued and outstanding
share of common stock of the Surviving Corporation.
6. Effect of the Mergers. At the Effective Time, the separate existence
of each of the Merging Corporations shall cease in accordance with the
provisions of the DGCL and the Nevada Act. From and after the Effective Time,
except as may be limited by applicable law, the Surviving Corporation shall
succeed to all of the leases, licenses, property, rights, privileges and powers
of whatever nature and description and shall be subject to all of the debts,
liabilities and obligations of each of the Merging Corporations without further
action by any of the parties hereto, and will continue to be governed by the
laws of the State of Delaware, including the DGCL.
7. Further Assurances and Authorization. Each of the Merging
Corporations and the Surviving Corporation shall execute and deliver such
further instruments and do or cause to be done such further acts as may be
necessary to effectuate and confirm the Mergers. The Board of Directors and the
officers of each of the Merging Corporations and the Surviving Corporation,
respectively, are hereby authorized, empowered, and directed to do any and all
acts and things, and to make, execute, deliver, file, and/or record any and all
instruments, papers, and documents which shall be or become necessary, proper,
or convenient to carry out or put into effect any of the provisions of this
Agreement and Plan of Merger.
8. Counterparts. This Agreement and Plan of Merger may be executed in
any number of counterparts, and each such counterpart shall be deemed to be an
original but all such counterparts shall together constitute one and the same
Agreement and Plan of Merger.
3
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement and Plan
of Merger as of the date first above written.
SECURITY CAPITAL (ATLANTIC) INCORPORATED
By: /s/ CONSTANCE B. MOORE
-------------------------------------------
Constance B. Moore
Co-Chairman and Chief Operating Officer
SCG REALTY SERVICES ATLANTIC INCORPORATED
By: /s/ PATRICK WHELAN
-------------------------------------------
Patrick Whelan
President
SECURITY CAPITAL ATLANTIC MANAGEMENT
INCORPORATED
By: /s/ CONSTANCE B. MOORE
-------------------------------------------
Constance B. Moore
Co-Chairman and Chief Operating Officer
<PAGE>
EXHIBIT 2.2
AGREEMENT AND PLAN OF MERGER
OF
SECURITY CAPITAL PACIFIC INCORPORATED
(a Delaware corporation)
AND
SCG REALTY SERVICES INCORPORATED
(a Texas corporation)
WITH AND INTO
SECURITY CAPITAL PACIFIC MANAGEMENT INCORPORATED
(a Delaware corporation)
DATED AS OF SEPTEMBER 9, 1997
THIS AGREEMENT AND PLAN OF MERGER is made by and between Security Capital
Pacific Incorporated, a Delaware corporation ("SCPI"), SCG Realty Services
Incorporated, a Texas corporation ("SCGRSI", and together with SCPI, the
"Merging Corporations"), and Security Capital Pacific Management Incorporated, a
Delaware corporation (the "Surviving Corporation").
WHEREAS, each of the Merging Corporations and the Surviving Corporation
desires that the Merging Corporations be merged pursuant to Sections 251 and 252
of the Delaware General Corporation Law ("DGCL") and Article 5.03 of the Texas
Business Corporation Act (the "TBCA") with and into the Surviving Corporation,
which shall be the surviving corporation and which shall continue its existence
under the name "SCG Realty Services Incorporated" (the "Mergers"); and
WHEREAS, the shareholders of each of the Merging Corporations and the
Surviving Corporation have approved the entering into and the execution of this
Agreement and Plan of Merger.
<PAGE>
NOW THEREFORE:
1. Effective Time. As used in this Agreement and Plan of Merger, the
term "Effective Time" shall mean (a) with respect to the Merger of SCPI with and
into the Surviving Corporation, the date and time of the filing with the office
of the Secretary of State of the State of Delaware of the certificate of merger
with respect to the Mergers (a form of which is attached hereto as Exhibit A)
and (b) with respect to the Merger of SCGRSI with and into the Surviving
Corporation, the later of (i) the date and time of the filing with the office of
the Secretary of State of the State of Delaware of the certificate of merger
with respect to the Mergers (a form of which is attached hereto as Exhibit A)
and (ii) the date and time of the issuance of the certificate of merger by the
Secretary of State of the State of Texas in response to the filing with the
Office of the Secretary of State of the State of Texas of the articles of merger
with respect to the Mergers (a form of which is attached hereto as Exhibit B).
2. The Mergers. At the Effective Time, each of the Merging Corporations
shall be merged with and into the Surviving Corporation, which shall continue to
be governed by the laws of the State of Delaware and which shall continue its
existence under the name "SCG Realty Services Incorporated," and the separate
legal existence of each of the Merging Corporations shall thereupon cease.
3. Certificate of Incorporation and Bylaws. At the Effective Time,
Article 1 of the certificate of incorporation of the Surviving Corporation, as
in full force and effect immediately prior to the Effective Time and as attached
hereto as Exhibit C (the "Charter"), shall be amended to read in its entirety as
follows and such Charter, as so amended, shall become the Charter of the
Surviving Corporation:
"1. The name of the Corporation is SCG Realty Services Incorporated."
The Bylaws of the Surviving Corporation, as in full force and effect immediately
prior to the Effective Time (the "Bylaws"), shall continue to be the bylaws of
the Surviving Corporation and thereafter may be amended as provided in the
Charter or Bylaws or by law. This Agreement and Plan of Merger shall effect no
other amendments or changes whatsoever to the Charter and the Bylaws.
4. Terms and Conditions of the Mergers. At the Effective Time, the
issued shares of common stock of SCPI shall automatically and without further
action by any of the parties hereto be converted into 3,952,420 common shares of
beneficial interest, par value $1.00 per share ("PTR Common Shares"), of
Security Capital Pacific Trust, a Maryland real estate investment trust. At the
Effective Time, the issued shares of common stock of SCGRSI shall automatically
and without further action by any of the parties hereto be converted into
343,113 PTR Common Shares. At the Effective Time, each right, option or warrant
to acquire a share of common stock of either of the Merging Corporations shall
automatically be canceled. At the Effective Time, each issued share of common
stock of the
2
<PAGE>
Surviving Corporation outstanding immediately prior to the Effective Time shall
automatically and without further action by any of the parties remain an issued
and outstanding share of common stock of the Surviving Corporation.
5. Effect of the Mergers. At the Effective Time, the separate existence
of each of the Merging Corporations shall cease in accordance with the
provisions of the DGCL and the TBCA. From and after the Effective Time, except
as may be limited by applicable law, the Surviving Corporation shall succeed to
all of the leases, licenses, property, rights, privileges and powers of whatever
nature and description and shall be subject to all of the debts, liabilities and
obligations of each of the Merging Corporations without further action by any of
the parties hereto, and will continue to be governed by the laws of the State of
Delaware, including the DGCL.
6. Further Assurances and Authorization. Each of the Merging
Corporations and the Surviving Corporation shall execute and deliver such
further instruments and do or cause to be done such further acts as may be
necessary to effectuate and confirm the Mergers. The Board of Directors and the
officers of each of the Merging Corporations and the Surviving Corporation,
respectively, are hereby authorized, empowered, and directed to do any and all
acts and things, and to make, execute, deliver, file, and/or record any and all
instruments, papers, and documents which shall be or become necessary, proper,
or convenient to carry out or put into effect any of the provisions of this
Agreement and Plan of Merger.
7. Counterparts. This Agreement and Plan of Merger may be executed in
any number of counterparts, and each such counterpart shall be deemed to be an
original but all such counterparts shall together constitute one and the same
Agreement and Plan of Merger.
3
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement and Plan
of Merger as of the date first above written.
SECURITY CAPITAL PACIFIC INCORPORATED
By: /s/ R. SCOT SELLERS
------------------------------------
R. Scot Sellers
President
SCG REALTY SERVICES INCORPORATED
By: /s/ PATRICK R. WHELAN
------------------------------------
Patrick R. Whelan
President
SECURITY CAPITAL PACIFIC
MANAGEMENT INCORPORATED
By: /s/ R. SCOT SELLERS
------------------------------------
R. Scot Sellers
President
<PAGE>
EXHIBIT 2.3
AGREEMENT AND PLAN OF MERGER
OF
SECURITY CAPITAL INDUSTRIAL INCORPORATED
(a Delaware corporation)
AND
SCI CLIENT SERVICES INCORPORATED
(a Delaware corporation)
WITH AND INTO
SECURITY CAPITAL INDUSTRIAL MANAGEMENT INCORPORATED
(a Delaware corporation)
DATED AS OF SEPTEMBER 9, 1997
THIS AGREEMENT AND PLAN OF MERGER is made by and between Security Capital
Industrial Incorporated, a Delaware corporation ("SCII"), SCI Client Services
Incorporated, Security Capital Industrial Management Incorporated, a Delaware
corporation ("SCICSI", and together with SCII, the "Merging Corporations"), and
a Delaware corporation (the "Surviving Corporation").
WHEREAS, each of the Merging Corporations and the Surviving Corporation
desires that the Merging Corporations be merged pursuant to Section 251 of the
Delaware General Corporation Law ("DGCL") with and into the Surviving
Corporation, which shall be the surviving corporation and which shall continue
its existence under the name "SCI Client Services Incorporated" (the "Mergers");
and
WHEREAS, the shareholders of each of the Merging Corporations and the
Surviving Corporation have approved the entering into and the execution of this
Agreement and Plan of Merger.
<PAGE>
NOW THEREFORE:
1. Effective Time. As used in this Agreement and Plan of Merger, the term
"Effective Time" shall mean the date and time of the filing with the office of
the Secretary of State of the State of Delaware of the certificate of merger
with respect to the Mergers (a form of which is attached hereto as Exhibit A).
2. The Mergers. At the Effective Time, each of the Merging Corporations
shall be merged with and into the Surviving Corporation, which shall continue to
be governed by the laws of the State of Delaware and which shall continue its
existence under the name "SCI Client Services Incorporated," and the separate
legal existence of each of the Merging Corporations shall thereupon cease.
3. Certificate of Incorporation and Bylaws. At the Effective Time,
Article 1 of the certificate of incorporation of the Surviving Corporation, as
in full force and effect immediately prior to the Effective Time (the
"Charter"), shall be amended to read in its entirety as follows and such
Charter, as so amended, shall become the Charter of the Surviving Corporation:
"1. The name of the Corporation is SCI Client Services Incorporated."
The Bylaws of the Surviving Corporation immediately prior to the Effective Time
(the "Bylaws") shall continue to be the bylaws of the Surviving Corporation and
thereafter may be amended as provided in the Charter or Bylaws or by law. This
Agreement and Plan of Merger shall effect no other amendments or changes
whatsoever to the Charter and the Bylaws.
4. Terms and Conditions of the Mergers. At the Effective Time, the issued
shares of common stock of SCII shall automatically and without further action by
any of the parties hereto be converted into 3,375,964 common shares of
beneficial interest, par value $.01 per share ("SCI Common Shares"), of Security
Capital Industrial Trust, a Maryland real estate investment trust. At the
Effective Time, the issued shares of common stock of SCICSI shall automatically
and without further action by any of the parties hereto be converted into
316,059 SCI Common Shares. At the Effective Time, each right, option or warrant
to acquire a share of common stock of either of the Merging Corporations shall
automatically be canceled. At the Effective Time, each issued share of common
stock of the Surviving Corporation outstanding immediately prior to the
Effective Time shall automatically and without further action by any of the
parties remain an issued and outstanding share of common stock of the Surviving
Corporation.
5. Effect of the Mergers. At the Effective Time, the separate existence
of each of the Merging Corporations shall cease in accordance with the
provisions of the DGCL. From and after the Effective Time, except as may be
limited by applicable law, the Surviving Corporation shall succeed to all of the
leases, licenses, property, rights, privileges
2
<PAGE>
and powers of whatever nature and description and shall be subject to all of the
debts, liabilities and obligations of each of the Merging Corporations without
further action by any of the parties hereto, and will continue to be governed by
the laws of the State of Delaware, including the DGCL.
6. Further Assurances and Authorization. Each of the Merging Corporations
and the Surviving Corporation shall execute and deliver such further instruments
and do or cause to be done such further acts as may be necessary to effectuate
and confirm the Mergers. The Board of Directors and the officers of each of the
Merging Corporations and the Surviving Corporation, respectively, are hereby
authorized, empowered, and directed to do any and all acts and things, and to
make, execute, deliver, file, and/or record any and all instruments, papers, and
documents which shall be or become necessary, proper, or convenient to carry out
or put into effect any of the provisions of this Agreement and Plan of Merger.
7. Counterparts. This Agreement and Plan of Merger may be executed in any
number of counterparts, and each such counterpart shall be deemed to be an
original but all such counterparts shall together constitute one and the same
Agreement and Plan of Merger.
3
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed and acknowledged this
Agreement and Plan of Merger as of the date first above written.
SECURITY CAPITAL INDUSTRIAL
INCORPORATED
By: /s/ ROBERT J. WATSON
------------------------------------
Robert J. Watson
Managing Director
SCI CLIENT SERVICES INCORPORATED
By: /s/ ROBERT J. WATSON
------------------------------------
Robert J. Watson
Managing Director and
Chief Operating Officer
SECURITY CAPITAL INDUSTRIAL
MANAGEMENT INCORPORATED
By: /s/ ROBERT J. WATSON
------------------------------------
Robert J. Watson
Managing Director
<PAGE>
EXHIBIT 4.1
RIGHTS AGREEMENT
between
SECURITY CAPITAL GROUP INCORPORATED
and
The First National Bank of Boston
as Rights Agent
Dated as of April 21, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 1. Certain Definitions........................................................... 1
Section 2. Appointment of Rights Agent................................................... 4
Section 3. Issuance of Rights Certificates............................................... 4
Section 4. Form of Right Certificates.................................................... 6
Section 5. Countersignature and Registration............................................. 7
Section 6. Transfer, Division, Combination and Exchange of Right Certificates; Mutilated,
Destroyed, Lost or Stolen Right Certificates.................................. 8
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights................. 9
Section 8. Cancellation and Destruction of Right Certificates............................ 11
Section 9. Availability of Participating Preferred Shares................................ 11
Section 10. Participating Preferred Shares Record Date.................................... 11
Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights............ 12
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.................... 19
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power.......... 19
Section 14. Fractional Rights and Fractional Shares....................................... 21
Section 15. Rights of Action.............................................................. 23
Section 16. Agreement of Right Holders.................................................... 23
Section 17. Right Certificate Holder Not Deemed a Shareholder............................. 24
Section 18. Concerning the Rights Agent................................................... 24
Section 19. Merger or Consolidation or Change of Name of Rights Agent..................... 24
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 20. Duties of Rights Agent........................................................ 25
Section 21. Change of Rights Agent........................................................ 27
Section 22. Issuance of New Right Certificates............................................ 28
Section 23. Redemption.................................................................... 28
Section 24. Exchange...................................................................... 29
Section 25. Notice of Certain Events...................................................... 30
Section 26. Notices....................................................................... 31
Section 27. Supplements and Amendments.................................................... 32
Section 28. Successors.................................................................... 32
Section 29. Benefits of this Agreement.................................................... 32
Section 30. Severability.................................................................. 32
Section 31. Governing Law................................................................. 32
Section 32. Counterparts.................................................................. 32
Section 33. Descriptive Headings.......................................................... 32
Section 34. Determinations and Actions by the Board of Directors.......................... 33
Exhibit A - Form of Articles Supplementary of Security Capital Group Incorporated
Exhibit B - Form of Right Certificate
</TABLE>
<PAGE>
RIGHTS AGREEMENT
----------------
Agreement, dated as of April 21, 1997 between Security Capital Group
Incorporated, a Maryland corporation (the "Corporation"), and The First National
Bank of Boston, a national banking association (the "Rights Agent").
The Board of Directors of the Corporation has authorized and declared a
dividend of one preferred share purchase right (a "Right") for each Share (as
hereinafter defined) of the Corporation outstanding as of the close of business
on April 21, 1997 (the "Record Date"), each Right representing, with respect to
a Class A Share (as hereinafter defined), the right to purchase one one-
hundredth of a Participating Preferred Share (as hereinafter defined), and with
respect to a Class B Share (as hereinafter defined), the right to purchase one
five-thousandth of a Participating Preferred Share, upon the terms and subject
to the conditions herein set forth, and has further agreed to authorize and
direct the issuance of one Right with respect to each Share that shall become
outstanding between the Record Date and the first to occur of the Redemption
Date and the Final Expiration Date (as such terms are hereinafter defined).
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
"Acquiring Person" shall mean any Person (as hereinafter defined) who
or which, together with all Affiliates and Associates (as such terms are
hereinafter defined) of such Person, shall be the Beneficial Owner (as
hereinafter defined) of 20% or more of the voting power of the voting
equity securities of the Corporation, but shall not include the
Corporation, Security Capital U.S. Realty ("USREALTY"), any Affiliate or
Subsidiary (as hereinafter defined) of the Corporation, any employee
benefit plan of the Corporation or of any Affiliate or Subsidiary of the
Corporation or any entity holding Shares for or pursuant to the terms of
any such plan. Notwithstanding the foregoing, no Person shall become an
"Acquiring Person" as the result of (i) an acquisition of either Class A
Shares or Class B Shares by the Corporation which, by reducing the number
of such shares outstanding, increases the voting power of such Person to
20% or more of the voting equity securities of the Corporation, or (ii) the
acquisition by such Person of newly issued Class A Shares or Class B
Shares, directly from the Corporation (it being understood that a purchase
from an underwriter or other intermediary is not directly from the
Corporation); provided, however, that if a Person shall become the
Beneficial Owner of 20% or more of the voting power of the voting equity
securities of the Corporation, by reason of purchases by the Corporation or
the receipt of newly issued Class A Shares or Class B Shares directly from
the Corporation and shall, after such purchases or direct issuance by the
Corporation, become
<PAGE>
the Beneficial Owner of any additional Class A Shares or Class B Shares, as
the case may be, of the Corporation, then such Person shall be deemed to be
an "Acquiring Person"; provided further, however, that any transferee from
such Person who becomes the Beneficial Owner of 20% or more of the voting
power of the voting equity securities of the Corporation shall nevertheless
be deemed to be an "Acquiring Person." Notwithstanding the foregoing, if
the Board of Directors of the Corporation determines in good faith that a
Person who would otherwise be an "Acquiring Person," as defined pursuant to
the foregoing provisions of this paragraph, has become such inadvertently,
and such Person divests as promptly as practicable (and in any event within
ten Business Days after notification by the Corporation) a sufficient
number of Class A Shares or Class B Shares, as the case may be, so that
such Person would no longer be an Acquiring Person, as defined pursuant to
the foregoing provisions of this paragraph, then such Person shall not be
deemed to be an "Acquiring Person" for any purposes of this Agreement.
"Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Exchange Act, as in effect on the date of this Agreement.
A Person shall be deemed the "Beneficial Owner" of and shall be deemed
to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has (A) the right to acquire
(whether such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or
understanding, whether written or oral (other than customary
agreements with and between underwriters and selling group members
with respect to a bona fide public offering of securities), or upon
the exercise of conversion rights, exchange rights, rights (other than
the Rights), warrants or options, or otherwise; provided, however,
that a Person shall not be deemed the Beneficial Owner of, or to
beneficially own, securities tendered pursuant to a tender or exchange
offer made by or on behalf of such Person or any of such Person's
Affiliates or Associates until such tendered securities are accepted
for purchase or exchange; (B) the sole or shared right to vote or
dispose (including any such right pursuant to any agreement,
arrangement or understanding, whether written or oral); provided,
however, that a Person shall not be deemed the Beneficial Owner of, or
to beneficially own, any security if the agreement, arrangement or
understanding to vote such security (1) arises solely from a revocable
proxy or consent given to such Person in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the
applicable rules and regulations promulgated under the Exchange Act
and (2) is not also then reportable on Schedule 13D under the Exchange
Act (or any comparable
2
<PAGE>
or successor report); or (C) "beneficial ownership" (as determined
pursuant to Rule 13d-3 of the General Rules and Regulations under the
Exchange Act); or
(iii) which are beneficially owned, directly or indirectly, by
any other Person (or any Affiliate or Associate thereof) with which
such Person or any of such Person's Affiliates or Associates has any
agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members
with respect to a bona fide public offering of securities) for the
purpose of acquiring, holding, voting (except to the extent
contemplated by the proviso to clause (B) of subparagraph (ii) of this
definition) or disposing of any securities of the Corporation.
Notwithstanding anything in this definition of Beneficial Ownership to
the contrary, the phrase "then outstanding," when used with reference to
the Beneficial Ownership of a class of securities of the Corporation by any
Person, shall mean the number of such securities then issued and
outstanding together with the number of such securities not then actually
issued and outstanding which such Person would be deemed to own
beneficially hereunder.
"Business Day" shall mean any day other than a Saturday, a Sunday, or
a day on which banking institutions in New York are authorized or obligated
by law or executive order to close.
"Class A Shares" shall mean the shares of Class A Common Stock, par
value $.01 per share, of the Corporation.
"Class B Shares" shall mean the shares of Class B Common Stock, par
value of $.01 per share, of the Corporation.
"Close of business" on any given date shall mean 5:00 P.M., Eastern
time, on such date; provided, however, that if such date is not a Business
Day it shall mean 5:00 P.M., Eastern time, on the next succeeding Business
Day.
"Common Shares" when used with reference to any Person other than the
Corporation shall mean the capital stock (or equity interest) with the
greatest voting power of such other Person or the equity securities or
other equity interest having power to control or direct the management of
such other Person.
"Distribution Date" shall have the meaning set forth in Section 3
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Final Expiration Date" shall have the meaning set forth in Section 7
hereof.
3
<PAGE>
"Person" shall mean any individual, firm, corporation or other entity,
and shall include any successor (by merger or otherwise) of such entity.
"Participating Preferred Shares" shall mean the shares of Series A
Junior Participating Preferred Stock, par value $0.01 per share, of the
Corporation having the rights and preferences set forth in the form of
Articles Supplementary attached to this Agreement as Exhibit A.
"Purchase Price" shall have the meaning set forth in Section 4 hereof.
"Redemption Date" shall have the meaning set forth in Section 7
hereof.
"Right Certificate" shall have the meaning set forth in Section 3
hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Shares" shall mean the Class A Shares and Class B Shares.
"Shares Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include,
without limitation, a report filed pursuant to Section 13(d) promulgated
under the Exchange Act) by the Corporation or an Acquiring Person that an
Acquiring Person has become such.
"Subsidiary" of any Person shall mean any corporation or other entity
of which a majority of the voting power of the voting equity securities or
equity interest is owned, directly or indirectly, by such Person.
"Triggering Event" shall mean any event described in Section 11(a)(ii)
or Section 13(a).
Any determination or interpretation required in connection with any of the
definitions contained in this Section 1 shall be made by the Board of Directors
of the Corporation in their good faith judgment, which determination shall be
final and binding on the Rights Agent.
Section 2. Appointment of Rights Agent. The Corporation hereby appoints
the Rights Agent to act as agent for the Corporation and the holders of the
Rights (who, in accordance with Section 3 hereof, shall prior to the
Distribution Date also be the holders of the Shares) in accordance with the
terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Corporation may from time to time appoint such co-Rights
Agents as it may deem necessary or desirable.
Section 3. Issuance of Rights Certificates.
4
<PAGE>
(a) Until the earlier of (i) the close of business on the tenth day after
the Shares Acquisition Date, (ii) the close of business on the fifteenth
Business Day (or such later date as may be determined by action of the Board of
Directors prior to such time as any Person becomes an Acquiring Person) after
the date of the commencement by any Person (other than the Corporation, any
Affiliate or Subsidiary of the Corporation, any employee benefit plan of the
Corporation or of any Affiliate or Subsidiary of the Corporation or any entity
holding Shares for or pursuant to the terms of any such plan) of, or of the
first public announcement of, the intention of any Person (other than the
Corporation, any Affiliate or Subsidiary of the Corporation, any employee
benefit plan of the Corporation or of any Affiliate or Subsidiary of the
Corporation or any entity holding shares for or pursuant to the terms of any
such plan) to commence, a tender or exchange offer the consummation of which
would result in any Person becoming the Beneficial Owner of shares aggregating
25% or more of the voting power of the equity securities of the Corporation, or
(iii) the close of business on the tenth Business Day (or such later date as may
be determined by action of the Board of Directors prior to such time as any
Person becomes an Acquiring Person) after the date of filing by any Person of,
or the first public announcement of the intention of any Person to file, any
application, request, submission or other document with any federal or state
regulatory authority seeking approval of, attempting to rebut any presumption of
control upon, or otherwise indicating an intention to enter into, any
transaction or series of transactions the consummation of which would result in
any Person becoming the Beneficial Owner of shares aggregating 25% or more of
the voting power of the equity securities of the Corporation other than a
transaction in which newly issued Class A Shares or Class B Shares, as the case
may be, are issued directly by the Corporation to such Person (including any
such date which is after the date of this Agreement and prior to the issuance of
the Rights; the earlier of such dates being herein referred to as the
"Distribution Date"), (x) the Rights will be evidenced (subject to the
provisions of Section 3(b) hereof) by the certificates for Class A Shares or
Class B Shares, as the case may be, registered in the names of the holders
thereof (which certificates shall also be deemed to be certificates for Rights)
and not by separate certificates, and (y) the Rights will be transferable only
in connection with the transfer of the underlying Class A Shares or Class B
Shares (including a transfer to the Corporation). As soon as practicable after
the Distribution Date, the Corporation will prepare and execute, the Rights
Agent will countersign, and the Corporation will send or cause to be sent (and
the Rights Agent will, if requested, send) by first-class, insured, postage-
prepaid mail, to each record holder of Shares as of the close of business on the
Distribution Date, at the address of such holder shown on the records of the
Corporation, a Right Certificate, in substantially the form of Exhibit B hereto
(a "Right Certificate"), evidencing one Right for each Share so held. As of the
Distribution Date, the Rights will be evidenced solely by such Right
Certificates.
(b) With respect to certificates for Shares outstanding as of the Record
Date, until the Distribution Date, the Rights will be evidenced by such
certificates registered in the names of the holders thereof, and registered
holders of Shares shall also be the registered holders of the associated Rights
(regardless of whether such ownership is indicated on the share certificates).
Until the earliest of the Distribution Date, the Redemption Date or the Final
Expiration Date, the transfer of any certificate for Shares shall also
constitute the transfer of the Rights associated with the Shares represented
thereby.
5
<PAGE>
(c) Rights shall be issued in respect of all Shares which are issued after
the Record Date but prior to the earliest of the Distribution Date, the
Redemption Date or the Final Expiration Date. Certificates representing such
Shares shall also be deemed to be certificates for Rights. Certificates
representing both Shares and Rights in accordance with this Section 3 which are
executed and delivered (whether the Shares represented thereby are originally
issued or are presented for transfer) by the Corporation (including, without
limitation, certificates representing reacquired Shares referred to in the last
sentence of this paragraph (c)) after the Record Date but prior to the earliest
of the Distribution Date, the Redemption Date or the Final Expiration Date shall
have impressed on, printed on, written on or otherwise affixed to them a legend
that by itself or together with prior legends is substantially to the following
effect:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in the Rights Agreement between Security
Capital Group Incorporated (the "Corporation") and The First National
Bank of Boston, dated as of April 21, 1997 (the "Rights Agreement"),
the terms of which are hereby incorporated herein by reference and a
copy of which is on file at the principal offices of the Corporation.
Under certain circumstances, as set forth in the Rights Agreement, the
Rights will be evidenced by separate certificates and will no longer
be evidenced by this certificate. The Corporation will mail to the
holder of this certificate a copy of the Rights Agreement, as in
effect on the date of mailing, without charge promptly after receipt
of a written request therefor. Under certain circumstances set forth
in the Rights Agreement, Rights issued to, or held by, any Person who
is, was or becomes an Acquiring Person or an Affiliate or Associate
thereof (as such terms are defined in the Rights Agreement), whether
currently held by or on behalf of such Person or by any subsequent
holder, shall become null and void.
Until the Distribution Date, the Rights associated with the Shares shall be
evidenced by the certificates representing the associated Shares alone
(regardless of whether any such certificate contains the above legend), and the
transfer of any such certificate shall also constitute the transfer of the
Rights associated with the Shares represented thereby. In the event that the
Corporation purchases or acquires any Shares after the Record Date but prior to
the Distribution Date, any Rights associated with such Shares shall be deemed
canceled and retired so that the Corporation shall not be entitled to exercise
any Rights associated with the Shares which are no longer outstanding.
Section 4. Form of Right Certificates.
(a) The Right Certificates (and the forms of election to purchase
Participating Preferred Shares and of assignment to be printed on the reverse
thereof) shall be substantially the same as Exhibit B hereto and may have such
marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Corporation may deem appropriate and as are
not inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation
6
<PAGE>
of any stock exchange on which the Rights may from time to time be listed, or to
conform to usage. Subject to the provisions of Section 11 and Section 22 hereof,
the Right Certificates shall entitle the holders thereof to purchase such number
of one one-hundredths of a Participating Preferred Share or one five-thousandths
of a Participating Preferred Share, as the case may be, as shall be set forth
therein at the price per one one-hundredth of a Participating Preferred Share or
one five-thousandth of a Participating Preferred Share, as the case may be, set
forth therein (the "Purchase Price"), but the amount and type of securities
purchasable upon the exercise of each Right and the Purchase Price thereof shall
be subject to adjustment as provided herein.
(b) Any Right Certificate issued pursuant to Section 3(a) or Section 22
hereof that represents Rights beneficially owned by: (i) an Acquiring Person or
any Associate or Affiliate of an Acquiring Person, (ii) a transferee of an
Acquiring Person (or any Associate or Affiliate) who becomes a transferee after
the Acquiring Person becomes an Acquiring Person, or (iii) a transferee of an
Acquiring Person (or any Associate or Affiliate) who becomes a transferee prior
to or concurrently with the Acquiring Person becoming such and receives such
Rights pursuant to either (A) a transfer (whether or not for consideration) from
the Acquiring Person to holders of equity interests in such Acquiring Person or
to any Person with whom the Acquiring Person has any continuing agreement,
arrangement or understanding, whether written or oral, regarding the transferred
Rights or (B) a transfer which is part of a plan, arrangement or understanding,
whether written or oral, which has a primary purpose or effect the avoidance of
Section 7(e) hereof, and any Right Certificate issued pursuant to Section 6 or
Section 11 hereof upon transfer, exchange, replacement or adjustment or any
other Right Certificate referred to in this sentence, shall contain (to the
extent feasible and otherwise reasonably identifiable as such) the following
legend:
The Rights represented by this Right Certificate are or were
beneficially owned by a Person who was or became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person (as such terms are defined in
the Rights Agreement). Accordingly, this Right Certificate and the Rights
represented hereby may become void in the circumstances specified in
Section 7(e) of such Agreement.
The provisions of Section 7(e) shall apply whether or not any Right Certificate
actually contains the foregoing legend.
Section 5. Countersignature and Registration. The Right Certificates
shall be executed on behalf of the Corporation by the Chairman of the Board, any
Managing Director, any Senior Vice President, any Vice President, or its
Secretary, either manually or by facsimile signature, shall have affixed thereto
the Corporation's seal or a facsimile thereof, and shall be attested by the
Secretary or an Assistant Secretary of the Corporation, either manually or by
facsimile signature. The Right Certificates shall be manually countersigned by
the Rights Agent and shall not be valid for any purpose unless countersigned.
In case any officer of the Corporation who shall have signed any of the Right
Certificates shall cease to be such officer of the Corporation before
countersignature by the Rights Agent and issuance and delivery by the
Corporation, such Right Certificates, nevertheless, may be countersigned by the
Rights Agent and issued and delivered by the Corporation
7
<PAGE>
with the same force and effect as though the person who signed such Right
Certificates had not ceased to be such officer of the Corporation; and any Right
Certificate may be signed on behalf of the Corporation by any person who, at the
actual date of the execution of such Right Certificate, shall be a proper
officer of the Corporation to sign such Right Certificate, although at the date
of the execution of this Rights Agreement any such person was not such an
officer.
Following the Distribution Date, the Rights Agent will keep or cause to be
kept, at its office designated for such purpose, books for registration and
transfer of the Right Certificates issued hereunder. Such books shall show the
names and addresses of the respective holders of the Right Certificates, the
number of Rights evidenced on its face by each of the Right Certificates and the
date of each of the Right Certificates.
Section 6. Transfer, Division, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. Subject
to the provisions of Sections 4(b), 7(e), 14 and 24 hereof, at any time after
the close of business on the Distribution Date, and at or prior to the close of
business on the earlier of the Redemption Date or the Final Expiration Date, any
Right Certificate or Right Certificates may be transferred, divided, combined or
exchanged for another Right Certificate or Right Certificates, entitling the
registered holder to purchase a like number of Participating Preferred Shares
(or, following a Triggering Event, Class A Shares, Class B Shares or other
securities or property, as the case may be) as the Right Certificate or Right
Certificates surrendered then entitled such holder to purchase. Any registered
holder desiring to transfer, divide, combine or exchange any Right Certificate
or Right Certificates shall make such request in writing delivered to the Rights
Agent, and shall surrender the Right Certificate or Right Certificates to be
transferred, divided, combined or exchanged at the office of the Rights Agent
designated for such purpose. Neither the Rights Agent nor the Corporation shall
be obligated to take any action whatsoever with respect to the transfer of any
such surrendered Right Certificate until the registered holder shall have
completed and signed the certificate contained in the form of assignment on the
reverse side of such Right Certificate and the Corporation shall have been
provided with such additional evidence of the identity of the Beneficial Owner
(or former Beneficial Owner) or Affiliates or Associates thereof as the
Corporation shall reasonably request. Thereupon the Rights Agent shall, subject
to Sections 4 and 7 hereof, countersign and deliver to the person entitled
thereto a Right Certificate or Right Certificates, as the case may be, as so
requested. The Corporation may require payment of a sum sufficient to cover any
tax or governmental charge that may be imposed in connection with any transfer,
division, combination or exchange of Right Certificates.
Upon receipt by the Corporation and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Corporation's request,
reimbursement to the Corporation and the Rights Agent of all reasonable expenses
inciden tal thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Corporation will make and deliver a new
Right Certificate of like tenor to the Rights Agent for countersignature and
delivery to the registered holder in lieu of the Right Certificate so lost,
stolen, destroyed or mutilated.
8
<PAGE>
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights.
(a) Subject to Section 7(e) hereof, the registered holder of any Right
Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein) in whole or in part at any time after the Distribution Date
upon surrender of the Right Certificate, with the form of election to purchase
on the reverse side thereof duly executed, to the Rights Agent at the office of
the Rights Agent designated for such purpose, together with payment of the
Purchase Price with respect to each surrendered Right for the total number of
Participating Preferred Shares (or Class A Shares, Class B Shares or other
securities or property, as the case may be) as to which the Rights are
exercised, at or prior to the earliest of (i) the close of business on April 21,
2007 or, if extended, such later date (the "Final Expiration Date"), (ii) the
time at which the Rights are redeemed as provided in Section 23 hereof (the
"Redemption Date") or (iii) the time at which such Rights are exchanged as
provided in Section 24 hereof.
(b) The Purchase Price for each one one-hundredth of a Participating
Preferred Share pursuant to the exercise of a Right shall initially be $6,000,
and the Purchase Price for each one five-thousandth of a Participating Preferred
Share pursuant to the exercise of a Right shall initially be $120, shall be
subject to adjustment from time to time as provided in Sections 11 and 13 hereof
and shall be payable in lawful money of the United States of America in
accordance with paragraph (c) below.
(c) Upon receipt of a Right Certificate representing exercisable Rights,
with the form of election to purchase and the certificate on the reverse side of
the Right Certificate duly executed, accompanied by payment of the Purchase
Price for the Participating Preferred Shares (or Class A Shares, Class B Shares
or other securities or property, as the case may be) to be purchased and an
amount equal to any applicable transfer tax required to be paid by the holder of
such Right Certificate in accordance with Section 9 hereof by certified check,
cashier's check or money order payable to the order of the Corporation, the
Rights Agent shall thereupon promptly (i) (A) requisition from any transfer
agent of the Participating Preferred Shares (or make available, if the Rights
Agent is the transfer agent of the Participating Preferred Shares) certificates
for the number of Participating Preferred Shares to be purchased and the
Corporation hereby irrevocably authorizes its transfer agent to comply with all
such requests, or (B) if the Corporation shall have elected to deposit the
Participating Preferred Shares issuable upon exercise of the Rights with a
depositary agent, requisition from the depositary agent depositary receipts
representing such number of one one-hundredths of a Participating Preferred
Share or one five-thousandths of a Participating Preferred Share, as the case
may be, as are to be purchased (in which case certificates for the Participating
Preferred Shares represented by such receipts shall be deposited by the transfer
agent with the depositary agent) and the Corporation will direct the depositary
agent to comply with such request, (ii) when appropriate, requisition from the
Corporation the amount of cash to be paid in lieu of issuance of fractional
shares in accordance with Section 14 hereof, (iii) after receipt of such
certificates or depositary receipts, cause the same to be delivered to or upon
the order of the registered holder of such Right Certificate, registered in such
name or names as may be designated by such holder and (iv) when appropriate,
after receipt, deliver such cash to or upon the order of the registered holder
of such Right Certificate. In the event that the Corporation is obligated to
issue
9
<PAGE>
other securities of the Corporation, pay cash and/or distribute other property
pursuant to Section 11(a) hereof, the Corporation will make all arrangements
necessary so that such other securities, cash and/or property are available for
distribution by the Rights Agent, if and when appropriate.
(d) In case the registered holder of any Right Certificate shall exercise
less than all the Rights evidenced thereby, a new Right Certificate evidencing
Rights equivalent to the Rights remaining unexercised shall be issued by the
Rights Agent and delivered to the registered holder of such Right Certificate or
to his duly authorized assigns, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary, from and
after the occurrence of a Triggering Event, any Rights beneficially owned by (i)
an Acquiring Person or an Associate or Affiliate of an Acquiring Person, (ii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee after the Acquiring Person becomes an Acquiring Person or
(iii) a transferee of an Acquiring Person (or any Associate or Affiliate) who
becomes a transferee prior to or concurrently with the Acquiring Person becoming
an Acquiring Person and receives such Rights pursuant to either (x) a transfer
(whether or not for consideration) from the Acquiring Person to holders of
equity interests in such Acquiring Person or to any Person with whom the
Acquiring Person has any continuing agreement, arrangement or understanding,
whether written or oral, regarding the transferred Rights or (y) a transfer
which the Board of Directors otherwise concludes in good faith is part of a
plan, arrangement or understanding, whether written or oral, which has as a
primary purpose or effect the avoidance of this Section 7(e), shall become null
and void without any further action, and any holder of such Rights shall
thereupon have no rights whatsoever with respect to such Rights, whether under
any provision of this Agreement or otherwise, from and after the occurrence of a
Triggering Event. The Corporation shall use all reasonable efforts to insure
that the provisions of this Section 7(e) hereof are complied with, but shall
have no liability to any holder of Rights for the inability to make any
determinations with respect to an Acquiring Person or its Affiliates, Associates
or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the contrary, neither the
Rights Agent nor the Corporation shall be obligated to undertake any action with
respect to a registered holder upon the occurrence of any purported exercise as
set forth in this Section 7 unless the certificate contained in the form of
election to purchase set forth on the reverse side of the Right Certificate
surrendered for such exercise shall have been completed and signed by the
registered holder thereof and the Corporation shall have been provided with such
additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Corporation shall
reasonably request.
(g) The Corporation covenants and agrees that it will cause to be reserved
and kept available out of its authorized and unissued Participating Preferred
Shares (and, following the occurrence of a Triggering Event, Class A Shares,
Class B Shares and/or other securities), the number of Participating Preferred
Shares (and, following the occurrence of a Triggering Event, Class A Shares,
Class B Shares and/or other securities) that will be sufficient to permit the
exercise in full of all outstanding Rights.
10
<PAGE>
Section 8. Cancellation and Destruction of Right Certificates. All Right
Certificates surrendered for the purpose of exercise, transfer, division,
combination or exchange shall, if surrendered to the Corporation or to any of
its agents, be delivered to the Rights Agent for cancellation or in canceled
form, or, if surrendered to the Rights Agent, shall be canceled by it, and no
Right Certificates shall be issued in lieu thereof except as expressly permitted
by any of the provisions of this Rights Agreement. The Corporation shall
deliver to the Rights Agent for cancellation and retirement, and the Rights
Agent shall so cancel and retire, any other Right Certificate purchased or
acquired by the Corporation otherwise than upon the exercise thereof. The
Rights Agent shall deliver all canceled Right Certificates to the Corporation,
or shall, at the written request of the Corporation, destroy such canceled Right
Certificates, and in such case shall deliver a certificate of destruction
thereof to the Corporation.
Section 9. Availability of Participating Preferred Shares. The
Corporation covenants and agrees that it will take all such action as may be
necessary to ensure that all Participating Preferred Shares (and, following the
occurrence of a Triggering Event, Class A Shares, Class B Shares and/or other
securities) delivered upon exercise of Rights shall, at the time of delivery of
the certificates for such Participating Preferred Shares (and, following the
occurrence of a Triggering Event, Class A Shares, Class B Shares and/or other
securities), subject to payment of the Purchase Price, be duly and validly
authorized and issued and fully paid and nonassessable.
The Corporation further covenants and agrees that it will pay when due and
payable any and all federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of the Right Certificates or of
any Participating Preferred Shares (or Class A Shares, Class B Shares and/or
other securities, as the case may be) upon the exercise of Rights. The
Corporation shall not, however, be required to pay any transfer tax which may be
payable in respect of any transfer or delivery of Right Certificates to a person
other than, or the issuance or delivery of certificates or depositary receipts
for the Participating Preferred Shares (or Class A Shares, Class B Shares and/or
other securities, as the case may be) in a name other than that of, the
registered holder of the Right Certificate evidencing Rights surrendered for
exercise or to issue or to deliver any certificates or depositary receipts for
Participating Preferred Shares (or Class A Shares, Class B Shares and/or other
securities, as the case may be) upon the exercise of any Rights until any such
tax shall have been paid (any such tax being payable by the holder of such Right
Certificate at the time of surrender) or until it has been established to the
Corporation's reasonable satisfaction that no such tax is due.
Section 10. Participating Preferred Shares Record Date. Each person in
whose name any certificate for Participating Preferred Shares (or Class A
Shares, Class B Shares and/or other securities, as the case may be) is issued
upon the exercise of Rights shall for all purposes be deemed to have become the
holder of record of the shares or securities represented thereby on, and such
certificate shall be dated, the date upon which the Right Certificate evidencing
such Rights was duly surrendered and payment of the Purchase Price (and any
applicable transfer taxes) was made; provided, however, that if the date of such
surrender and payment is a date upon which the Participating Preferred Shares
(or Class A Shares, Class B Shares and/or other securities, as the case
11
<PAGE>
may be) transfer books of the Corporation are closed, such person shall be
deemed to have become the record holder of such shares or securities on, and
such certificate shall be dated, the next succeeding Business Day on which the
Participating Preferred Shares (or Class A Shares, Class B Shares and/or other
securities, as the case may be) transfer books of the Corporation are open.
Prior to the exercise of the Rights evidenced thereby, the holder of a Right
Certificate shall not be entitled to any rights of a holder of Participating
Preferred Shares (or Class A Shares, Class B Shares and/or other securities, as
the case may be) for which the Rights shall be exercisable, including, without
limitation, the right to vote, to receive dividends or other distributions or to
exercise any preemptive rights, and shall not be entitled to receive any notice
of any proceedings of the Corporation, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or Number of
Rights. The Purchase Price, the number of Participating Preferred Shares
covered by each Right and the number of Rights outstanding are subject to
adjustment from time to time as provided in this Section 11.
(a) (i) In the event the Corporation shall at any time after the date
of this Agreement (A) declare a dividend on the Participating Preferred
Shares payable in Participating Preferred Shares, (B) subdivide the
outstanding Participating Preferred Shares, (C) combine the outstanding
Participating Preferred Shares into a smaller number of Participating
Preferred Shares or (D) issue any of its shares in a reclassification of
the Participating Preferred Shares (including any such reclassification in
connection with a consolidation or merger in which the Corporation is the
continuing or surviving entity), except as otherwise provided in this
Section 11(a) and Section 7(e) hereof, the Purchase Price in effect at the
time of the record date for such dividend or of the effective date of such
subdivision, combination or reclassification, and the number and kind of
shares issuable on such date, shall be proportionately adjusted so that the
holder of any Right exercised after such time shall be entitled to receive
the aggregate number and kind of shares which, if such Right had been
exercised immediately prior to such date and at a time when the
Participating Preferred Shares transfer books of the Corporation were open,
such holder would have owned upon such exercise and been entitled to
receive by virtue of such dividend, subdivision, combination or
reclassification; provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of the Corporation issuable upon exercise
of one Right. If an event occurs which would require an adjustment under
both Section 11(a)(i) and Section 11(a)(ii), the adjustment provided for in
this Section 11(a)(i) shall be in addition to, and shall be made prior to,
any adjustment required pursuant to Section 11(a)(ii).
(ii) Subject to Section 24 of this Agreement, in the event any Person
becomes an Acquiring Person, each holder of a Right, except as provided
below and in Section 7(e) hereof, shall thereafter have a right to receive,
upon exercise thereof at a price equal to, in the case of Class A Shares,
the then current Purchase Price multiplied by the number of one one-
hundredths of a Participating Preferred Share for which a Right is then
exercisable, in accordance with the terms of this Agreement and in lieu of
Participating Preferred Shares, such number of Class A Shares of the
Corporation as shall equal the result obtained by (A)
12
<PAGE>
multiplying the then current Purchase Price by the number of one one-
hundredths of a Participating Preferred Share for which a Right is then
exercisable and dividing that product by (B) 50% of the then current per
share market price of the Corporation's Class A Shares (determined pursuant
to Section 11(d) hereof) on the date of the occurrence of such event, or,
in the case of Class B Shares, the then current Purchase Price multiplied
by the number of one five-thousandths of a Participating Preferred Share
for which a Right is then exercisable, in accordance with the terms of this
Agreement and in lieu of Participating Preferred Shares, such number of
Class B Shares of the Corporation as shall equal the result obtained by (A)
multiplying the then current Purchase Price by the number of one five-
thousandths of a Participating Preferred Share for which a Right is then
exercisable and dividing that product by (B) 50% of the then current per
share market price of the Corporation's Class B Shares (determined pursuant
to Section 11(d) hereof) on the date of occurrence of such event. In the
event that any Person shall become an Acquiring Person and the Rights shall
then be outstanding, the Corporation shall not take any action which would
eliminate or diminish the benefits intended to be afforded by the Rights.
(iii) In lieu of issuing Shares of the Corporation in accordance with
Section 11(a)(ii) hereof, the Corporation may, in the sole discretion of
the Board of Directors, elect to (and, in the event that the Board of
Directors has not exercised the exchange right contained in Section 24
hereof and there are not sufficient issued but not outstanding and
authorized but unissued Shares to permit the exercise in full of the Rights
in accordance with the foregoing subparagraph (ii), the Corporation shall)
take all such action as may be necessary to authorize, issue or pay, upon
the exercise of the Rights, cash (including by way of a reduction of the
Purchase Price), property, other securities or any combination thereof
having an aggregate value equal to the value of the Class A Shares or the
Class B Shares, as the case may be, of the Corporation which otherwise
would have been issuable pursuant to Section 11(a)(ii), which aggregate
value shall be determined by a majority of the Board of Directors. For
purposes of the preceding sentence, the value of the Shares shall be
determined pursuant to Section 11(d) hereof and the value of any equity
securities which a majority of the Board of Directors determines to be
equivalent to a Class A Share or Class B Share, as the case may be
(including the Participating Preferred Shares, in such ratio as the Board
of Directors shall determine), shall be deemed to have the same value as
such Shares. Any such election by the Board of Directors must be made and
publicly announced within 60 days following the date on which the event
described in Section 11(a)(ii) shall have occurred. Following the
occurrence of the event described in Section 11(a)(ii), a majority of the
Board of Directors then in office may suspend the exercisability of the
Rights for a period of up to 60 days following the date on which the event
described in Section 11(a)(ii) shall have occurred to the extent that the
Board of Directors has not determined whether to exercise the Corporation's
right of election under this Section 11(a)(iii). In the event of any such
suspension, the Corporation shall issue a public announcement stating that
the exercisability of the Rights has been temporarily suspended.
(b) In case the Corporation shall fix a record date for the issuance of
rights, options or warrants to all holders of Participating Preferred Shares
entitling them (for a period expiring within
13
<PAGE>
45 calendar days after such record date) to subscribe for or purchase
Participating Preferred Shares (or shares having the same rights, privileges and
preferences as the Participating Preferred Shares ("equivalent preferred
shares")) or securities convertible into Participating Preferred Shares or
equivalent preferred shares at a price per Participating Preferred Share or
equivalent preferred share (or having a conversion price per share, if a
security convertible into Participating Preferred Shares or equivalent preferred
shares) less than the then current per share market price of the Participating
Preferred Shares (as defined in Section 11(d)) on such record date, the Purchase
Price to be in effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the number of Participating Preferred
Shares outstanding on such record date plus the number of Participating
Preferred Shares which the aggregate offering price of the total number of
Participating Preferred Shares and/or equivalent preferred shares so to be
offered (and/or the aggregate initial conversion price of the convertible
securities so to be offered) would purchase at such current market price and the
denominator of which shall be the number of Participating Preferred Shares
outstanding on such record date plus the number of additional Participating
Preferred Shares and/or equivalent preferred shares to be offered for
subscription or purchase (or into which the convertible securities so to be
offered are initially convertible); provided, however, that in no event shall
the consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of the Corporation issuable upon exercise of
one Right. In case such subscription price is paid in a consideration part or
all of which shall be in a form other than cash, the value of such consideration
shall be as determined in good faith by the Board of Directors of the
Corporation, whose determination shall be described in a statement filed with
the Rights Agent and shall be binding on the Rights Agent. Participating
Preferred Shares owned by or held for the account of the Corporation shall not
be deemed outstanding for the purpose of any such computation. Such adjustment
shall be made successively whenever such a record date is fixed; and in the
event that such rights, options or warrants are not so issued, the Purchase
Price shall be adjusted to be the Purchase Price which would then be in effect
if such record date had not been fixed.
(c) In case the Corporation shall fix a record date for the making of a
distribution to all holders of the Participating Preferred Shares (including any
such distribution made in connection with a consolidation or merger in which the
Corporation is the continuing or surviving entity) of evidences of indebtedness
or assets (other than a regular periodic cash dividend or a dividend payable in
Participating Preferred Shares) or subscription rights or warrants (excluding
those referred to in Section 11(b) hereof), the Purchase Price to be in effect
after such record date shall be determined by multiplying the Purchase Price in
effect immediately prior to such record date by a fraction, the numerator of
which shall be the then current per share market price of the Participating
Preferred Shares on such record date, less the fair market value (as determined
in good faith by the Board of Directors of the Corporation, whose determination
shall be described in a statement filed with the Rights Agent) of the portion of
the assets or evidences of indebtedness so to be distributed or of such
subscription rights or warrants attributable to one Participating Preferred
Share and the denominator of which shall be such current per share market price
of the Participating Preferred Shares; provided, however, that in no event shall
the consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of the Corporation to be issued upon exercise
of one Right. Such adjustments shall be made successively whenever such a
14
<PAGE>
record date is fixed; and in the event that such distribution is not so made,
the Purchase Price shall again be adjusted to be the Purchase Price which would
then be in effect if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, other than under
Section 11(a)(iii) hereof, the "current per share market price" of any security
(a "Security" for the purpose of this Section 11(d)(i)) on any date shall be
deemed to be the average of the daily closing prices per share of such Security
for the 30 consecutive Trading Days (as such term is hereinafter defined)
immediately prior to such date, and for the purpose of any computation under
Section 11(a)(iii) hereof, the "current per share market price" of a Security on
any date shall be deemed to be the average of the daily closing prices per share
of such Security for thirty (30) consecutive Trading Days immediately following
such date; provided, however, that in the event that the current per share
market price of the Security is determined during a period following the
announcement by the issuer of such Security of (A) a dividend or distribution on
such Security payable in shares of such Security or securities convertible into
such shares (other than the Rights), or (B) any subdivision, combination or
reclassification of such Security and prior to the expiration of 30 Trading Days
after the ex-dividend date for such dividend or distribution, or the record date
for such subdivision, combination or reclassification, then, and in each such
case, the "current per share market price" shall be appropriately adjusted to
reflect the current market price per share equivalent (ex-dividend) of such
Security. The closing price for each day shall be the last sale price or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Security is not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Security is listed or
admitted to trading or, if the Security is not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by the National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ") or such other system then in use, or, if on any such
date the Security is not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker making
a market in the Security selected by the Board of Directors of the Corporation.
If on any such date no market maker is making a market in the Security, the fair
value of such Security on such date (as determined in good faith by the Board of
Directors of the Corporation) shall be used. The term "Trading Day" shall mean
a day on which the principal national securities exchange on which the Security
is listed or admitted to trading is open for the transaction of business or, if
the Security is not listed or admitted to trading on any national securities
exchange, a Business Day.
(ii) For the purpose of any computation hereunder, the "current per
share market price" of the Participating Preferred Shares shall be
determined in accordance with the method set forth in Section 11(d)(i). If
the Participating Preferred Shares are not publicly traded, the "current
per share market price" of the Participating Preferred Shares shall be
conclusively deemed to be the current per share market price of either the
Class A Shares or Class B Shares, as the case may be, as determined
pursuant to Section 11(d)(i)
15
<PAGE>
(appropriately adjusted to reflect any share split, share dividend or
similar transaction occurring after the date hereof), multiplied by one
hundred or five thousand, as the case may be. If none of the Class A
Shares, Class B Shares or the Participating Preferred Shares are publicly
held or so listed or traded, "current per share market price" shall mean
the fair value per share as determined in good faith by the Board of
Directors of the Corporation, whose determination shall be described in a
statement filed with the Rights Agent.
(e) Anything herein to the contrary notwithstanding, no adjustment in the
Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least 1% in the Purchase Price; provided, however,
that any adjustments which by reason of this Section 11(e) are not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 11 shall be made to the nearest
cent or to the nearest one one-millionth of a Participating Preferred Share or
one ten-thousandth of any other share or security, as the case may be.
Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
years from the date of the transaction which requires such adjustment or (ii)
the date of the expiration of the right to exercise any Rights.
(f) If as a result of an adjustment made pursuant to Section 11(a) or
Section 13(a) hereof, the holder of any Right thereafter exercised shall become
entitled to receive any shares of the Corporation other than Participating
Preferred Shares, thereafter the number of such other shares so receivable upon
exercise of any Right shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Participating Preferred Shares contained in this Section 11, and
the provisions of Sections 7, 9, 10, 13 and 14 with respect to the Participating
Preferred Shares shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Corporation subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths or
one five-thousandths, as the case may be, of a Participating Preferred Share
purchasable from time to time hereunder upon exercise of the Rights, all subject
to further adjustment as provided herein.
(h) Unless the Corporation shall have exercised its election as provided in
Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence in the case of
Class A Shares, the right to purchase, at the adjusted Purchase Price, that
number of one one-hundredths of a Participating Preferred Share (calculated to
the nearest one one-millionth of a Participating Preferred Share) obtained by
(i) multiplying (A) the number of one one-hundredths of a Participating
Preferred Share covered by a Right immediately prior to such adjustment by (B)
the Purchase Price in effect immediately prior to such adjustment of the
Purchase Price and (ii) dividing the product so obtained by the Purchase Price
in effect immediately after such adjustment of the Purchase Price; or in the
case of Class B Shares, the right to purchase, at the adjusted Purchase Price,
that number of one five-thousandths of a Participating Preferred Share
(calculated to the nearest one one-millionth of a Participating Preferred Share)
obtained by (i)
16
<PAGE>
multiplying (A) the number of one five-thousandths of a Participating Preferred
Share covered by a Right immediately prior to such adjustment by (B) the
Purchase Price in effect immediately prior to such adjustment of the Purchase
Price and (ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
(i) The Corporation may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of one one-hundredths or one five-thousandths, as the
case may be, of a Participating Preferred Share purchasable upon the exercise of
a Right. Each of the Rights outstanding after such adjustment of the number of
Rights shall be exercisable for the number of one one-hundredths or one five-
thousandths, as the case may be, of a Participating Preferred Share for which a
Right was exercisable immediately prior to such adjustment. Each Right held of
record prior to such adjustment of the number of Rights shall become that number
of Rights (calculated to the nearest one ten-thousandth) obtained by dividing
the Purchase Price in effect immediately prior to adjustment of the Purchase
Price by the Purchase Price in effect immediately after adjustment of the
Purchase Price. The Corporation shall make a public announcement of its
election to adjust the number of Rights, indicating the record date for the
adjustment, and, if known at the time, the amount of the adjustment to be made.
This record date may be the date on which the Purchase Price is adjusted or any
day thereafter, but, if the Right Certificates have been issued, shall be at
least 10 days later than the date of the public announcement. If Right
Certificates have been issued, upon each adjustment of the number of Rights
pursuant to this Section 11(i), the Corporation shall, as promptly as
practicable, cause to be distributed to holders of record of Right Certificates
on such record date Right Certificates evidencing, subject to Section 14 hereof,
the additional Rights to which such holders shall be entitled as a result of
such adjustment, or, at the option of the Corporation, shall cause to be
distributed to such holders of record in substitution and replacement for the
Right Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Corporation, new Right Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment. Right Certificates so to be distributed shall be issued, executed
and countersigned in the manner provided for herein and shall be registered in
the names of the holders of record of Right Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or the
number of one one-hundredths or one five-thousandths, as the case may be, of a
Participating Preferred Share issuable upon the exercise of the Rights, the
Right Certificates theretofore and thereafter issued may continue to express the
Purchase Price and the number of one one-hundredths or one five-thousandths, as
the case may be, of a Participating Preferred Share which were expressed in the
initial Right Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing the
Purchase Price below one one-hundredth or one five-thousandths, as the case may
be, of the then par value, if any, of the Participating Preferred Shares
issuable upon exercise of the Rights, the Corporation shall take any action
which may, in the opinion of its counsel, be necessary in order that the
Corporation may validly and legally issue fully paid and nonassessable
Participating Preferred Shares at such adjusted Purchase Price.
17
<PAGE>
(l) In any case in which this Section 11 shall require that an adjustment
in the Purchase Price be made effective as of a record date for a specified
event, the Corporation may elect to defer until the occurrence of such event the
issuance to the holder of any Right exercised after such record date of the
Participating Preferred Shares and other securities of the Corporation, if any,
issuable upon such exercise over and above the Participating Preferred Shares
and other securities of the Corporation, if any, issuable upon such exercise on
the basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Corporation shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Corporation shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that any consolidation or subdivision of the Participating Preferred
Shares, issuance wholly for cash of any Participating Preferred Shares at less
than the current market price, issuance wholly for cash of Participating
Preferred Shares or securities which by their terms are convertible into or
exchangeable for Participating Preferred Shares, dividends on Participating
Preferred Shares payable in Participating Preferred Shares or issuance of
rights, options or warrants referred to hereinabove in Section 11(b), hereafter
made by the Corporation to holders of its Participating Preferred Shares shall
not be taxable to such shareholders.
(n) In the event that at any time after the date of this Agreement and
prior to the Distribution Date, the Corporation shall (i) declare or pay any
dividend on the Class A Shares or Class B Shares, as the case may be, payable
in Class A Shares or Class B Shares, as the case may be, or (ii) effect a
subdivision, combination or consolidation of the Class A Shares or Class B
Shares, as the case may be (by reclassification or otherwise than by payment of
dividends in Class A Shares or Class B Shares, as the case may be), into a
greater or lesser number of Class A Shares or Class B Shares, as the case may
be, then in any such case (x) the number of one one-hundredths or one five-
thousandths, as the case may be, of a Participating Preferred Share purchasable
after such event upon proper exercise of each Right shall be determined by
multiplying the number of one one-hundredths or one five-thousandths, as the
case may be, of a Participating Preferred Share so purchasable immediately prior
to such event by a fraction, the numerator of which is the number of Class A
Shares or Class B Shares, as the case may be, outstanding immediately before
such event and the denominator of which is the number of Class A Shares or Class
B Shares, as the case may be, outstanding immediately after such event, and (y)
there shall be issued to each holder of a Class A Share or Class B Share, as the
case may be, outstanding immediately after such event that number of Rights
which were issued to each Class A Share or Class B Share, as the case may be,
outstanding immediately prior to such event. The adjustments provided for in
this Section 11(n) shall be made successively whenever such a dividend is
declared or paid or such a subdivision, combination or consolidation is
effected.
(o) So long as the shares issuable upon the exercise of the Rights may be
listed on any national securities exchange, the Corporation shall use its best
efforts to cause, from and after such
18
<PAGE>
time as the Rights become exercisable, all shares reserved for such issuance to
be listed on such exchange upon official notice of issuance upon such exercise.
(p) The Corporation shall use its reasonable best efforts to (i) file, as
soon as practicable following the first occurrence of a Triggering Event, a
registration statement under the Securities Act with respect to the securities
purchasable upon exercise of the Rights on an appropriate form, (ii) cause such
registration statement to become effective as soon as practicable after such
filing, and (iii) cause such registration statement to remain effective (with a
prospectus at all times meeting the requirements of the Securities Act) until
the date of the expiration of the Rights. The Corporation will also take such
action as may be appropriate under the blue sky laws of the various states. The
Corporation may temporarily suspend, for a period of time not to exceed 90 days,
the exercisability of the Rights in order to prepare and file such registration
statement or in order to comply with such blue sky laws. Upon any such
suspension, the Corporation shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended.
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.
Whenever an adjustment is made as provided in Section 11 or 13 hereof, the
Corporation shall promptly (a) prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the Class A
Shares, Class B Shares and the Participating Preferred Shares a copy of such
certificate and (c) mail a brief summary thereof to each holder of a Right
Certificate in accordance with Section 25 hereof. The Rights Agent shall be
fully protected in relying on any such certificate and on any adjustment therein
contained and may assume that no adjustment has been made unless and until it
shall have received such certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power.
(a) If after the Shares Acquisition Date, directly or indirectly, (x) the
Corporation shall consolidate with, or merge with and into, any other Person,
(y) any Person shall consolidate with the Corporation, or merge with and into
the Corporation and the Corporation shall be the continuing or surviving entity
of such merger and, in connection with such merger, all or part of the Class A
Shares or Class B Shares shall be changed into or exchanged for stock or other
securities of any Person (or the Corporation) or cash or any other property, or
(z) the Corporation shall sell or otherwise transfer (or one or more of its
Subsidiaries shall sell or otherwise transfer), in one or more transactions,
assets or earning power aggregating 50% or more of the assets or earning power
of the Corporation and its Subsidiaries (taken as a whole) to any Person or
Persons other than the Corporation or one or more of its wholly-owned
Subsidiaries, then, and in each such case, proper provision shall be made so
that (i) each holder of a Right (except as otherwise provided herein) shall
thereafter have the right to receive, upon the exercise thereof at a price equal
to the then current Purchase Price multiplied by the number of one one-
hundredths or one five-thousandths, as the case may be, of a Participating
Preferred Share for which a Right is then exercisable, in accordance with the
terms of this Agreement and in lieu of Participating Preferred Shares, such
number of validly authorized and issued, fully paid, non-assessable and freely
tradeable Common Shares of the Principal Party (as hereinafter defined), free
and clear of all liens, rights of call or first refusal,
19
<PAGE>
encumbrances or other adverse claims, as shall equal, in the case of Class A
Shares, the result obtained by (A) multiplying the then current Purchase Price
by the number of one one-hundredths of a Participating Preferred Share for which
a Right is then exercisable (or, if such Right is not then exercisable for a
number of one one-hundredths of a Participating Preferred Share, the number of
such fractional shares for which it was exercisable immediately prior to an
event described under Section 11(a)(ii) hereof) and dividing that product by (B)
50% of the then current per share market price of the Common Shares of such
Principal Party (determined pursuant to Section 11(d) hereof) on the date of
consummation of such consolidation, merger, sale or transfer, or in the case of
Class B Shares, the result obtained by (A) multiplying the then current Purchase
Price by the number of one five-thousandths of a Participating Preferred Share
for which a Right is then exercisable (or, if such Right is not then exercisable
for a number of one five-thousandths of a Participating Preferred Share, the
number of such fractional shares for which it was exercisable immediately prior
to an event described under Section 11(a)(ii) hereof) and dividing that product
by (b) 50% of the then current per share market price of the Common Shares of
such Principal Party (determined pursuant to Section 11(d) hereof) on the date
of consummation of such consolidation, merger, sale or transfer; (ii) such
Principal Party shall thereafter be liable for, and shall assume, by virtue of
such consolidation, merger, sale or transfer, or otherwise, all the obligations
and duties of the Corporation pursuant to this Agreement; (iii) the term
"Corporation" shall thereafter be deemed to refer to such Principal Party and
(iv) such Principal Party shall take such steps (including, but not limited to,
the reservation of a sufficient number of its common shares in accordance with
Section 9 hereof) in connection with such consummation as may be necessary to
assure that the provisions hereof shall thereafter be applicable, as nearly as
reasonably may be, in relation to its common shares thereafter deliverable upon
the exercise of the Rights.
(b) "Principal Party" shall mean:
(i) in the case of any transaction described in (x) or (y) of the
first sentence of Section 13(a), the Person that is the issuer of any
securities into which Shares of the Corporation are converted in such
merger or consolidation, and if no securities are so issued, the Person
that is the surviving entity of such merger or consolidation (including the
Corporation if applicable); and
(ii) in the case of any transaction described in (z) of the first
sentence in Section 13(a), the Person that is the party receiving the
greatest portion of the assets or earning power transferred pursuant to
such transaction or transactions;
provided, however, that in any such case described in clauses (b)(i) and
(b)(ii): (1) if the Common Shares of such Person are not at such time and have
not been continuously over the preceding 12-month period registered under
Section 12 of the Exchange Act, and such Person is a direct or indirect
Subsidiary of another Person the Common Shares of which are and have been so
registered, "Principal Party" shall refer to such other Person; (2) in case such
Person is a Subsidiary, directly or indirectly, of more than one Person, the
Common Shares of two or more of which are and have been so registered,
"Principal Party" shall refer to whichever of such Persons is the issuer of the
Common Shares having the greatest aggregate market value; and (3) in case such
Person is owned,
20
<PAGE>
directly or indirectly, by a joint venture formed by two or more Persons that
are not owned, directly or indirectly, by the same Person, the rules set forth
in (1) and (2) above shall apply to each of the chains of ownership having an
interest in such joint venture as if such party were a "Subsidiary" of both or
all of such joint venturers and the Principal Parties in each such chain shall
bear the obligations set forth in this Section 13 in the same ratio as their
direct or indirect interests in such Person bear to the total of such interests.
(c) The Corporation shall not consummate any such consolidation, merger,
sale or transfer unless the Principal Party shall have sufficient Common Shares
authorized to permit the full exercise of the Rights and prior thereto the
Corporation and such Principal Party shall have executed and delivered to the
Rights Agent a supplemental agreement providing for the terms set forth in
paragraphs (a) and (b) of this Section 13 and further providing that, as soon as
practicable after the date of any consolidation, merger or sale of assets
mentioned in paragraph (a) of this Section 13, the Principal Party will:
(i) prepare and file a registration statement under the Securities
Act, with respect to the Rights and the securities purchasable upon
exercise of the Rights on an appropriate form, and will use its best
efforts to cause such registration statement to (A) become effective as
soon as practicable after such filing and (B) remain effective (with a
prospectus at all times meeting the requirements of the Securities Act)
until the Expiration Date;
(ii) deliver to holders of the Rights historical financial statements
for the Principal Party and each of its Affiliates which comply in all
respects with the requirements for registration on Form 10 under the
Exchange Act; and
(iii) take such actions as may be necessary or appropriate under the
blue sky laws of the various states.
The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers. In the event that one of the
transactions described in this Section 13(a) shall occur at any time after the
occurrence of a transaction described in Section 11(a)(ii) hereof, the Rights
which have not theretofore been exercised shall thereafter become exercisable in
the manner described in Section 13(a).
Section 14. Fractional Rights and Fractional Shares.
(a) The Corporation shall not be required to issue fractions of Rights or
to distribute Right Certificates which evidence fractional Rights. In lieu of
such fractional Rights, there may be paid to the registered holders of the Right
Certificates with regard to which such fractional Rights would otherwise be
issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For the purposes of this Section 14(a), the current
market value of a whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such fractional Rights would
have been otherwise issuable. The closing price for any day shall be the last
sale price or, in case no such sale takes place on such day, the average of the
closing
21
<PAGE>
bid and asked prices in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Rights are not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Rights are listed or
admitted to trading or, if the Rights are not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by NASDAQ or such other system then in use or, if on any such date
the Rights are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Rights selected by the Board of Directors of the Corporation. If on any
such date no such market maker is making a market in the Rights, the fair value
of the Rights on such date as determined in good faith by the Board of Directors
of the Corporation shall be used.
(b) The Corporation shall not be required to issue fractions of
Participating Preferred Shares (other than fractions which are integral
multiples of one one-hundredth or one five-thousandth, as the case may be, of a
Participating Preferred Share) upon exercise of the Rights or to distribute
certificates which evidence fractional Participating Preferred Shares (other
than fractions which are integral multiples of one one-hundredth or one five-
thousandth, as the case may be of a Participating Preferred Share). Fractions
of Participating Preferred Shares in integral multiples of one one-hundredth or
one five-thousandth, as the case may be, of a Participating Preferred Share may,
at the election of the Corporation, be evidenced by depositary receipts,
pursuant to an appropriate agreement between the Corporation and a depositary
selected by it; provided, that such agreement shall provide that the holders of
such depositary receipts shall have all the rights, privileges and preferences
to which they are entitled as beneficial owners of the Participating Preferred
Shares represented by such depositary receipts. In lieu of fractional
Participating Preferred Shares that are not integral multiples of one one-
hundredth or one five-thousandth, as the case may be, of a Participating
Preferred Share, the Corporation may, to the extent necessary to reduce such
fraction to an integral multiple of one one-hundredth or one five-thousandth, as
the case may be, pay to the registered holders of Right Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one one-hundredth or one five-
thousandth, as the case may be, of a Participating Preferred Share. For the
purposes of this Section 14(b), the current market value of one one-hundredth of
a Participating Preferred Share shall be one one-hundredth of the closing price
of a Participating Preferred Share (as determined pursuant to the second
sentence of Section 11(d)(i) hereof) for the Trading Day immediately prior to
the date of such exercise and the current market value of one five-thousandth of
a Participating Preferred Share shall be one five-thousandth of the closing
price of a Participating Preferred Share (as determined pursuant to the second
sentence of Section 11(d)(i) hereof) for the Trading Day immediately prior to
the date of such exercise.
(c) Following the occurrence of a Triggering Event, the Corporation shall
not be required to issue fractions of Class A Shares or Class B Shares, as the
case may be, upon exercise of the Rights or to distribute certificates which
evidence fractional Class A Shares or Class B Shares, as the case may be. In
lieu of fractional Class A Shares or Class B Shares, the Corporation may pay
22
<PAGE>
to the registered holders of Right Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of the
current market value of one Class A Share or Class B Share, as the case may be.
For purposes of this Section 14(c), the current market value of one Class A
Share or Class B Share, as the case may be, shall be the closing price of one
Class A Share or Class B Share, as the case may be (as determined pursuant to
the second sentence of Section 11(d)(i) hereof) for the Trading Day immediately
prior to the date of such exercise.
(d) The holder of a Right by the acceptance of the Right expressly waives
his right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Shares); and any registered holder of any Right Certificate (or, prior to the
Distribution Date, of the Shares), without the consent of the Rights Agent or of
the holder of any other Right Certificate (or, prior to the Distribution Date,
of the Shares), may, in his own behalf and for his own benefit, enforce, and may
institute and maintain any suit, action or proceeding against the Corporation to
enforce, or otherwise act in respect of, his right to exercise the Rights
evidenced by such Right Certificate in the manner provided in such Right
Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened violations
of the obligations of any Person subject to, this Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Corporation and the Rights
Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable only in
connection with the transfer of the Shares;
(b) after the Distribution Date, the Right Certificates are transferable
only on the registry books of the Rights Agent if surrendered at the principal
office of the Rights Agent, duly endorsed or accompanied by a proper instrument
of transfer;
(c) the Corporation and the Rights Agent may deem and treat the person in
whose name the Right Certificate (or, prior to the Distribution Date, the
associated Shares certificate) is registered as the absolute owner thereof and
of the Rights evidenced thereby (notwithstanding any notations of ownership or
writing on the Right Certificates or the associated Shares certificate made by
anyone other than the Corporation or the Rights Agent) for all purposes
whatsoever, and neither the Corporation nor the Rights Agent shall be affected
by any notice to the contrary; and
23
<PAGE>
(d) notwithstanding anything in this Agreement to the contrary, neither the
Corporation nor the Rights Agent shall have any liability to any holder of a
Right or any other Person as a result of its inability to perform any of its
obligations under this Agreement by reason of any preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, or any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority prohibiting or otherwise restraining
performance of such obligation.
Section 17. Right Certificate Holder Not Deemed a Shareholder. No
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Participating Preferred
Shares or any other securities of the Corporation which may at any time be
issuable on the exercise of the Rights represented thereby, nor shall anything
contained herein or in any Right Certificate be construed to confer upon the
holder of any Right Certificate, as such, any of the rights of a shareholder of
the Corporation or any right to vote for the election of trustees or upon any
matter submitted to shareholders at any meeting thereof, or to give or withhold
consent to any trust action, or to receive notice of meetings or other actions
affecting shareholders (except as provided in Section 25 hereof), or to receive
dividends or subscription rights, or otherwise, until the Right or Rights
evidenced by such Right Certificate shall have been exercised in accordance with
the provisions hereof.
Section 18. Concerning the Rights Agent. The Corporation agrees to pay
to the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Corporation also agrees to indemnify the Rights Agent for, and
to hold it harmless against, any loss, liability, or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim of liability in the premises.
The Rights Agent shall be protected and shall incur no liability for, or in
respect of any action taken, suffered or omitted by it in connection with, its
administration of this Agreement in reliance upon any Right Certificate or
certificate for the Participating Preferred Shares, Class A Shares or Class B
Shares or for other securities of the Corporation, instrument of assignment or
transfer, power of attorney, endorsement, affidavit, letter, notice, direction,
consent, certificate, statement, or other paper or document believed by it to be
genuine and to be signed, executed and, where necessary, verified or
acknowledged, by the proper person or persons, or otherwise upon the advice of
counsel as set forth in Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
Any corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the stock transfer or
corporate trust business of the Rights Agent or any successor Rights Agent,
shall be the
24
<PAGE>
successor to the Rights Agent under this Agreement without the execution or
filing of any paper or any further act on the part of any of the parties hereto;
provided, that such corporation would be eligible for appointment as a successor
Rights Agent under the provisions of Section 21 hereof. In case at the time
such successor Rights Agent shall succeed to the agency created by this
Agreement, any of the Right Certificates shall have been countersigned but not
delivered; any such successor Rights Agent may adopt the countersignature of the
predecessor Rights Agent and deliver such Right Certificates so countersigned;
and in case at that time any of the Right Certificates shall not have been
countersigned, any successor Rights Agent may countersign such Right
Certificates either in the name of the predecessor Rights Agent or in the name
of the successor Rights Agent; and in all such cases such Right Certificates
shall have the full force provided in the Right Certificates and in this
Agreement.
In case at any time the name of the Rights Agent shall be changed and at
such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in its changed
name; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Corporation and the holders of Right
Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Corporation), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Corporation prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by the Chairman, any Managing Director, any
Senior Vice President, any Vice President, or the Secretary of the Corporation
and delivered to the Rights Agent; and such certificate shall be full
authorization to the Rights Agent for any action taken or suffered in good faith
by it under the provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Corporation and any
other Person only for any and all losses, liabilities, costs, damages and
expenses (including attorneys' fees) arising out of or in connection with the
Rights Agent's negligence, bad faith or willful misconduct. Anything in this
Agreement to the contrary notwithstanding, in no event shall the Rights Agent be
liable for special, indirect or consequential loss or damage of any kind
whatsoever (including but
25
<PAGE>
not limited to lost profits), even if the Rights Agent has been advised of the
likelihood of such loss or damage and regardless of the form of the action.
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Corporation only.
(e) The Rights Agent shall not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof (except the
due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Right Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Corporation of any covenant or
condition contained in this Agreement or in any Right Certificate; nor shall it
be responsible for any change in the exercisability of the Rights (including the
Rights becoming void pursuant to Section 7(e) hereof) or any adjustment in the
terms of the Rights (including the manner, method or amount thereof) provided
for in Section 3, 11, 13, 23 or 24, or the ascertaining of the existence of
facts that would require any such change or adjustment (except with respect to
the exercise of Rights evidenced by Right Certificates after receipt of a
certificate furnished pursuant to Section 12 describing a change or adjustment);
nor shall it by any act hereunder be deemed to make any representation or
warranty as to the authorization or reservation of any Participating Preferred
Shares, Class A Shares or Class B Shares to be issued pursuant to this Agreement
or any Right Certificate or as to whether any Participating Preferred Shares,
Class A Shares or Class B Shares will, when issued, be validly authorized and
issued, fully paid and nonassessable.
(f) The Corporation agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman, any Managing Director, any Senior Vice President, any Vice President,
or the Secretary of the Corporation, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered by it in good faith in accordance with instructions of
any such officer or for any delay in acting while waiting for those
instructions. Any application by the Rights Agent for written instructions from
the Corporation may, at the option of the Rights Agent, set forth in writing any
action proposed to be taken or omitted by the Rights Agent under this Agreement
and the date on and/or after which such action shall be taken or such omission
shall be effective. The Rights Agent shall not be liable for any action taken
by, or omission of, the Rights Agent in accordance with a proposal included in
any such application on or after the date specified in such application (which
date shall not be less than five Business Days after the date any officer of the
Corporation actually receives such application, unless any such officer shall
have consented in writing to an earlier date) unless, prior to taking any such
action (or the effective date in the case of an omission),
26
<PAGE>
the Rights Agent shall have received written instructions in response to such
application specifying the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer or employee of
the Rights Agent may buy, sell or deal in any of the Rights or other securities
of the Corporation or its Subsidiaries or become pecuniarily interested in any
transaction in which the Corporation or its Subsidiaries may be interested, or
contract with or lend money to the Corporation or its Subsidiaries or otherwise
act as fully and freely as though it were not Rights Agent under this Agreement.
Nothing herein shall preclude the Rights Agent from acting in any other capacity
for the Corporation or its Subsidiaries or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or through
its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Corporation resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
(j) If, with respect to any Rights Certificate surrendered to the Rights
Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has either not
been completed or indicates an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise of transfer without first consulting with the Corporation.
Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Corporation and to each transfer
agent of the Class A Shares, Class B Shares and Participating Preferred Shares
by registered or certified mail, and to the holders of the Right Certificates by
first-class mail. The Corporation may remove the Rights Agent or any successor
Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent or
successor Rights Agent, as the case may be, and to each transfer agent of the
Class A Shares, Class B Shares and Participating Preferred Shares by registered
or certified mail, and to the holders of the Right Certificates by first-class
mail. If the Rights Agent shall resign or be removed or shall otherwise become
incapable of acting, the Corporation shall appoint a successor to the Rights
Agent. If the Corporation shall fail to make such appointment within a period
of 30 days after giving notice of such removal or after it has been notified in
writing of such resignation or incapacity by the resigning or incapacitated
Rights Agent or by the holder of a Right Certificate (who shall, with such
notice, submit his Right Certificate for inspection by the Corporation), then
the registered holder of any Right Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent. Any successor
Rights Agent, whether appointed by the Corporation or by such a court, shall be
a corporation or bank organized and doing business under the laws of the United
States or of any other state of the United States, which is authorized under
such laws to exercise corporate trust or stock transfer powers and is subject to
supervision or examination by federal or state authority and which has at the
time of its appointment as Rights Agent a combined capital and surplus of at
least $100 million. After
27
<PAGE>
appointment, the successor Rights Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as Rights
Agent without further act or deed; but the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the time held
by it hereunder, and execute and deliver any further assurance, conveyance, act
or deed necessary for the purpose. Not later than the effective date of any
such appointment the Corporation shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Class A Shares, Class B
Shares and Participating Preferred Shares, and mail a notice thereof in writing
to the registered holders of the Right Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the
Corporation may, at its option, issue new Right Certificates evidencing Rights
in such form as may be approved by its Board of Directors to reflect any
adjustment or change in the Purchase Price and the number or kind or class of
shares or other securities or property purchasable under the Right Certificates
made in accordance with the provisions of this Agreement.
Section 23. Redemption.
(a) The Board of Directors of the Corporation may, at its option, at any
time prior to such time as any Person becomes an Acquiring Person, redeem all
but not less than all the then outstanding Rights at a redemption price of $.01
per Right, appropriately adjusted to reflect any share split, share dividend or
similar transaction occurring after the date hereof (such redemption price being
hereinafter referred to as the "Redemption Price"). The redemption of the
Rights by the Board of Directors may be made effective at such time on such
basis and with such conditions as the Board of Directors in its sole discretion
may establish. The Corporation may, at its option, pay the Redemption Price in
cash, Class A Shares or Class B Shares, as the case may be (based on the current
per share market price of the Class A Shares or Class B Shares, as the case may
be, at the time of redemption) or any other form of consideration deemed
appropriate by the Board of Directors.
(b) Immediately upon the action of the Board of Directors of the
Corporation ordering the redemption of the Rights (or at the effective time of
such redemption established by the Board of Directors of the Corporation
pursuant to the last sentence of paragraph (a) of this Section 23), and without
any further action and without any notice, the right to exercise the Rights will
terminate and the only right thereafter of the holders of Rights shall be to
receive the Redemption Price. The Corporation shall promptly give public notice
of any such redemption; provided, however, that the failure to give, or any
defect in, any such notice shall not affect the validity of such redemption.
Within 10 days after such action of the Board of Directors ordering the
redemption of the Rights or, if later, the effectiveness of the redemption of
the Rights pursuant to the last sentence of paragraph (a), the Corporation shall
mail a notice of redemption to all the holders of the then outstanding Rights at
their last addresses as they appear upon the registry books of the Rights Agent
or, prior to
28
<PAGE>
the Distribution Date, on the registry books of the transfer agent for the Class
A Shares and Class B Shares. Any notice which is mailed in the manner herein
provided shall be deemed given, whether or not the holder receives the notice.
Each such notice of redemption will state the method by which the payment of the
Redemption Price will be made. The Corporation may, at its option, discharge
all of its obligations with respect to the Rights by (i) issuing a press release
announcing the manner of redemption of the Rights, (ii) depositing with a bank
or trust company having a capital and surplus of at least $100,000,000, funds or
securities necessary for such redemption, in trust, to be applied to the
redemption of the Rights so called for redemption and (iii) arranging for the
mailing of the Redemption Price to the registered holders of the Rights; then,
and upon such action, all outstanding Rights Certificates shall be null and void
without further action by the Corporation. Neither the Corporation nor any of
its Affiliates or Associates may redeem, acquire or purchase for value any
Rights at any time in any manner other than that specifically set forth in this
Section 23, in Section 24 hereof, or in connection with the purchase of Shares
prior to the Distribution Date.
Section 24. Exchange.
(a) The Board of Directors of the Corporation may, at its option, at any
time after a Triggering Event, exchange all or part of the then outstanding and
exercisable Rights (which shall not include Rights that have become void
pursuant to the provisions of Section 7(e) hereof) for Class A Shares or Class B
Shares, as the case may be, at an exchange ratio of one Class A Share or Class B
Share, as the case may be, per Right, appropriately adjusted to reflect any
share split, share dividend or similar transaction occurring after the date
hereof (such exchange ratio being hereinafter referred to as the "Exchange
Ratio"). Notwithstanding the foregoing, the Board of Directors shall not be
empowered to effect such exchange at any time after any Person (other than
USREALTY, the Corporation, any Affiliate or Subsidiary of the Corporation or
USREALTY, any employee benefit plan of the Corporation or of any Affiliate or
Subsidiary of the Corporation or any entity holding Class A Shares or Class B
Shares, for or pursuant to the terms of any such plan), together with all
Affiliates and Associates of such Person, becomes the Beneficial Owner of 50% or
more of either the Class A Shares or Class B Shares then outstanding.
(b) Immediately upon the action of the Board of Directors of the
Corporation ordering the exchange of any Rights pursuant to paragraph (a) of
this Section 24 and without any further action and without any notice, the right
to exercise such Rights shall terminate and the only right thereafter of a
holder of such Rights shall be to receive that number of Class A Shares or Class
B Shares, as the case may be, equal to the number of such Rights held by such
holder multiplied by the Exchange Ratio. The Corporation shall promptly give
public notice of any such exchange; provided, however, that the failure to give,
or any defect in, such notice shall not affect the validity of such exchange.
The Corporation promptly shall mail a notice of any such exchange to all of the
holders of such Rights at their last addresses as they appear upon the registry
books of the Rights Agent. Any notice which is mailed in the manner herein
provided shall be deemed given, whether or not the holder receives the notice.
Each such notice of exchange will state the method by which the exchange of the
Class A Shares or Class B Shares, as the case may be, for Rights will be
effected and, in the event of any partial exchange, the number of Rights which
will be exchanged. Any
29
<PAGE>
partial exchange shall be effected pro rata based on the number of Rights (other
than Rights which have become void pursuant to the provisions of Section 7(e)
hereof) held by each holder of Rights.
(c) In any exchange pursuant to this Section 24, the Corporation, at its
option, may substitute Participating Preferred Shares (or equivalent preferred
shares, as such term is defined in Section 11(b) hereof) for Class A Shares or
Class B Shares, as the case may be, exchangeable for Rights, at the initial rate
of one one-hundredth of a Participating Preferred Share (or equivalent preferred
share) for each Class A Share and one five-thousandth (or equivalent preferred
share) for each Class B Share, as appropriately adjusted to reflect adjustments
in the voting rights of the Participating Preferred Shares pursuant to the terms
thereof, so that the fraction of a Participating Preferred Share delivered in
lieu of each Class A Share or Class B Share, as the case may be, shall have the
same voting rights as one Class A Share or Class B Share, as the case may be.
(d) In the event that there shall not be sufficient Class A Shares, Class B
Shares, or Participating Preferred Shares issued but not outstanding or
authorized but unissued to permit any exchange of Rights as contemplated in
accordance with this Section 24, the Corporation shall take all such action as
may be necessary to authorize additional Class A or Class B Shares, as the case
may be, or Participating Preferred Shares for issuance upon exchange of the
Rights.
(e) The Corporation shall not be required to issue fractions of Class A
Shares or Class B Shares or to distribute certificates which represent
fractional Class A Shares or Class B Shares. In lieu of such fractional Class A
Shares or Class B Shares, the Corporation shall pay to the registered holders of
the Right Certificates with regard to which such fractional Class A Shares or
Class B Shares would otherwise be issuable an amount in cash equal to the same
fraction of the current market value of a whole Class A Shares or Class B
Shares, as the case may be. For the purposes of this paragraph (e), the current
market value of a whole Class A Shares or Class B Shares shall be the closing
price of a Class A Shares or Class B Shares, as the case may be (as determined
pursuant to the second sentence of Section 11(d)(i) hereof), for the Trading Day
immediately prior to the date of exchange pursuant to this Section 24.
Section 25. Notice of Certain Events.
(a) In case the Corporation shall propose at any time after the
Distribution Date (i) to pay any dividend payable in shares of any class to the
holders of its Participating Preferred Shares or to make any other distribution
to the holders of its Participating Preferred Shares (other than a regular
quarterly cash dividend), (ii) to offer to the holders of its Participating
Preferred Shares rights or warrants to subscribe for or to purchase any
additional Participating Preferred Shares or shares of any class or any other
securities, rights or options, (iii) to effect any reclassification of its
Participating Preferred Shares (other than a reclassification involving only the
subdivision of outstanding Participating Preferred Shares), (iv) to effect any
consolidation or merger into or with, or to effect any sale or other transfer
(or to permit one or more of its Subsidiaries to effect any sale or other
transfer), in one or more transactions, of 50% or more of the assets or earning
power of the Corporation and its Subsidiaries (taken as a whole) to, any other
Person, (v) to effect the liquidation, dissolution or winding up of the
Corporation, or (vi) to declare or pay any dividend on the Class A
30
<PAGE>
Shares or Class B Shares payable in such Shares or to effect a subdivision,
combination or consolidation of the Class A Shares or Class B Shares (by
reclassification or otherwise than by payment of dividends in such Shares),
then, in each such case, the Corporation shall give to each holder of a Right
Certificate, in accordance with Section 26 hereof, a notice of such proposed
action, which shall specify the record date for the purposes of such share
dividend, or distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to occur and the record date for participation
therein by the holders of the Class A Shares, Class B Shares and/or
Participating Preferred Shares, if any such date is to be fixed, and such notice
shall be so given in the case of any action covered by clause (i) or (ii) above
at least 10 days prior to the record date for determining holders of the
Participating Preferred Shares for purposes of such action, and in the case of
any such other action, at least 10 days prior to the date of the taking of such
proposed action or the date of participation therein by the holders of the Class
A Shares, Class B Shares and/or Participating Preferred Shares, whichever shall
be the earlier.
(b) In case any of the events set forth in Section 11(a)(ii) hereof shall
occur, then the Corporation shall as soon as practicable thereafter give to each
holder of a Right Certificate, in accordance with Section 26 hereof, a notice of
the occurrence of such event, which notice shall describe such event and the
consequences of such event to holders of Rights under Section 11(a)(ii) hereof.
Section 26. Notices. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Right Certificate
to or on the Corporation shall be sufficiently given or made if sent by first-
class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
Security Capital Group Incorporated
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Attention: Secretary
Subject to the provisions of Section 21 hereof, any notice or demand
authorized by this Agreement to be given or made by the Corporation or by the
holder of any Right Certificate to or on the Rights Agent shall be sufficiently
given or made if sent by first-class mail, postage prepaid, addressed (until
another address is filed in writing with the Corporation) as follows:
The First National Bank of Boston
150 Royall Street
Mail Stop 45-02-62
Canton, Massachusetts 02021
Attention: Shareholders Services Division
Notices or demands authorized by this Agreement to be given or made by the
Corporation or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by
31
<PAGE>
first-class mail, postage prepaid, addressed to such holder at the address of
such holder as shown on the registry books of the Corporation.
Section 27. Supplements and Amendments. The Corporation may from time to
time supplement or amend this Agreement without the approval of any holders of
Right Certificates in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provisions herein, or to make any other provisions with respect to the Rights
(including, without limitation, changes to the Purchase Price) which the
Corporation may deem necessary or desirable, any such supplement or amendment to
be evidenced by a writing signed by the Corporation and the Rights Agent;
provided, however, that from and after such time as any Person becomes an
Acquiring Person, this Agreement shall not be amended in any manner which would
adversely affect the interests of the holders of Rights.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Corporation or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
Section 29. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any Person other than the Corporation, the Rights Agent
and the registered holders of the Right Certificates (and, prior to the
Distribution Date, the Shares) any legal or equitable right, remedy or claim
under this Agreement; and this Agreement shall be for the sole and exclusive
benefit of the Corporation, the Rights Agent and the registered holders of the
Right Certificates (and, prior to the Distribution Date, the Shares).
Section 30. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Section 31. Governing Law. This Agreement and each Right Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of Maryland and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State, except that those provisions of this
Agreement affecting the rights, duties and responsibilities of the Rights Agent
shall be governed by and construed in accordance with the law of the State of
New York.
Section 32. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
32
<PAGE>
Section 34. Determinations and Actions by the Board of Directors. The
Board of Directors of the Corporation shall have the exclusive power and
authority to administer this Agreement and to exercise all rights and powers
specifically granted to the Directors or the Corporation or as may be necessary
or advisable in the administration of this Agreement, including, without
limitation, the right and power to (a) interpret the provisions of this
Agreement, and (b) make all determinations deemed necessary or advisable for the
administration of this Agreement (including a determination to redeem or not
redeem the Rights or to amend this Agreement). All such actions,
interpretations and determinations (including, for purpose of clause (b) above,
all omissions with respect to the foregoing) which are done or made by the
Directors in good faith, shall (x) be final, conclusive and binding on the
Corporation, the Rights Agent, the holders of the Right Certificates and all
other parties, and (y) not subject the Directors to any liability to the holders
of the Right Certificates or to any other person.
33
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested, all as of the day and year first above written.
SECURITY CAPITAL GROUP INCORPORATED
By /s/ JEFFREY A. KLOPF
----------------------------------
Jeffrey A. Klopf
Senior Vice President
Attest:
By /s/ ARIEL AMIR
-----------------------------
Ariel Amir
Vice President
THE FIRST NATIONAL BANK OF BOSTON
By /s/ VALERIE G. GRAY
----------------------------------
Name: Valerie G. Gray
----------------------------
Title: Director, Client Services
---------------------------
Attest:
By /s/ MICHAEL R. BRADSHAW
-----------------------------
Name: Michael R. Bradshaw
-----------------------
Title: Sr. Account Manager
----------------------
<PAGE>
ARTICLES SUPPLEMENTARY
RIGHTS OF SERIES A JUNIOR
PARTICIPATING PREFERRED STOCK
of
SECURITY CAPITAL GROUP INCORPORATED
Security Capital Group Incorporated, a Maryland corporation, (the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: Under a power contained in Article Fourth of the charter of the
Corporation (the "Charter"), the Board of Directors of the Corporation (the
"Board of Directors"), by resolution duly adopted at a meeting duly called and
held on April 21, 1997, reclassified and designated 65,973 shares (the "Shares")
of Class B Common Stock (as defined in the Charter) as shares of Series A Junior
Participating Preferred Stock, with the following preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends and other
distributions, qualifications and terms and conditions of redemption, which,
upon any restatement of the Charter, shall be deemed to be part of Article
Fourth of the Charter:
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
Section 1. Designation and Amount. There shall be a series of preferred
stock of the Corporation, $0.01 par value per share, which shall be designated
"Series A Junior Participating Preferred Stock," $0.01 par value per share (the
"Participating Preferred Shares"), and the number of shares constituting that
series shall be 65,973. Such number of shares may be increased or decreased by
resolution of the Board of Directors and by the filing of articles supplementary
in accordance with the provisions of the Maryland General Corporation Law
stating that such increase or reduction has been so authorized; provided,
however, that no decrease shall reduce the number of Participating Preferred
Shares to a number less than the number of Participating Preferred Shares then
outstanding plus the number of Participating Preferred Shares issuable upon
exercise of outstanding rights, options or warrants or upon conversion of
outstanding securities issued by the Corporation.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any shares
of any class or series of preferred shares of the Corporation ranking prior and
superior to the Participating Preferred Shares with respect to dividends, the
holders of Participating Preferred Shares shall be entitled to receive, when, as
and if authorized and declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash to holders of
record on the last Business Day of January, April, July and October in each year
(each such date being referred to herein as a "Quarterly Dividend Payment Date")
(commencing on the first Quarterly Dividend Payment Date after the first
issuance of a Participating Preferred Share or fraction thereof), in an
<PAGE>
amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00
or (b) subject to the provision for adjustment hereinafter set forth, 100 times
the aggregate per share amount of all cash dividends, and 100 times the
aggregate per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in Class A Shares (as hereinafter
defined) or a subdivision of the outstanding Class A Shares (by a
reclassification or otherwise), authorized and declared on the shares of Class A
Common Stock, par value $0.01 per share, of the Corporation (the "Class A
Shares") or if no Class A Shares are outstanding, two times the aggregate per
share amount of all cash dividends, and 2 times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions other than a
dividend payable in Class B Shares (as hereinafter defined) or a subdivision of
the outstanding Class B Shares (by a reclassification or otherwise), authorized
and declared on the shares of Class B Common Stock, par value $.01 per share, of
the Corporation ("Class B Shares") since the immediately preceding Quarterly
Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any Participating Preferred Share or fraction
thereof. In the event the Corporation shall at any time following April 21,
1997 (i) declare any dividend on Class A Shares or Class B Shares, as the case
may be, payable in Class A Shares or Class B Shares, as the case may be, (ii)
subdivide the outstanding Class A Shares or Class B Shares, as the case may be,
or (iii) combine the outstanding Class A Shares or Class B Shares, as the case
may be, into a smaller number of shares, then in each such case the amount to
which holders of Participating Preferred Shares were entitled immediately prior
to such event under clause (b) of the preceding sentence shall be adjusted by
multiplying each such amount by a fraction the numerator of which is the number
of Class A Shares or Class B Shares, as the case may be, outstanding immediately
after such event and the denominator of which is the number of Class A Shares or
Class B Shares, as the case may be, that were outstanding immediately prior to
such event.
(B) At the time that a dividend or distribution is authorized and declared
on the Class A Shares or Class B Shares, as the case may be (other than a
dividend payable in Class A Shares or Class B Shares, as the case may be), the
Board of Directors also shall authorize and declare out of funds legally
available for the purpose, and the holders of Participating Preferred Shares
shall be entitled to receive, when, if and as authorized and declared by the
Board of Directors, a dividend or distribution on the Participating Preferred
Shares as provided in paragraph (A) above.
(C) No dividend or distribution (other than a dividend or distribution
payable in Class A Shares or Class B Shares, as the case may be) shall be paid
or payable to the holders of Class A Shares or Class B Shares, as the case may
be unless, prior thereto, all accrued but unpaid dividends to the date of that
dividend or distribution shall have been paid to the holders of Participating
Preferred Shares.
(D) Dividends shall begin to accrue and be cumulative on outstanding
Participating Preferred Shares from the Quarterly Dividend Payment Date next
preceding the date of issuance of such Participating Preferred Shares, unless
the date of issuance of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue and be cumulative from the date of issuance of such shares, or
unless the date of issuance is a Quarterly Dividend Payment Date or is a date
after the record date for the
2
<PAGE>
determination of holders of Participating Preferred Shares entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in either of
which events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the Participating Preferred Shares in an amount
less than the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of Participating Preferred Shares entitled to
receive payment of a dividend or distribution thereon, which record date shall
be no more than 30 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of Participating Preferred Shares
shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each one
one-hundredth of a Participating Preferred Share shall entitle the holder
thereof to one vote on all matters submitted to a vote of the shareholders of
the Corporation and each one five-thousandth of a Participating Preferred Share
shall entitle the holder thereof to one-fiftieth of one vote on all matters
submitted to a vote of shareholders of the Corporation. In the event the
Corporation shall at any time following April 21, 1997 (i) declare and pay any
dividend on Class A Shares or Class B Shares, as the case may be, payable in
Class A Shares or Class B Shares, as the case may be, (ii) subdivide the
outstanding Class A Shares or Class B Shares, as the case may be, or (iii)
combine the outstanding Class A Shares or Class B Shares, as the case may be,
into a smaller number of shares, then in each such case the number of votes per
share to which holders of Participating Preferred Shares were entitled
immediately prior to such event shall be adjusted by multiplying such number by
a fraction the numerator of which is the number of Class A Shares or Class B
Shares, as the case may be, outstanding immediately after such event and the
denominator of which is the number of Class A Shares or Class B Shares, as the
case may be, that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or required by law, the holders of
Participating Preferred Shares and the holders of Class A Shares and Class B
Shares and any other shares of stock of the Corporation having general voting
rights shall vote together as one class on all matters submitted to a vote of
shareholders of the Corporation.
(C) (i) Whenever, at any time or times, dividends payable on any
Participating Preferred Shares shall be in arrears in an amount equal to at
least six full quarterly dividends (whether or not declared and whether or
not consecutive), the holders of record of the outstanding Participating
Preferred Shares shall have the exclusive right, voting separately as a
single class, to elect two directors of the Corporation at a special
meeting of shareholders of the Corporation or at the Corporation's next
annual meeting of shareholders, and at each subsequent annual meeting of
shareholders, as provided below. At elections for such directors, the
holders of Participating Preferred Shares shall be entitled to cast one
vote for each one one-hundredth of a Participating Preferred Share held and
one-fiftieth of a vote for each one five-thousandth of a Participating
Preferred Share held, subject to adjustment.
3
<PAGE>
(ii) Upon the vesting of such right of the holders of the
Participating Preferred Shares, the maximum authorized number of members of
the Board of Directors shall automatically be increased by two and the two
vacancies so created shall be filled by vote of the holders of the
outstanding Participating Preferred Shares as hereinafter set forth. A
special meeting of the shareholders of the Corporation then entitled to
vote shall be called by the Chairman, any Senior Vice President, any Vice
President or the Secretary of the Corporation, if requested in writing by
the holders of record of not less than 10% of the Participating Preferred
Shares then outstanding. At such special meeting, or, if no such special
meeting shall have been called, then at the next annual meeting of
shareholders of the Corporation, the holders of the Participating Preferred
Shares shall elect, voting as above provided, two directors of the
Corporation to fill the aforesaid vacancies created by the automatic
increase in the number of members of the Board of Directors. At any and
all such meetings for such election, the holders of a majority of the
outstanding Participating Preferred Shares shall be necessary to constitute
a quorum for such election, whether present in person or by proxy, and such
two directors shall be elected by the vote of at least a plurality of
shares held by such shareholders present or represented at the meeting.
Any director elected by holders of Participating Preferred Shares pursuant
to this Section may be removed at any annual or special meeting, by vote of
a majority of the shareholders voting as a class who elected such director,
with or without cause. In case any vacancy shall occur among the directors
elected by the holders of the Participating Preferred Shares pursuant to
this Section, such vacancy may be filled by the remaining director so
elected, or his successor then in office, and the director so elected to
fill such vacancy shall serve until the next meeting of shareholders for
the election of directors. After the holders of the Participating
Preferred Shares shall have exercised their right to elect directors in any
default period and during the continuance of such period, the number of
directors shall not be further increased or decreased except by vote of the
holders of Participating Preferred Shares as herein provided or pursuant to
the rights of any equity securities ranking senior to or pari passu with
the Participating Preferred Shares.
(iii) The right of the holders of the Participating Preferred Shares,
voting separately as a class, to elect two members of the Board of
Directors of the Corporation as aforesaid shall continue until, and only
until, such time as all arrears in dividends (whether or not declared) on
the Participating Preferred Shares shall have been paid or declared and set
apart for payment, at which time such right shall terminate, except as
herein or by law expressly provided, subject to revesting in the event of
each and every subsequent default of the character above-mentioned. Upon
any termination of the right of the holders of the Participating Preferred
Shares as a class to vote for directors as herein provided, the term of
office of all directors then in office elected by the holders of
Participating Preferred Shares pursuant to this Section shall terminate
immediately. Whenever the term of office of the directors elected by the
holders of the Participating Preferred Shares pursuant to this Section
shall terminate and the special voting powers vested in the holders of the
Participating Preferred Shares pursuant to this Section shall have expired,
the maximum number of members of the Board of Directors of the Corporation
shall be such number as may be
4
<PAGE>
provided for in the Bylaws of the Corporation, irrespective of any increase
made pursuant to the provisions of this Section.
(D) Except as otherwise provided herein or required by law, holders of
Participating Preferred Shares shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Class A Shares and Class B Shares as provided herein) for taking
any corporate action.
Section 4. Certain Restrictions.
(A) Whenever any quarterly dividends or other dividends or distributions
payable on the Participating Preferred Shares as provided in Section 2 are in
arrears, then, thereafter and until all accrued and unpaid dividends and
distributions, whether or not authorized or declared, on Participating Preferred
Shares outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Participating Preferred Shares, other than dividends
paid or payable in such junior shares;
(ii) declare or pay dividends on or make any other distributions on
any shares ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Participating Preferred Shares, except
dividends paid ratably on the Participating Preferred Shares and all such
parity shares on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Participating Preferred Shares,
provided that the Corporation may at any time redeem, purchase or otherwise
acquire any such parity shares in exchange for shares of the Corporation
ranking junior (either as to dividends or upon dissolution, liquidation or
winding up) to the Participating Preferred Shares; or
(iv) purchase or otherwise acquire for consideration any Participating
Preferred Shares, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of Directors) to all
holders of such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative
rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among
the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of the Corporation
unless the Corporation could, under paragraph (A) of this Section, purchase or
otherwise acquire such shares at such time and in such manner.
5
<PAGE>
Section 5. Reacquired Shares. Any Participating Preferred Shares
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall become authorized but unissued preferred shares and may be reissued as
part of a new series of preferred shares to be created by resolution or
resolutions of the Board of Directors, subject to the conditions and
restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. (A) Upon any
voluntary liquidation, dissolution or winding up of the Corporation, no
distribution shall be made to the holders of shares ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Participating
Preferred Shares unless, prior thereto, the holders of Participating Preferred
Shares shall have received $1.00 per share, plus an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not authorized or
declared, to the date of such payment (the "Participating Liquidation
Preference"). Following the payment of the full amount of the Participating
Liquidation Preference, no additional distributions shall be made to the holders
of Participating Preferred Shares unless, prior thereto, the holders of Class A
Shares and Class B Shares each shall have received an amount per share (the
"Common Adjustment") equal to the quotient obtained by dividing (i) the
Participating Liquidation Preference by (ii) 100 in the case of Class A Shares
(as appropriately adjusted as set forth in subparagraph C below to reflect such
events as share splits, share dividends and recapitalization with respect to the
Class A Shares) or 5,000 in the case of Class B Shares (as appropriately
adjusted as set forth in subparagraph C below to reflect such events as share
splits, share dividends and recapitalization with respect to the Class B Shares)
(such number in clause (ii), the "Adjustment Number"). Following the payment of
the full amount of the Participating Liquidation Preference and the Common
Adjustment in respect of all outstanding Participating Preferred Shares and
Class A Shares and Class B Shares, respectively, holders of Participating
Preferred Shares and holders of Class A Shares and Class B Shares shall receive
their ratable and proportionate share of the remaining assets to be distributed
in the ratio, on a per share basis, of the Adjustment Number to 1 with respect
to such Participating Preferred Shares and Class A Shares and Class B Shares, on
a per share basis, respectively.
(B) In the event, however, that there are not sufficient assets available
to permit payment in full of the Participating Liquidation Preference and the
liquidation preferences of all other series of preferred shares, if any, which
rank on a parity with the Participating Preferred Shares, then such remaining
assets shall be distributed ratably to the holders of the Participating
Preferred Shares and such parity shares in proportion to their respective
liquidation preferences.
(C) In the event the Corporation shall at any time following April 21, 1997
(i) declare and pay any dividend on Class A Shares or Class B Shares, as the
case may be, payable in Class A Shares or Class B Shares, as the case may be,
(ii) subdivide the outstanding Class A Shares or Class B Shares, as the case may
be, or (iii) combine the outstanding Class A Shares or Class B Shares, as the
case may be, into a smaller number of shares, then in each such case the
Adjustment Number in effect immediately prior to such event shall be adjusted by
multiplying such Adjustment Number by a fraction the numerator of which is the
number of Class A Shares or Class B Shares, as the case may be, outstanding
immediately after such event and the denominator of which is the number of
6
<PAGE>
Class A Shares or Class B Shares, as the case may be, that were outstanding
immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the Class A Shares or Class B Shares, as the case may be, are exchanged for or
changed into other shares or securities, cash and/or any other property, then in
any such case, the Participating Preferred Shares shall at the same time be
similarly exchanged or changed in an amount per share (subject to the provision
for adjustment hereinafter set forth) equal to 100 times the aggregate amount of
shares, securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each Class A Share, or if no Class A Shares
are outstanding, 2 times the aggregate amount of shares, securities, cash and/or
any other property, as the case may be, into which or for which each Class B
Share, is exchanged or changed. In the event the Corporation shall at any time
(i) declare and pay any dividend on Class A Shares or Class B Shares, as the
case may be, payable in Class A Shares or Class B Shares, as the case may be,
(ii) subdivide the outstanding Class A Shares or Class B Shares, as the case may
be, or (iii) combine the outstanding Class A Shares or Class B Shares, as the
case may be, into a smaller number of shares, then in each such case the amount
set forth in the preceding sentence with respect to the exchange or change of
Participating Preferred Shares shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of Class A Shares or Class B
Shares, as the case may be, outstanding immediately after such event and the
denominator of which is the number of Class A Shares or Class B Shares, as the
case may be, that were outstanding immediately prior to such event.
Section 8. Redemption. The Participating Preferred Shares shall not be
redeemable by the Corporation. The preceding sentence shall not limit the
ability of the Corporation to purchase or otherwise deal in such shares to the
extent permitted by law.
Section 9. Ranking. The Participating Preferred Shares shall rank junior
to all other series of the Corporation's preferred stock (whether with or
without par value) as to the payment of dividends and the distribution of
assets, unless the terms of any such series shall provide otherwise.
Section 10. Amendment. Neither the Corporation's Charter, nor any
Articles Supplementary relating to the Participating Preferred Shares shall be
amended in any manner which would materially alter or change the powers,
preferences or special rights of the Participating Preferred Shares so as to
affect the holders of Participating Preferred Shares adversely without the
affirmative vote of the holders of at least a majority of the outstanding
Participating Preferred Shares, voting separately as a class.
Section 11. Fractional Shares. Participating Preferred Shares may be
issued in fractions of a share that are integral multiples of one-one hundredth
of a share with respect to holders of Class A Shares or one five-thousandth of a
share with respect to holders of Class B Shares, which shall entitle the holder,
in proportion to such holder's fractional shares, to exercise voting rights,
receive dividends and participate in distributions and to have the benefit of
all other rights of holders of Participating Preferred Shares.
7
<PAGE>
SECOND: The Shares have been classified and designated by the Board of
Directors under the authority contained in the Charter.
THIRD: These Articles Supplementary have been approved by the Board of
Directors in the manner and by the vote required by law.
FOURTH: The undersigned Senior Vice President of the Corporation
acknowledges these Articles Supplementary to be the corporate act of the
Corporation and, as to all matters or facts required to be verified under oath,
the undersigned Senior Vice President acknowledges that to the best of his
knowledge, information and belief, these matters and facts are true in all
material respects and that this statement is made under the penalties for
perjury.
8
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused these Articles Supplementary
to be executed under seal in its name and on its behalf by its Senior Vice
President and attested to by its Vice President on this 21st day of April, 1997.
SECURITY CAPITAL GROUP INCORPORATED
By:_________________________________________(Seal)
Jeffrey A. Klopf, Senior Vice President
ATTEST:
By: __________________________________
Ariel Amir, Vice President
9
<PAGE>
Exhibit B
---------
[Form of Right Certificate]
Certificate No. R- ________ Rights
NOT EXERCISABLE AFTER APRIL 21, 2007, UNLESS EXTENDED, OR EARLIER IF THE
RIGHTS EXPIRE UNDER CERTAIN CIRCUMSTANCES OR ARE EXCHANGED OR REDEEMED BY
THE CORPORATION. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF
THE CORPORATION, AT $.01 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS
AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN
ACQUIRING PERSON (AS SUCH TERM IS DEFINED IN THE RIGHTS AGREEMENT) AND ANY
SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS
REPRESENTED BY THIS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON
WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN
ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT).
ACCORDINGLY, THIS RIGHT CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY
BECOME VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH
AGREEMENT.]*
Right Certificate
SECURITY CAPITAL GROUP INCORPORATED
This certifies that , or registered assigns,
is the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement, dated as of April 21, 1997 (the "Rights Agreement"),
between Security Capital Group Incorporated, a Maryland corporation (the
"Corporation"), and The First National Bank of Boston (the "Rights Agent") to
purchase from the Corporation at any time after the Distribution Date (as such
term is defined in the Rights Agreement) and prior to 5:00 p.m. (Eastern time)
on April 21, 2007 or notice of redemption or exchange at the office of the
Rights Agent (or its successors as Rights Agent) designated for such purpose,
one one-hundredth or one five-thousandth, as the case may be, of a fully paid,
non-assessable Series A Junior
- -------------------------
* The portion of the legend in brackets shall be inserted only if applicable
and shall replace the preceding sentence.
<PAGE>
Participating Preferred Share (a "Participating Preferred Share") of the
Corporation, at a purchase price of $6,000 per one one-hundredth of a
Participating Preferred Share or $120 per one five-thousandth of a Participating
Preferred Share (the "Purchase Price"), upon presentation and surrender of this
Right Certificate with the appropriate Form of Election to Purchase and related
Certificate duly executed. The number of Rights evidenced by this Right
Certificate (and the number of Participating Preferred Shares which may be
purchased upon exercise thereof) set forth above, and the Purchase Price per
Participating Preferred Share set forth above, are the number and Purchase Price
as of April 21, 1997, based on the Participating Preferred Shares as constituted
at such date. Capitalized terms not defined in this Right Certificate that are
defined in the Rights Agreement shall have the meanings ascribed to them in the
Rights Agreement.
Upon the occurrence of a Triggering Event, if the Rights evidenced by this
Right Certificate are beneficially owned by (i) an Acquiring Person or an
Affiliate or Associate of any such Acquiring Person, (ii) under certain
circumstances specified in the Rights Agreement, a transferee of any such
Acquiring Person, Associate or Affiliate, or (iii) under certain circumstances
specified in the Rights Agreement, a transferee of a person who, after such
transfer, became an Acquiring Person, or an Affiliate or Associate of an
Acquiring Person, such Rights shall become null and void and no holder hereof
shall have any right with respect to such Rights from and after the occurrence
of any such Triggering Event.
As provided in the Rights Agreement, the Purchase Price and the number and
kind of Participating Preferred Shares or other securities, which may be
purchased upon the exercise of the Rights evidenced by this Right Certificate
are subject to modification and adjustment upon the happening of certain events.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Corporation and the holders of the Right Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under certain circumstances specified in such Rights Agreement.
Copies of the Rights Agreement are on file at the above-mentioned office of the
Rights Agent and are also available upon written request to the Rights Agent.
This Right Certificate, with or without other Right Certificates, upon
surrender at the principal corporate trust office of the Rights Agent, may be
exchanged for another Right Certificate or Right Certificates of like tenor and
date evidencing Rights entitling the holder to purchase a like aggregate number
of Participating Preferred Shares as the Rights evidenced by the Right
Certificate or Right Certificates surrendered shall have entitled such holder to
purchase. If this Right Certificate shall be exercised in part, the holder
shall be entitled to receive upon surrender hereof another Right Certificate or
Right Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate may be redeemed by the Corporation at its option at a
redemption price of $.01 per Right at any time
2
<PAGE>
prior to the earlier of (i) such time as any Person becomes an Acquiring Person
or (ii) the close of business on the Final Expiration Date.
No fractional Participating Preferred Shares will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions which are
integral multiples of one one-hundredth or one five-thousandth, as the case may
be, of a Participating Preferred Share, which may, at the election of the
Corporation, be evidenced by depositary receipts), but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate, as such, shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of Participating
Preferred Shares or of any other securities of the Corporation which may at any
time be issuable on the exercise hereof, nor shall anything contained in the
Rights Agreement or herein be construed to confer upon the holder hereof, as
such, any of the rights of a shareholder of the Corporation or any right to vote
for the election of trustees or upon any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any trust action, or, to
receive notice of meetings or other actions affecting shareholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
3
<PAGE>
WITNESS the facsimile signature of the proper officers of the Corporation
and its seal.
Dated as of April ___, 1997
SECURITY CAPITAL GROUP INCORPORATED
By:
------------------------------------
Name:
Title:
Attest: (SEAL)
- -------------------------------------
Name:
Title:
Countersigned:
THE FIRST NATIONAL BANK OF BOSTON
By:
--------------------------------
Authorized Signature
4
<PAGE>
[Form of Reverse Side of Right Certificate]
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder if such holder desires to transfer
the Right Certificate.)
FOR VALUE RECEIVED _______________________________________________ hereby sells,
assigns and transfers unto _____________________________________________________
(Please print name and address of transferee)
the Rights evidenced by this Right Certificate, together with all right, title
and interest therein, and does hereby irrevocably constitute and appoint
______________________, Attorney, to transfer the Rights evidenced by this Right
Certificate on the books of the within-named Corporation, with full power of
substitution.
Date: _______________, _______ ___________________________________
Signature
Signature Guaranteed:
Certificate
-----------
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Rights Certificate [_] are [_] are not
being sold, assigned and transferred by or on behalf of a Person who is or was
an Acquiring Person or an Affiliate or Associate of any such Acquiring Person
(as such terms are defined pursuant to the Rights Agreement); and
(2) after due inquiry and to the best knowledge of the undersigned, it
[_] did [_] did not acquire the Rights evidenced by this Rights Certificate from
any Person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person.
Date: _______________, _______ ___________________________________
Signature
NOTICE
------
The signature to the foregoing Assignment and Certificate must correspond
to the name as written upon the face of this Right Certificate in every
particular, without alteration or enlargement or any change whatsoever.
<PAGE>
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed if holder desires to
exercise Rights represented by the
Right Certificate.)
To: SECURITY CAPITAL GROUP INCORPORATED
The undersigned hereby irrevocably elects to exercise _______ Rights
evidenced by this Right Certificate to purchase the Participating Preferred
Shares issuable upon the exercise of the Rights (or such other securities of the
Corporation or of any other person which may be issuable upon the exercise of
the Rights) and requests that certificates for such shares be issued in the name
of:
Please insert social security
or other identifying number:____________________________________________________
________________________________________________________________________________
(Please print name and address)
If such number of Rights shall not be all the Rights evidenced by this
Right Certificate, a new Right Certificate for the balance of such Rights shall
be registered in the name of and delivered to:
Please insert social security
or other identifying number:____________________________________________________
________________________________________________________________________________
(Please print name and address)
Date: _______________, 19__ ________________________________________
Signature
<PAGE>
Signature Guaranteed:
Certificate
-----------
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Rights Certificate [_] are [_] are not
being exercised by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of any such Acquiring Person (as such terms are
defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it
[_] did [_] did not acquire the Rights evidenced by this Rights Certificate from
any Person who is, was or became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person.
Dated: __________________, ______ ________________________________________
Signature
NOTICE
------
The signature to the foregoing Election to Purchase and Certificate must
correspond to the name as written upon the face of this Right Certificate in
every particular, without alteration or enlargement or any change whatsoever.
<PAGE>
EXHIBIT 4.2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WARRANT AGREEMENT
Dated as of September 17, 1997
by and between
Security Capital Group Incorporated
and
The First National Bank of Boston
as Warrant Agent
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
WARRANT AGREEMENT
TABLE OF CONTENTS/1/
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. Appointment of Warrant Agent................................... -1-
SECTION 2. Issuance of Warrants........................................... -1-
SECTION 3. Warrant Certificates........................................... -2-
SECTION 4. Execution of Warrant Certificates.............................. -2-
SECTION 5. Registration and Countersignature.............................. -2-
SECTION 6. Registration of Transfers and Exchanges........................ -3-
SECTION 7. Terms of Warrants; Exercise of Warrants........................ -3-
SECTION 8. Reports........................................................ -7-
SECTION 9. Payment of Taxes............................................... -8-
SECTION 10. Mutilated or Missing Warrant Certificates...................... -8-
SECTION 11. Reservation of Warrant Shares.................................. -8-
SECTION 12. Registration and Listing of Class B Shares..................... -9-
SECTION 13. Adjustment of Exercise Rate.................................... -9-
SECTION 14. Fractional Interests........................................... -17-
SECTION 15. Notices to Warrant Holders..................................... -17-
SECTION 16. Merger, Consolidation or Change of Name of Warrant Agent....... -19-
SECTION 17. Warrant Agent.................................................. -19-
SECTION 18. Change of Warrant Agent........................................ -21-
</TABLE>
/1/ This Table of Contents does not constitute a part of this Agreement or
have any bearing upon the interpretation of any of its terms or provisions.
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 19. Notices to the Company and Warrant Agent....................... -22-
SECTION 20. Supplements and Amendments..................................... -22-
SECTION 21. Successors..................................................... -23-
SECTION 22. Termination.................................................... -23-
SECTION 23. Governing Law; Jurisdiction.................................... -23-
SECTION 24. Benefits of This Agreement..................................... -23-
SECTION 25. Counterparts................................................... -23-
SECTION 26. Further Assurances............................................. -23-
</TABLE>
ii
<PAGE>
WARRANT AGREEMENT
WARRANT AGREEMENT ("Agreement"), dated as of September 17, 1997, between
Security Capital Group Incorporated, a Maryland corporation (the "Company"), and
The First National Bank of Boston, a national banking association, as Warrant
Agent (the "Warrant Agent").
WHEREAS, Security Capital Pacific Trust, a Maryland real estate investment
trust ("PTR"), Security Capital Atlantic Incorporated, a Maryland corporation
("Atlantic"), and Security Capital Industrial Trust, a Maryland real estate
investment trust ("SCI"), have each entered into a separate Merger and Issuance
Agreement (each, a "Merger and Issuance Agreement"), each dated March 24, 1997,
and each as amended, with the Company, pursuant to which, among other things,
the Company has agreed to issue, on the terms and conditions set forth in each
respective Merger and Issuance Agreement, to each of the shareholders of PTR,
Atlantic and SCI, Warrants, as hereinafter described (collectively, the
"Warrants" and the certificates evidencing the Warrants hereinafter referred to
as the "Warrant Certificates"), to purchase up to an aggregate 8,928,571.428
shares of Class B Common Stock, par value $.01 per share (the "Class B Shares"),
of the Company (the Class B Shares issuable on exercise of the Warrants being
referred to herein as the "Warrant Shares" and, where appropriate, such term
shall also mean the other securities or property purchasable and deliverable
upon exercise of a Warrant as provided in Section 13 hereof); each Warrant
entitles the holder of the Warrant upon exercise to receive from the Company, as
adjusted as provided herein, one (1) fully paid, registered and nonassessable
Warrant Share at the Exercise Price (as defined herein);
WHEREAS, the Warrants are being issued by the Company as part of a public
distribution registered under the Securities Act of 1933, as amended; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance of Warrant Certificates (and the delivery of a Prospectus (as defined
herein) in connection therewith) and other matters as provided herein.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto agree as follows:
SECTION 1. Appointment of Warrant Agent. The Company hereby appoints the
Warrant Agent to act as agent for the Company in accordance with the
instructions set forth hereinafter in this Agreement, and the Warrant Agent
hereby accepts such appointment.
SECTION 2. Issuance of Warrants. The Warrants shall be originally issued
by the Company at the time and in the manner specified in each Merger and
Issuance Agreement.
<PAGE>
SECTION 3. Warrant Certificates. The Warrant Certificates to be
delivered pursuant to this Agreement shall be in registered form only and shall
be substantially in the form set forth in Exhibit A attached hereto.
SECTION 4. Execution of Warrant Certificates. Warrant Certificates shall
be signed on behalf of the Company by its Chairman of the Board, Chief Executive
Officer, President, any Managing Director, any Senior Vice President or any Vice
President and by its Secretary or an Assistant Secretary. Each such signature
upon the Warrant Certificates may be in the form of a facsimile signature of the
present or any future Chairman of the Board, Chief Executive Officer, President,
Senior Vice President, Vice President, Secretary or Assistant Secretary and may
be imprinted or otherwise reproduced on the Warrant Certificates and for that
purpose the Company may adopt and use the facsimile signature of any person who
shall have been Chairman of the Board, Chief Executive Officer, President,
Managing Director, Senior Vice President, Vice President, Secretary or Assistant
Secretary, notwithstanding the fact that at the time the Warrant Certificates
shall be countersigned and delivered or disposed of such officer shall have
ceased to hold such office. The seal of the Company may be in the form of a
facsimile thereof and may be impressed, affixed, imprinted or otherwise
reproduced on the Warrant Certificates.
In case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be such officer before the Warrant Certificates so
signed shall have been countersigned by the Warrant Agent pursuant to Section 5
hereof, or disposed of by the Company, such Warrant Certificates nevertheless
may be countersigned and delivered or disposed of as though such person had not
ceased to be such officer of the Company; and any Warrant Certificate may be
signed on behalf of the Company by any person who, at the actual date of the
execution of such Warrant Certificate, shall be a proper officer of the Company
to sign such Warrant Certificate, although at the date of the execution of this
Agreement any such person was not such officer.
Warrant Certificates shall be dated the date of countersignature by the
Warrant Agent pursuant to Section 5 hereof.
SECTION 5. Registration and Countersignature. The Warrant Agent, on
behalf of the Company, shall number and register the Warrant Certificates in a
register as they are issued by the Company.
Warrant Certificates shall be manually countersigned by the Warrant Agent
and shall not be valid for any purpose unless so countersigned. The Warrant
Agent shall, upon written instructions of the Chairman of the Board, Chief
Executive Officer, President, any Managing Director, any Senior Vice President,
any Vice President, the Secretary of the Company, or any Assistant Secretary of
the Company, initially countersign and deliver Warrants entitling the holders
thereof to purchase not more than the number of Warrant Shares referred to above
in the first recital hereof and shall countersign and deliver Warrants as
otherwise provided in this Agreement.
-2-
<PAGE>
The Company and the Warrant Agent may deem and treat the registered
holder(s) of the Warrant Certificates as the absolute owner(s) thereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone), for all purposes.
SECTION 6. Registration of Transfers and Exchanges. The Warrant Agent
shall from time to time register the transfer of any outstanding Warrant
Certificates upon the records to be maintained by it for that purpose, upon
surrender thereof accompanied by a written instrument or instruments of transfer
in form satisfactory to the Warrant Agent, duly executed by the registered
holder or holders thereof or by the duly appointed legal representative thereof
or by a duly authorized attorney. Upon any such registration of transfer, a new
Warrant Certificate shall be issued to the transferee(s) and the surrendered
Warrant Certificate shall be cancelled by the Warrant Agent. The Warrant
Certificate will be accompanied by a Prospectus, if any, which Prospectus shall
include any Prospectus provided by the Company to the Warrant Agent pursuant to
paragraph (h) of Section 7. Cancelled Warrant Certificates shall thereafter be
disposed of by the Warrant Agent in a manner satisfactory to the Company.
Warrant Certificates may be exchanged at the option of the holder(s)
thereof, when surrendered to the Warrant Agent at its corporate trust office in
the Borough of Manhattan, The City of New York or at such other location as it
may notify the holders of Warrants that it maintains as its principal office for
trust administration (the "Warrant Agent Office") for another Warrant
Certificate or other Warrant Certificates of like tenor and representing in the
aggregate a like number of Warrants. Warrant Certificates surrendered for
exchange shall be cancelled by the Warrant Agent. Such cancelled Warrant
Certificates shall then be disposed of by the Warrant Agent in a manner
satisfactory to the Company.
No service charge shall be made for any exercise, exchange or registration
of transfer of Warrant Certificates or any issuance of Warrant Certificates, but
the Company may require payment of a sum sufficient to cover any stamp or other
governmental charge or tax that may be imposed in connection with any such
transfer or exchange.
The Warrant Agent is hereby authorized to countersign, in accordance with
the provisions of this Section 6, the new Warrant Certificates required pursuant
to the provisions of this Section 6.
SECTION 7. Terms of Warrants; Exercise of Warrants. (a) Subject to the
terms of this Agreement, the Warrants shall expire at 5:00 p.m., New York, New
York time on September 18, 1998, or such later date as may be determined in
accordance with paragraph (h) of this Section 7 or pursuant to Section 20 hereof
(the "Expiration Date"). Each Warrant may be exercised on any Business Day (as
defined below) on or after the date of this Warrant Agreement (the
"Exercisability Date") and on or prior to the Expiration Date. Each Warrant not
exercised prior to 5:00 p.m., New York, New York time, on the Expiration Date
shall become void and all rights thereunder and all rights in respect thereof
under this Agreement shall cease as of such time.
-3-
<PAGE>
(b) Subject to the provisions of this Agreement, the holder of each
Warrant shall have the right to purchase from the Company on or after the
Exercisability Date and on or prior to the Expiration Date, one (1) fully paid,
registered and nonassessable Warrant Share, subject to adjustment in accordance
with Section 13 hereof, at the purchase price of twenty-eight dollars ($28.00)
for each Warrant exercised (the "Exercise Price"). The number or amount of
Warrant Shares for which a Warrant may be exercised, as adjusted pursuant
hereto, is referred to herein as the "Exercise Rate."
For purposes of this Section 7 and elsewhere in this Agreement, the
following terms shall have the meanings provided hereafter:
"Affiliate" means, with respect to another Person, any Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such other Person. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlled by" and "under
common control with"), when used with respect to any Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise.
"Board of Directors" means the Board of Directors of the Company.
"Business Day" shall mean any day other than a Saturday or a Sunday or a
day on which commercial banking institutions in The City of New York are
authorized by law to be closed.
"Capital Stock" means any and all shares, interests, participations or
other equivalents (however designated) of corporate stock.
"Equity Interests" means Capital Stock or warrants, options or other rights
to acquire Capital Stock (but excluding any publicly traded debt security that
is convertible into, or exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Person" means any individual, corporation, partnership, joint venture,
trust, estate, unincorporated organization or government or any agency or
political subdivision thereof.
"Prospectus" means the prospectus of the Company included in the
Registration Statements, as amended or supplemented by any prospectus
supplements or any other amendments thereto (including post-effective
amendments).
"Registration Statements" means the three Registration Statements on Form
S-4 filed with the SEC under the Securities Act covering the offering and
exercise of the Warrants.
"SEC" means the Securities and Exchange Commission.
-4-
<PAGE>
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" of any specified Person means (i) a corporation a majority of
whose outstanding Voting Stock is at the time, directly or indirectly, owned by
such Person or by such Person and a Subsidiary or Subsidiaries of such Person or
by a Subsidiary or Subsidiaries of such Person or (ii) any other Person (other
than a corporation) in which such Person or such Person and a Subsidiary or
Subsidiaries of such Person or a Subsidiary or Subsidiaries of such Person,
directly or indirectly, at the date of determination thereof, has at least
majority ownership interest.
"Voting Stock" of any Person means Capital Stock of such Person with voting
power, under ordinary circumstances, to elect directors of such Person.
(c) Warrants may be exercised on and after the Exercisability Date and on
or prior to the Expiration Date by (i) surrendering at any office or agency
maintained by the Company for that purpose, which will initially be the Warrant
Agent Office (each a "Warrant Exercise Office"), the Warrant Certificate
evidencing such Warrants with the form of election to purchase Warrant Shares
set forth on the reverse side of the Warrant Certificate (the "Election to
Exercise") duly completed and signed by the registered holder or holders thereof
or by the duly appointed legal representative thereof or by a duly authorized
attorney, and in the case of a transfer, such signature shall be guaranteed by
an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Exchange Act (each an "Eligible Guarantor Institution"), and (ii) paying in full
the Exercise Price for each such Warrant exercised and any other amounts
required to be paid pursuant to this Agreement. Each Warrant may be exercised
in whole or in part.
(d) Simultaneously with the exercise of each Warrant, payment in full of
the Exercise Price shall be made in cash, certified or official bank check or
wire transfer to be delivered to the office or agency where the Warrant
Certificate is being surrendered. No adjustment shall be made hereunder on
account of any Warrant Shares issued upon exercise of a Warrant under this
Agreement after the exercise of such Warrant. Except for certain adjustments as
set forth in Section 13, no payment shall be made on Warrant Shares on account
of any dividend or distribution authorized and declared on Class B Shares to
holders of such Class B Shares of record as of a date prior to the Exercise
Date.
(e) Upon such surrender of a Warrant Certificate and payment and collection
of the Exercise Price at any Warrant Exercise Office, such Warrant Certificate
and payment shall be promptly delivered to the Warrant Agent. The "Exercise
Date" for a Warrant shall be the date when all of the items referred to in the
first sentence of each of paragraphs (c) and (d) of this Section 7 are received
by the Warrant Agent at or prior to 2:00 p.m., New York, New York time, on a
Business Day and the exercise of the Warrants will be effective as of such
Exercise Date. If any items referred to in the first sentence of paragraphs (c)
and (d) are received after 2:00 p.m., New York, New York time, on a Business
Day, the exercise of the Warrants to which such item relates will be effective
on the next succeeding Business Day. Notwithstanding
-5-
<PAGE>
the foregoing, in the case of an exercise of Warrants on the Expiration Date, if
all of the items referred to in the first sentence of each of paragraphs (c) and
(d) of this Section are received by the Warrant Agent at or prior to 5:00 p.m.
New York, New York time, on such Expiration Date, the exercise of the Warrants
to which such items relate will be effective on the Expiration Date.
(f) Subject to the provisions of paragraph (h) of this Section 7, upon the
exercise of a Warrant in accordance with the terms hereof, the receipt of a
Warrant Certificate and payment of the Exercise Price, the Warrant Agent shall:
(i) cause an amount equal to the Exercise Price to be paid to the Company by
crediting the same to the account designated by the Company in writing to the
Warrant Agent for that purpose; (ii) advise the Secretary of the Company
immediately by telephone of the amount so deposited to the Company's account and
promptly confirm such telephonic advice in writing; and (iii) as soon as
practicable, advise the Company in writing of the number of Warrants exercised
in accordance with the terms and conditions of this Agreement and the Warrant
Certificates, the instructions of each exercising holder of the Warrant
Certificates with respect to delivery of the Warrant Shares to which such holder
is entitled upon such exercise, and such other information as the Company shall
reasonably request.
(g) Subject to the provisions of paragraph (h) of this Section 7 and of
Section 14 hereof, upon such surrender of Warrants and payment of the Exercise
Price, the Company shall issue and cause to be delivered with all reasonable
dispatch to or upon the written order of the registered holder of the Warrant
Certificate evidencing such exercised Warrant or Warrants, a certificate or
certificates for the number of full Warrant Shares issuable upon the exercise of
such Warrants, in fully registered form, registered in such name or names as may
be directed by such holder pursuant to the Election to Exercise, as set forth on
the reverse of the Warrant Certificate or on the Assignment Form, together with
cash as provided in Section 14 hereof; provided, however, that if any
consolidation, merger or lease or sale of assets is proposed to be effected by
the Company as described in subsection (k) of Section 13 hereof, or a tender
offer or an exchange offer for Class B Shares shall be made, upon such surrender
of Warrants and payment of the Exercise Price as aforesaid, the Company shall,
as soon as possible, but in any event not later than two business days
thereafter, issue and cause to be delivered the full number of Warrant Shares
issuable upon the exercise of such Warrant in the manner described in this
sentence together with cash as provided in Section 14 hereof. Such certificate
or certificates shall be deemed to have been issued and any person so designated
to be named therein shall be deemed to have become a holder of record of such
Warrant Shares as of the date of the surrender of such Warrants and payment of
the Exercise Price. No fractional shares shall be issued upon exercise of any
Warrants in accordance with Section 14 hereof.
All Warrant Certificates surrendered upon exercise of Warrants shall be
cancelled by the Warrant Agent and be disposed of in a manner satisfactory to
the Company.
The Warrant Agent shall keep copies of this Agreement and any notices given
or received hereunder available for inspection by the holders during normal
business hours at its office. The
-6-
<PAGE>
Company shall supply the Warrant Agent from time to time with such numbers of
copies of this Agreement as the Warrant Agent may request.
(h) Upon written notice from the Company to the Warrant Agent of the
happening of any event that requires the making of any changes in the
Registration Statements or the Prospectus in order that such documents not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, the
Warrant Agent shall immediately suspend the exercise of Warrant Certificates
until such time as (i) the Company, through the Warrant Agent, is able to
deliver to each holder of Warrant Certificates a supplement to, or amended,
Prospectus in compliance with the provisions of the Securities Act, or (ii) the
Company has notified the Warrant Agent in writing that the use of the current
Prospectus may be resumed. Upon any such suspension, the Company shall file a
Form 8-K with the SEC disclosing the suspension of warrant exercises. The
Company shall promptly take all such action as may be necessary or appropriate,
including, without limitation, the filing of a post-effective amendment to the
Registration Statements and/or the filing of an amended, or supplement to the,
Prospectus, to limit the duration of any suspension with respect to the exercise
of Warrant Certificates pursuant to this paragraph (h). In the event of any
suspension of exercises pursuant to this paragraph (h), the Expiration Date, as
defined in paragraph (a) of this Section 7, shall be extended by the same number
of days as exercises of Warrant Certificates were suspended pursuant to this
paragraph (h). When the Company is in a position to recommence the exercise of
Warrant Certificates, it shall notify the Warrant Agent in writing that the
Company has terminated the suspension of the exercise of Warrant Certificates
and it shall also notify the Warrant Agent in writing of the new Expiration
Date. The Company shall provide to the Warrant Agent copies, in sufficient
number, of the supplement to, or amended, Prospectus and the Warrant Agent shall
promptly transmit such supplement to, or amended, Prospectus to each holder of
Warrant Certificates. In addition, the Company shall provide written notice to
each holder of Warrant Certificates of such new Expiration Date.
SECTION 8. Reports. Whether or not required by the rules and regulations
of the SEC, so long as any Warrants are outstanding, the Company will furnish to
the holders of Warrants all financial information that would be required to be
contained in an annual report prepared in compliance with Rule 14a-3 under the
Exchange Act, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and a report thereon by the Company's
independent certified public accountants. In addition, whether or not required
by the rules and regulations of the SEC, the Company will make such information
available to investors, securities analysts and broker-dealers who request it in
writing.
SECTION 9. Payment of Taxes. The Company will pay all documentary stamp
taxes attributable to the initial issuance of Warrants and of Warrant Shares
upon the exercise of Warrants; provided, however, that the Company shall not be
required to pay any tax or taxes which may be payable in respect of any transfer
involved in the issuance of any Warrant Certifi cates or any certificates for
Warrant Shares in a name other than that of the registered holder of a Warrant
Certificate surrendered upon the exercise of a Warrant, and the Company shall
not
-7-
<PAGE>
be required to issue or deliver such Warrant Certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
SECTION 10. Mutilated or Missing Warrant Certificates. If any of the
Warrant Certificates shall be mutilated, lost, stolen or destroyed, the Company
shall issue and the Warrant Agent shall countersign, in exchange and
substitution for and upon cancellation of the mutilated Warrant Certificate, or
in lieu of and substitution for the Warrant Certificate lost, stolen or
destroyed, a new Warrant Certificate of like tenor and representing an
equivalent number of Warrants, but only upon receipt of evidence satisfactory to
the Company and to the Warrant Agent of such loss, theft or destruction of such
Warrant Certificate and indemnity and security therefor, if requested, also
satisfactory to them. Applicants for such substitute Warrant Certificates shall
also comply with such other reasonable regulations and pay such other reasonable
charges as the Company or the Warrant Agent may prescribe.
SECTION 11. Reservation of Warrant Shares. The Company will at all times
reserve and keep available, free from preemptive rights, out of the aggregate of
its authorized but unissued Class B Shares, for the purpose of enabling it to
satisfy any obligation to issue Warrant Shares upon exercise of Warrants, the
maximum number of Class B Shares which may then be deliverable upon the exercise
of all outstanding Warrants.
The Company or the transfer agent for the Class B Shares (the "Transfer
Agent") and every subsequent transfer agent for any shares of the Company's
capital stock issuable upon the exercise of any of the rights of purchase
aforesaid will be irrevocably authorized and directed at all times to reserve
such number of authorized shares as shall be required for such purpose. The
Company will keep a copy of this Agreement on file with the Transfer Agent and
with every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrants. The Warrant Agent is hereby irrevocably authorized to requisition
from time to time from such Transfer Agent the stock certificates required to
honor outstanding Warrants upon exercise thereof in accordance with the terms of
this Agreement. The Company will supply such Transfer Agent with duly executed
certificates for such purposes and will provide or otherwise make available any
cash which may be payable as provided in Section 14 hereof. The Company will
furnish such Transfer Agent a copy of all notices of adjustments and
certificates related thereto, transmitted to each holder pursuant to Section 15
hereof.
Before taking any action which would cause an adjustment pursuant to
Section 13 hereof to reduce the Exercise Price below the then par value (if any)
of the Warrant Shares, the Company will take any corporate action which may, in
the opinion of its counsel (which may be counsel employed by the Company), be
necessary in order that the Company may validly and legally issue fully paid and
nonassessable Warrant Shares at the Exercise Price as so adjusted.
The Company covenants that all Warrant Shares which may be issued upon
exercise of Warrants will, upon payment of the Exercise Price and issue, be
fully paid, nonassessable, free
-8-
<PAGE>
of preemptive rights and free from all taxes, liens, charges and security
interests with respect to the issue thereof.
SECTION 12. Registration and Listing of Class B Shares. The Company
hereby represents and warrants that the Warrants and the Warrant Shares have
been duly registered or approved, as the case may be, with the appropriate
governmental authorities under applicable federal and state laws. The Warrants
and the Warrant Shares have been approved for listing or quotation on each
national securities exchange or inter-dealer quotation system on which the Class
B Shares are listed or quoted, and the Company shall maintain the listing or
quotation of such Warrants and Warrant Shares; and the Company, upon official
notice of issuance, will list or quote on such national securities exchange,
will register under the Exchange Act and will maintain such listing or quotation
of, any Other Securities (as defined below) that at any time are issuable upon
exercise of the Warrants, if and at the time that any securities of the same
class shall be listed or quoted on such national securities exchange or inter-
dealer quotation system by the Company.
"Other Securities" means any stock (other than Class B Shares) and other
securities of the Company or any other Person (corporate or otherwise) which the
holders of the Warrants at any time shall be entitled to receive, or shall have
received, upon the exercise of the Warrants, in lieu of or in addition to Class
B Shares, or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Class B Shares or Other Securities pursuant to
Section 13 hereof or otherwise.
SECTION 13. Adjustment of Exercise Rate. The Exercise Rate is subject to
adjustment from time to time upon the occurrence of the events enumerated in
this Section 13. For purposes of this Section 13, "Class B Shares" means the
Class B Shares and any other stock of the Company, however designated, for which
the Warrants may be exercisable.
(a) Adjustment for Change in Capital Stock.
If the Company:
(1) pays a dividend or makes a distribution on its Class B Shares in
Class B Shares;
(2) subdivides its outstanding Class B Shares into a greater number
of shares;
(3) combines its outstanding Class B Shares into a smaller number of
shares;
(4) makes a distribution on its Class B Shares in shares of its
capital stock other than Class B Shares; or
(5) issues by reclassification of its Class B Shares any shares of
its capital stock,
-9-
<PAGE>
then the Exercise Rate in effect immediately prior to such action shall be
proportionately adjusted so that the holder of any Warrant thereafter exercised
may receive the aggregate number and kind of shares of capital stock of the
Company which such holder would have owned immediately following such action if
such Warrant had been exercised immediately prior to such action or immediately
prior to the record date applicable thereto, if any.
The adjustment shall become effective immediately after the record date in
the case of a dividend or distribution and immediately after the effective date
in the case of a subdivision, combination or reclassification.
If, after an adjustment, a holder of a Warrant upon exercise may receive
shares of two or more classes of capital stock of the Company, the Exercise Rate
of each class of capital stock shall thereafter be subject to adjustment on
terms comparable to those applicable to Class B Shares in this Section 13.
Such adjustment shall be made successively whenever any event listed above
shall occur.
(b) Adjustment for Rights Issue or Sale of Class B Shares Below
Current Market Value.
If the Company (i) distributes any rights, warrants or options to all
holders of its Class B Shares entitling them to subscribe for or purchase Class
B Shares at a price per share less than 94% (100% if a stand-by underwriter is
used and charges the Company a commission) of the Current Market Value at the
Time of Determination (each as defined in paragraph (d) of this Section 13) or
(ii) sells any Class B Shares or any securities convertible into or exchangeable
or exercisable for the Class B Shares (other than pursuant to (1) the exercise
of the Warrants, (2) any security convertible into, or exchangeable or
exercisable for, the Class B Shares as to which the issuance thereof has
previously been the subject of any required adjustment (whether or not actually
made) pursuant to this Section 13 or (3) the conversion of shares of Class A
Common Stock of the Company into Class B Shares pursuant to their terms) at a
price per share less than the Current Market Value, the Exercise Rate shall be
adjusted in accordance with the formula:
(O + N)
E ' = E x ------------------
(O + (N x P/M))
where:
E ' = the adjusted Exercise Rate;
E = the current Exercise Rate;
O = the number of Class B Shares outstanding on the record date for the
distribution to which this paragraph (b) is being applied or on the date
of sale of Class B Shares at a price per
-10-
<PAGE>
share less than the Current Market Value to which this paragraph (b)
applies, as the case may be;
N = the number of additional Class B Shares issuable upon exercise of all
rights, warrants and options so distributed or the number of Class B
Shares so sold or the maximum stated number of Class B Shares issuable
upon the conversion, exchange or exercise of any such convertible,
exchangeable or exercisable securities, as the case may be;
P = the offering price per share of the additional Class B Shares upon the
exercise of any such rights, options or warrants so distributed or
pursuant to any such convertible, exchangeable or exercisable securities
so sold or the sale price of the shares so sold, as the case may be; and
M = the Current Market Value as of the Time of Determination or at the time of
sale, as the case may be.
The adjustment shall be made successively whenever any such rights,
warrants or options are issued and shall become effective immediately after the
record date for the determination of stockholders entitled to receive the
rights, warrants or options. If at the end of the period during which such
rights, warrants or options are exercisable, not all rights, warrants or options
shall have been exercised, the Exercise Rate shall be immediately readjusted to
what it would have been if "N" in the above formula had been the number of
shares actually issued.
No adjustment shall be made under this paragraph (b) if the application of
the formula stated above in this paragraph (b) would result in a value of E'
that is lower than the value of E.
(c) Adjustment for Other Distributions.
If the Company distributes to all holders of its Class B Shares any of its
assets or debt securities or any rights, warrants or options to purchase any of
its debt securities or assets, the Exercise Rate shall be adjusted in accordance
with the formula:
M
E ' = E x ---
M-F
where:
E ' = the adjusted Exercise Rate;
E = the current Exercise Rate;
M = the Current Market Value; and
-11-
<PAGE>
F = the fair market value (on the record date for the distribution to which
this paragraph (c) applies) of the assets, securities, rights, warrants
or options to be distributed in respect of each Class B Share in the
distribution to which this paragraph (c) is being applied (including, in
the case of cash dividends or other cash distributions giving rise to an
adjustment, all such cash distributed concurrently).
The adjustment shall be made successively whenever any such distribution is
made and shall become effective immediately after the record date for the
determination of stockholders entitled to receive the distribution. If at the
end of the period during which such rights, warrants or options are exercisable,
not all rights, warrants or options shall have been exercised, the Exercise Rate
shall be immediately readjusted to what it would have been if such rights,
warrants or options which are not exercised had not been issued.
This subsection (c) does not apply to cash dividends or cash distributions
paid out of consolidated retained earnings as shown on the books of the Company
prepared in accordance with generally accepted accounting principles other than
any Extraordinary Cash Dividend (as defined below). An "Extraordinary Cash
Dividend" shall be that portion, if any, of the aggregate amount of all cash
dividends paid in any fiscal year which exceeds the sum of (A) the Company's
cumulative undistributed earnings on the date of this Agreement, plus (B) the
cumulative amount of earnings, as determined by the Board of Directors, after
such date, minus (C) the cumulative amount of dividends accrued or paid in
respect of the Class B Shares. In all cases, the Company shall give the Warrant
holders advance notice of a record date for any dividend payment on the Class B
Shares which notice is delivered on a date at least as early as the date of
notice to the holders of Class B Shares.
(d) Current Market Value at the Time of Determination.
"Current Market Value" per Class B Share or of any other security at any
date shall be the average of the daily market price, for the twenty (20)
consecutive trading days immediately preceding the day of such determination.
The market price for each such trading day shall be: (i) the last reported sales
price on such day, or, if no sale takes place on such day, the average of the
reported closing bid and asked prices on such day, in either case as reported on
the New York Stock Exchange ("NYSE") or, (ii) if such security is not listed or
admitted for trading on the NYSE, on the principal national securities exchange
on which such security is listed or admitted for trading or, (iii) if not listed
or admitted for trading on any national securities exchange, on the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotations System ("NASDAQ") or, (iv) if such security is not quoted on such
National Market System, the average of the closing bid and asked prices on such
day in the over-the-counter market as reported by NASDAQ or, (v) if bid and
asked prices for such security on such day shall not have been reported through
NASDAQ, the average of the bid and asked prices on such day as furnished by any
NYSE member firm regularly making a market in such security selected for such
purpose by the Chairman of the Board or the Board of Directors or, (vi) if such
bid and asked prices are not so furnished, then the fair market value
-12-
<PAGE>
of the security as established by the Board of Directors acting in their good
faith reasonable judgment.
"Time of Determination" means the time and date of the earlier of (i) the
determination of stockholders entitled to receive rights, warrants, or options
or a distribution, in each case, to which paragraphs (b) or (c) apply and (ii)
the time ("Ex-Dividend Time") immediately prior to the commencement of "ex-
dividend" trading for such rights, warrants or distribution on such national or
regional exchange or market on which the Class B Shares are then listed or
quoted.
(e) Consideration Received.
For purposes of any computation respecting consideration received pursuant
to subsection (b) of this Section 13, the following shall apply:
(1) in the case of the issuance of Class B Shares for cash, the
consideration shall be the amount of such cash, provided that in no case shall
any deduction be made for any commissions, discounts or other expenses incurred
by the Company for any underwriting of the issue or otherwise in connection
therewith;
(2) in the case of the issuance of Class B Shares for a consideration
in whole or in part other than cash, the consideration other than cash shall be
deemed to be the fair market value thereof as determined in good faith by the
Board of Directors (irrespective of the accounting treatment thereof), whose
determination shall be conclusive, and described in a Board resolution which
shall be filed with the Warrant Agent; and
(3) in the case of the issuance of securities convertible into or
exchangeable for shares, the aggregate consideration received therefor shall be
deemed to be the consideration received by the Company for the issuance of such
securities plus the additional minimum consideration, if any, to be received by
the Company upon the conversion or exchange thereof (the consideration in each
case to be determined in the same manner as provided in clauses (1) and (2) of
this subsection).
(f) When De Minimis Adjustment May Be Deferred.
No adjustment in the Exercise Rate need be made unless the adjustment would
require an increase or decrease of at least 1% in the Exercise Rate. Any
adjustments that are not made shall be carried forward and taken into account in
any subsequent adjustment.
All calculations under this Section 13 shall be made to the nearest 1/100th
of a share.
(g) When No Adjustment Required.
No adjustment need be made for a transaction referred to in subsections
(a), (b) or (c) of this Section 13 if Warrant holders are offered the
opportunity to participate in the transaction
-13-
<PAGE>
on a basis and with notice that the Board of Directors determines to be fair and
appropriate in light of the basis and notice on which holders of Class B Shares
participate in the transaction.
To the extent the Warrants become convertible into cash, no adjustment need
be made thereafter as to the cash. Interest will not accrue on the cash.
(h) Notice of Adjustment.
Whenever the Exercise Rate is adjusted, the Company shall provide the
notices required by Section 15 hereof.
(i) Voluntary Adjustment.
The Company from time to time may, as the Board of Directors deems
appropriate, increase the Exercise Rate by any amount for any period of time if
the period is at least 20 days and if the increase is irrevocable during the
period.
Whenever the Exercise Rate is increased, the Company shall mail to Warrant
holders a notice of the increase. The Company shall mail the notice at least 15
days before the date the increased Exercise Rate takes effect. The notice shall
state the increased Exercise Rate and the period it will be in effect.
An increase of the Exercise Rate pursuant to this Section 13(i), other than
an increase which the Company has irrevocably committed will be in effect for so
long as any Warrants are outstanding, does not change or adjust the Exercise
Rate otherwise in effect for purposes of subsections (a), (b) or (c) of this
Section 13.
(j) Notice of Certain Transactions.
If:
(1) the Company takes any action that would require an adjustment in
the Exercise Rate pursuant to subsections (a), (b) or (c) of this Section 13 and
if the Company does not arrange for Warrant holders to participate pursuant to
subsection (g) of this Section 13;
(2) the Company takes any action that would require a supplemental
Warrant Agreement pursuant to subsection (k) of this Section 13; or
(3) there is a liquidation or dissolution of the Company,
the Company shall mail to Warrant holders a notice stating the proposed record
date for a dividend or distribution or the proposed effective date of a
subdivision, combination, reclassification, consolidation, merger, transfer,
lease, liquidation or dissolution. The Company
-14-
<PAGE>
shall mail the notice at least 15 days before such date. Failure to mail the
notice or any defect in it shall not affect the validity of the transaction.
(k) Reorganization of the Company.
If the Company consolidates or merges with or into, or transfers or leases
all or substantially all its assets to, any Person, upon consummation of such
transaction the Warrants shall automatically become exercisable for the kind and
amount of securities, cash or other assets which the holder of a Warrant would
have owned immediately after the consolidation, merger, transfer or lease if the
holder had exercised the Warrant immediately before the effective date of the
transaction. Concurrently with the consummation of such transaction, the
corporation formed by or surviving any such consolidation or merger if other
than the Company, or the Person to which such sale or conveyance shall have been
made (any such Person, the "Successor Guarantor"), shall enter into a
supplemental Warrant Agreement so providing and further providing for
adjustments which shall be as nearly equivalent as may be practical to the
adjustments provided for in this Section 13. The Successor Guarantor shall mail
to Warrant holders a notice describing the supplemental Warrant Agreement.
If the issuer of securities deliverable upon exercise of Warrants under the
supplemental Warrant Agreement is an Affiliate of the formed, surviving,
transferee or lessee corporation, that issuer shall join in the supplemental
Warrant Agreement.
If this subsection (k) applies, subsections (a), (b) or (c) of this Section
13 do not apply.
(l) The Company Determination Final.
Any determination that the Company or the Board of Directors must make
pursuant to subsection (a), (b), (c), (d), (e) or (g) of this Section 13 is
conclusive.
(m) Warrant Agent's Disclaimer.
The Warrant Agent has no duty to determine when an adjustment under this
Section 13 should be made, how it should be made or what it should be. The
Warrant Agent has no duty to determine whether any provisions of a supplemental
Warrant Agreement under subsection (k) of this Section 13 are correct. The
Warrant Agent makes no representation as to the validity or value of any
securities or assets issued upon exercise of Warrants. The Warrant Agent shall
not be responsible for the Company's failure to comply with this Section 13.
(n) When Issuance or Payment May Be Deferred.
In any case in which this Section 13 shall require that an adjustment in
the Exercise Rate be made effective as of a record date for a specified event,
the Company may elect to defer until the occurrence of such event (i) issuing to
the holder of any Warrant exercised after such record date the Warrant Shares
and other capital stock of the Company, if any, issuable upon such
-15-
<PAGE>
exercise over and above the Warrant Shares and other capital stock of the
Company, if any, issuable upon such exercise on the basis of the Exercise Rate
and (ii) paying to such holder any amount in cash in lieu of a fractional share
pursuant to Section 14 hereof; provided, however, that the Company shall deliver
to such holder a due bill or other appropriate instrument evidencing such
holder's right to receive such additional Warrant Shares, other capital stock
and cash upon the occurrence of the event requiring such adjustment.
(o) Form of Warrants.
Irrespective of any adjustments in the Exercise Rate, Warrants theretofore
or thereafter issued may continue to express the same price and number and kind
of shares as are stated in the Warrants initially issuable pursuant to this
Agreement.
(p) Adjustments to Par Value.
The Company shall from time to time make such adjustments to the par value
of the Class B Shares as may be necessary so that at all times, upon exercise of
the Warrants, the Warrant Shares will be fully paid and nonassessable.
(q) Priority of Adjustments. If this Section 13 requires adjustments
to the Exercise Rate under more than one of paragraphs (a), (b) or (c), and the
record dates for the distributions giving rise to such adjustments shall occur
on the same date, then such adjustments shall be made by applying, first, the
provisions of paragraph (a), second, the provisions of paragraph (c) and, third,
the provisions of paragraph (b).
(r) Multiple Adjustments. After an adjustment to the Exercise Rate
under this Section 13, any subsequent event requiring an adjustment under this
Section 13 shall cause an adjustment to the Exercise Rate as so adjusted.
SECTION 14. Fractional Interests. The Company shall not be required to
issue fractional Warrant Shares on the exercise of Warrants. If more than one
Warrant shall be presented for exercise in full at the same time by the same
holder, the number of full Warrant Shares which shall be issuable upon the
exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 14,
be issuable on the exercise of any Warrants (or specified portion thereof), the
Company shall notify the Warrant Agent in writing of the amount to be paid in
lieu of the fraction of a Warrant Share and concurrently pay or provide to the
Warrant Agent for payment to the Warrant holder an amount in cash equal to the
product of (i) such fraction of a Warrant Share and (ii) the difference of the
Current Market Value of a Class B Share as of the date of exercise of the
Warrants and the Exercise Price.
SECTION 15. Notices to Warrant Holders. Upon any adjustment of the
Exercise Rate pursuant to Section 13 hereof, the Company shall promptly
thereafter (i) cause to be filed with
-16-
<PAGE>
the Warrant Agent a certificate of a firm of independent public accountants of
recognized standing selected by the Company (who may be the regular auditors of
the Company) setting forth the Exercise Rate after such adjustment and setting
forth in reasonable detail the method of calculation and the facts upon which
such calculations are based and setting forth the number of Warrant Shares (or
portion thereof) issuable after such adjustment in the Exercise Rate, upon
exercise of a Warrant and payment of the Exercise Price, which certificate shall
be conclusive evidence of the correctness of the matters set forth therein, and
(ii) cause to be given to each of the registered holders of the Warrant
Certificates at such registered holder's address appearing on the Warrant
register written notice of such adjustment by first-class mail, postage prepaid.
Where appropriate, such notice may be given in advance and included as a part of
the notice required to be mailed under the other provisions of this Section 15.
In the event:
(a) the Company shall authorize the issuance to all holders of Class B
Shares of rights, options or warrants to subscribe for or purchase Class B
Shares or of any other subscription rights or warrants (other than rights,
options or warrants issued to all holders of its Class B Shares entitling them
to subscribe for or purchase Class B Shares at a price per share not less than
94% (100% if a stand-by underwriter is used and charges the Company commission)
of the Current Market Value); or
(b) the Company shall authorize the distribution to all holders of
Class B Shares of evidences of its indebtedness or assets (other than cash
dividends or cash distributions payable out of consolidated earnings or earned
surplus or dividends payable in Class B Shares or distributions referred to in
subsection (a) of Section 13 hereof); or
(c) of any consolidation or merger to which the Company is a party or
of the conveyance or transfer of the properties and assets of the Company
substantially as an entirety, or of any reclassification or change of Class B
Shares issuable upon exercise of the Warrants (other than a change in par value,
or from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), or a tender offer or exchange offer for
Class B Shares; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(e) the Company proposes to take any action (other than actions of the
character described in Section 13(a)) which would require an adjustment of the
Exercise Rate pursuant to Section 13;
then the Company shall cause to be filed with the Warrant Agent and shall cause
to be given to each of the registered holders of the Warrant Certificates at its
address appearing on the Warrant register, at least 20 days (or 15 days in any
case specified in clauses (a) or (b) above) prior to the applicable record date
hereinafter specified, or reasonably promptly in the case of events for
-17-
<PAGE>
which there is no record date, by first-class mail, postage prepaid, a written
notice stating (i) the date as of which the holders of record of Class B Shares
to be entitled to receive any such rights, options, warrants or distribution are
to be determined, or (ii) the initial expiration date set forth in any tender
offer or exchange offer for Class B Shares, or (iii) the date on which any such
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up is expected to become effective or consummated, and
the date as of which it is expected that holders of record of Class B Shares
shall be entitled to exchange such shares for securities or other property, if
any, deliverable upon such reclassification, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up, or (iv) the new Expiration
Date. The failure to give the notice required by this Section 15 or any defect
therein shall not affect the legality or validity of any distribution, right,
option, warrant, reclassification, consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up, or the vote upon any action.
Nothing contained in this Agreement or in any of the Warrant Certificates
shall be construed as conferring upon the holders thereof the right to vote or
to consent or to receive notice as shareholders in respect of the meetings of
shareholders or the election of directors of the Company or any other matter, or
any rights whatsoever as shareholders of the Company.
SECTION 16. Merger, Consolidation or Change of Name of Warrant Agent.
Any corporation into which the Warrant Agent may be merged or with which it may
be consolidated, or any corporation resulting from any merger or consolidation
to which the Warrant Agent shall be a party, or any corporation succeeding to
the business of the Warrant Agent, shall be the successor to the Warrant Agent
hereunder without the execution or filing of any paper or any further act on the
part of any of the parties hereto, provided that such corporation would be
eligible for appointment as a successor warrant agent under the provisions of
Section 18 hereof. In case at the time such successor to the Warrant Agent shall
succeed to the agency created by this Agreement, and in case at that time any of
the Warrant Certificates shall have been countersigned but not delivered, any
such successor to the Warrant Agent may adopt the countersignature of the
original Warrant Agent; and in case at that time any of the Warrant Certificates
shall not have been countersigned, any successor to the Warrant Agent may
countersign such Warrant Certificates either in the name of the predecessor
Warrant Agent or in the name of the successor to the Warrant Agent; and in all
such cases such Warrant Certificates shall have the full force and effect
provided in the Warrant Certificates and in this Agreement.
In case at any time the name of the Warrant Agent shall be changed and at
such time any of the Warrant Certificates shall have been countersigned but not
delivered, the Warrant Agent whose name has been changed may adopt the
countersignature under its prior name, and in case at that time any of the
Warrant Certificates shall not have been countersigned, the Warrant Agent may
countersign such Warrant Certificates either in its prior name or in its changed
name, and in all such cases such Warrant Certificates shall have the full force
and effect provided in the Warrant Certificates and in this Agreement.
-18-
<PAGE>
SECTION 17. Warrant Agent. The Warrant Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions,
by all of which the Company and the holders of Warrants, by their acceptance
thereof, shall be bound:
(a) The statements contained herein and in the Warrant Certificates
shall be taken as statements of the Company and the Warrant Agent assumes no
responsibility for the correctness of any of the same except such as describe
the Warrant Agent or action taken or to be taken by it. The Warrant Agent
assumes no responsibility with respect to the distribution of the Warrant
Certificates except as herein otherwise provided.
(b) The Warrant Agent shall not be responsible for any failure of the
Company to comply with any of the covenants contained in this Agreement or in
the Warrant Certificates to be complied by the Company.
(c) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Warrant Agent
shall incur no liability or responsibility to the Company or to any holder of
any Warrant Certificate in respect of any action taken, suffered or omitted by
it hereunder in good faith and in accordance with the opinion or the advice of
such counsel.
(d) The Warrant Agent shall incur no liability or responsibility to
the Company or to any holder of any Warrant Certificate for any action taken in
reliance on any Warrant Certificate, certificate of shares, notice, resolution,
waiver, consent, order, certificate, or other paper, document or instrument
believed by it to be genuine and to have been signed, sent or presented by the
proper party or parties. The Warrant Agent shall not be bound by any notice or
demand, or any waiver, modification, termination or revision of this Agreement
or any of the terms hereof, unless evidenced by a writing between the Company
and the Warrant Agent.
(e) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the execution of
this Agreement, to reimburse the Warrant Agent for all expenses, taxes
(including withholding taxes) and governmental charges and other charges of any
kind and nature incurred by the Warrant Agent in the execution, delivery and
performance of its responsibilities under this Agreement and to indemnify the
Warrant Agent and save it harmless against any and all liabilities, including
judgments, costs and reasonable counsel fees, for anything done or omitted by
the Warrant Agent in the execution, delivery and performance of its
responsibilities under this Agreement except as a result of its negligence or
bad faith.
(f) The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to involve
expense unless the Company or one or more registered holders of Warrant
Certificates shall furnish the Warrant Agent with reasonable security and
indemnity for any costs and expenses which may be incurred, but this provision
shall not affect the power of the Warrant Agent to take such action as it may
consider proper, whether with or without any such security or indemnity. All
rights of action under this
-19-
<PAGE>
Agreement or under any of the Warrants may be enforced by the Warrant Agent
without the possession of any of the Warrant Certificates or the production
thereof at any trial or other proceeding relative thereto, and any such action,
suit or proceeding instituted by the Warrant Agent shall be brought in its name
as Warrant Agent and any recovery or judgment shall be for the ratable benefit
of the registered holders of the Warrants, as their respective rights or
interests may appear.
(g) Except as may be limited by applicable law, the Warrant Agent, and
any stockholder, director, officer or employee of it, may buy, sell or deal in
any of the Warrants or other securities of the Company or become pecuniarily
interested in any transaction in which the Company may be interested, or
contract with or lend money to the Company or otherwise act as fully and freely
as though it were not Warrant Agent under this Agreement. Nothing herein shall
preclude the Warrant Agent from acting in any other capacity for the Company or
for any other legal entity.
(h) The Warrant Agent shall act hereunder solely as agent for the
Company, and its duties shall be determined solely by the provisions hereof.
The Warrant Agent shall not be liable for anything which it may do or refrain
from doing in connection with this Agreement except for its own negligence or
bad faith.
(i) The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of any Warrant Certificate to make or cause to be
made any adjustment of the Exercise Rate or other securities or property
deliverable as provided in this Agreement, or to determine whether any facts
exist which may require any of such adjustments, or with respect to the nature
or extent of any such adjustments, when made, or with respect to the method
employed in making the same. The Warrant Agent shall not be accountable with
respect to the validity or value or the kind or amount of any Warrant Shares or
of any securities or property which may at any time be issued or delivered upon
the exercise of any Warrant or with respect to whether any such Warrant Shares
or other securities will when issued be validly issued and fully paid and
nonassessable, and makes no representation with respect thereto.
SECTION 18. Change of Warrant Agent. If the Warrant Agent shall become
incapable of acting as Warrant Agent or shall resign as provided below, the
Company shall appoint a successor to such Warrant Agent. If the Company shall
fail to make such appointment within a period of 30 days after it has been
notified in writing of such incapacity or resignation by the Warrant Agent or by
the registered holders of a majority of Warrant Certificates, then the
registered holder of any Warrant Certificate may apply to any court of competent
jurisdiction for the appointment of a successor to the Warrant Agent. Pending
appointment of a successor to such Warrant Agent, either by the Company or by
such a court, the duties of the Warrant Agent shall be carried out by the
Company. The holders of two-thirds of the unexercised Warrants shall be
entitled at any time to require the Company to remove the Warrant Agent and
appoint a successor to such Warrant Agent. Upon receipt of such request, the
Company shall promptly provide the Warrant Agent with 30 days prior written
notice of the effective date of such removal of Warrant Agent and shall appoint
a successor to such Warrant Agent. Such
-20-
<PAGE>
successor to the Warrant Agent need not be approved by the Company or the former
Warrant Agent. Any successor to the Warrant Agent, whether appointed by the
Company, the court or the holders of a majority of the unexercised Warrants,
shall be (a) a corporation or other entity organized and doing business under
the laws of the United States or any state of the United States, in good
standing, which is authorized under such laws to exercise corporate trust or
stock transfer powers and is subject to supervision or examination by Federal or
state authority and which has at the time of its appointment as Warrant Agent a
combined capital and surplus of at least $25,000,000, or (b) an affiliate of a
corporation or other entity described in clause (a) of this sentence. After
appointment the successor to the Warrant Agent shall be vested with the same
powers, rights, duties and responsibilities as if it had been originally named
as Warrant Agent without further act or deed; but the former Warrant Agent shall
deliver and transfer to the successor to the Warrant Agent any property at the
time held by it hereunder and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Failure to give any notice
provided for in this Section 18, however, or any defect therein, shall not
affect the legality or validity of the appointment of a successor to the Warrant
Agent.
The Warrant Agent may resign at any time and be discharged from the
obligations hereby created by so notifying the Company in writing at least 30
days in advance of the proposed effective date of its resignation. If no
successor Warrant Agent accepts the engagement hereunder by such time, the
Company shall act as Warrant Agent.
SECTION 19. Notices to the Company and Warrant Agent. Any notice or
demand authorized by this Agreement to be given or made by the Warrant Agent or
by the registered holder of any Warrant Certificate to or on the Company shall
be sufficiently given or made when and if deposited in the mail, first class or
registered postage prepaid, addressed (until another address is filed in writing
by the Company with the Warrant Agent) as follows:
Security Capital Group Incorporated
125 Lincoln Avenue, Suite 300
Santa Fe, New Mexico 87501
Attention: Jeffrey A. Klopf
with a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attention: Edward J. Schneidman
Any notice pursuant to this Agreement to be given by the Company or by the
registered holder of any Warrant Certificate to the Warrant Agent shall be
sufficiently given when and if deposited in the mail, first-class or registered,
postage prepaid, addressed (until another address is filed in writing by the
Warrant Agent with the Company) to the Warrant Agent as follows:
-21-
<PAGE>
The First National Bank of Boston
150 Royall Street
Canton, Massachusetts 02021
Attention: Client Administration
Notice may also be given by facsimile transmission (effective when receipt
is acknowledged) or by overnight delivery service (effective the next business
day).
SECTION 20. Supplements and Amendments. The Company and the Warrant
Agent may from time to time supplement or amend this Agreement and the terms of
the Warrants without the approval of any holders of Warrant Certificates in
order to cure any ambiguity or to correct or supplement any provision contained
herein which may be defective or inconsistent with any other provision herein,
or to make any other provisions in regard to matters or questions arising
hereunder which the Company and the Warrant Agent may deem necessary or
desirable and which shall not in any way materially adversely affect the
interests of the holders of Warrant Certificates, including, without limitation,
any amendment pursuant to which the Expiration Date would be extended. Any
amendment or supplement to this Agreement that has a material adverse effect on
the interests of holders shall require the written consent of registered holders
of a majority of the then outstanding Warrants; provided, however, that the
consent of each holder of a Warrant affected shall be required for any amendment
pursuant to which the Exercise Price would be increased, the number of Warrant
Shares purchasable upon exercise of Warrants would be decreased, the period of
time during which the Warrants are exercisable is reduced, the percentage
required for modification is reduced, or any change to this Section 20 is
effected (other than in accordance with Section 13 or 14 hereof).
SECTION 21. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
SECTION 22. Termination. This Agreement shall terminate at 5:00 p.m.,
New York, New York time on September 18, 1998, unless extended pursuant to
paragraph (h) of Section 7 or pursuant to Section 20 hereof. Notwithstanding
the foregoing, this Agreement will terminate on such earlier date on which all
Warrants have been exercised. The provisions of Section 17 hereof shall survive
such termination.
SECTION 23. Governing Law; Jurisdiction. This Agreement and each
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Maryland and for all purposes shall be governed by and
construed in accordance with the internal laws of said State.
SECTION 24. Benefits of This Agreement. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company, the
Warrant Agent and the registered holders of the Warrant Certificates any legal
or equitable right, remedy or claim
-22-
<PAGE>
under this Agreement; but this Agreement shall be for the sole and exclusive
benefit of the Company, the Warrant Agent and the registered holders of the
Warrant Certificates.
SECTION 25. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
SECTION 26. Further Assurances. From time to time on and after the date
hereof, the Company shall deliver or cause to be delivered to the Warrant Agent
such further documents and instruments and shall do and cause to be done such
further acts as the Warrant Agent shall reasonably request (it being understood
that the Warrant Agent shall have no obligation to make such request) to carry
out more effectively the provisions and purposes of this Agreement, to evidence
compliance herewith or to assure itself that it is protected hereunder.
-23-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
SECURITY CAPITAL GROUP INCORPORATED
By: /s/ JEFFREY A. KLOPF
------------------------------------
Jeffrey A. Klopf
Senior Vice President
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ J. RENAUD
---------------------------------
Name: J. Renaud
Title: Account Manager
-24-
<PAGE>
EXHIBIT A
[Form of Warrant Certificate]
[Face]
CUSIP #81413P 1 13
No. ___ _____ Warrants
Warrant Certificate
Security Capital Group Incorporated
This Warrant Certificate certifies that ____________, or registered
assigns, is the registered holder of ____________ Warrants expiring September
18, 1998, unless extended (the "Warrants"), to purchase shares of the Class B
Common Stock, par value $.01 per share (the "Class B Shares"), of Security
Capital Group Incorporated, a Maryland corporation (the "Company"). Each
Warrant entitles the holder upon exercise to receive from the Company at any
time from 9:00 a.m. September 18, 1997 to 5:00 p.m., New York, New York time on
September 18, 1998, unless extended in accordance with the provisions of the
Warrant Agreement (the "Warrant Agreement"), dated as of September 17, 1997 by
and between the Company and The First National Bank of Boston, as Warrant Agent
(the "Warrant Agent"), one fully paid, registered and nonassessable Class B
Share (a "Warrant Share", which may also include any other securities or
property purchasable upon exercise of a Warrant, such adjustment and inclusion
each as provided in the Warrant Agreement at the initial exercise price of ____
dollars ($_____) per share (the "Exercise Price"), payable in United States
dollars by certified or official bank check to the order of the Company, upon
surrender of this Warrant Certificate and payment of the Exercise Price at the
office or agency maintained for that purpose by the Company (the "Warrant Agent
Office"), subject to the conditions set forth herein and in the Warrant
Agreement referred to on the reverse hereof. The Company has initially
designated the corporate trust office of the Warrant Agent in the Borough of
Manhattan, the City of New York, as the initial Warrant Agent Office. The
number or amount of Warrant Shares for which a Warrant may be exercised (the
"Exercise Rate") is subject to adjustment upon the occurrence of certain events
set forth in the Warrant Agreement. All capitalized terms not defined herein
shall have the meanings assigned to such terms in the Warrant Agreement.
Unless such date or time is extended as provided in the Warrant
Agreement, no Warrant may be exercised after 5:00 p.m., New York, New York time
on September 18, 1998 and to the extent not exercised by such time Warrants
shall become void.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse hereof and such further provisions shall
for all purposes have the same effect as though fully set forth at this place.
<PAGE>
This Warrant Certificate shall not be valid unless countersigned by
the Warrant Agent.
This Warrant Certificate shall be governed and construed in accordance
with the internal laws of the State of Maryland.
IN WITNESS WHEREOF, Security Capital Group Incorporated has caused
this Warrant Certificate to be signed by its Chairman and by its Secretary, each
by a facsimile of his signature, and has caused a facsimile of its corporate
seal to be affixed hereunto or imprinted hereon.
Dated: SECURITY CAPITAL GROUP INCORPORATED
By: ___________________________
William D. Sanders
Chairman
By: ___________________________
Jeffrey A. Klopf
Secretary
Countersigned:
BankBoston, N.A.
as Warrant Agent
By:________________________________
Authorized Signatory
A-2
<PAGE>
Form of Warrant Certificate
[Reverse]
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants expiring at 5:00 p.m., New York, New York time, on
September 18, 1998, unless extended, entitling the holder on exercise to receive
Class B Shares of the Company, and are issued pursuant to the Warrant Agreement
dated as of September 17, 1997, duly executed and delivered by the Company to
The First National Bank of Boston, as Warrant Agent, which Warrant Agreement is
hereby incorporated by reference in and made a part of this instrument and is
hereby referred to for a description of the rights, limitation of rights,
obligations, duties and immunities thereunder of the Warrant Agent, the Company
and the holders (the words "holders" or "holder" meaning the registered holders
or registered holder) of the Warrants. A copy of the Warrant Agreement may be
obtained by the holder hereof upon written request to the Company.
Subject to the provisions of the Warrant Agreement, the holder of each
Warrant shall have the right to purchase from the Company (and the Company shall
issue and sell to such holder of the Warrant), at any time on any Business Day
from 9:00 a.m. on September 18, 1997 until 5:00 p.m., New York, New York time,
on September 18, 1998, unless extended, one (or such other number as may result
from adjustments as provided in the Warrant Agreement) fully paid, registered
and nonassessable Class B Share at the Exercise Price (and any other securities
or property purchasable upon exercise of such Warrant at the time of such
exercise as provided in the Warrant Agreement). Warrants may be exercised by
(i) surrendering at any Warrant Agent Office this Warrant Certificate with the
form of Election to Exercise set forth hereon duly completed and executed and
(ii) paying in full the Warrant Exercise Price for each such Warrant exercised
and any other amounts required to be paid pursuant to the Warrant Agreement in
United States dollars by certified or official bank check to the order of the
Company.
If all of the items referred to in the last sentence of the preceding
paragraph are received by the Warrant Agent at or prior to 2:00 p.m., New York,
New York time, on a Business Day, the exercise of the Warrant to which such
items relate will be effective on such Business Day. If any items referred to in
the last sentence of the preceding paragraph are received after 2:00 p.m., New
York, New York time, on a Business Day, the exercise of the Warrants to which
such item relates will be effective on the next succeeding Business Day.
Notwithstanding the foregoing, in the case of an exercise of Warrants on
September 18, 1998, unless extended, if all of the items referred to in the last
sentence of the preceding paragraph are received by the Warrant Agent at or
prior to 5:00 p.m., New York, New York time, on such expiration date, the
exercise of the Warrants to which such items relate will be effective on the
expiration date.
As soon as practicable after the exercise of any Warrant or Warrants,
the Company shall issue or cause to be issued to or upon the written order of
the registered holder of this Warrant Certificate, a certificate or certificates
representing the Warrant Shares to which such holder is
A-3
<PAGE>
entitled, in fully registered form, registered in such name or names as may be
directed by such holder pursuant to the Election to Exercise, as set forth on
the reverse of this Warrant Certificate. Such certificate or certificates
representing the Warrant Shares shall be deemed to have been issued and any
persons who are designated to be named therein shall be deemed to have become
the holder of record of such Warrant Shares as of the close of business on the
exercise date.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Rate may, subject to certain conditions, be adjusted. No
fractions of a Class B Share will be issued upon the exercise of any Warrant,
but the Company will pay the cash value thereof determined as provided in the
Warrant Agreement.
Warrant Certificates, when surrendered at the office of the Warrant
Agent by the registered holder thereof in person or by legal representative or
attorney duly authorized in writing, may be exchanged, in the manner and subject
to the limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of like
tenor evidencing in the aggregate a like number of Warrants.
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Warrant Agent a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement,
without charge except for any tax or other governmental charge imposed in
connection therewith.
The Company and the Warrant Agent may deem and treat the registered
holder(s) thereof as the absolute owner(s) of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone), for the purpose of any exercise hereof, of any distribution to the
holder(s) hereof, and for all other purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary. Neither the
Warrants nor this Warrant Certificate entitles any holder hereof to any rights
of a stockholder of the Company.
A-4
<PAGE>
FORM OF ELECTION TO PURCHASE
(To Be Executed Upon Exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to receive ____ Class B Shares and
herewith (check item) tenders payment for such shares to the order of the
Company, in the amount of $____ per Class B Share in accordance with the terms
hereof, as follows:
[_] $____________ in cash; or
[_] $____________ by wire transfer of immediately available funds;
or
[_] $ ___________ by certified or official bank check to the order of the
Company.
The undersigned requests that a certificate for such shares be registered
in the name of ________________, whose address is _____________________, and
that such shares be delivered to __________________________________________.
If said number of shares is less than all of the Class B Shares purchasable
hereunder, the undersigned requests that a new Warrant Certificate representing
the remaining balance of such shares be registered in the name of _________,
whose address is ______________, and that such Warrant Certificate be delivered
to ___________________, whose address is _________________________.
Signature(s): ______________________________
Note: The above signature(s) must
correspond with the name written upon
the face of this Warrant Certificate
in every particular, without
alteration or enlargement or any
change whatsoever. If this Warrant is
held of record by two or more joint
owners, all such owners must sign.
Date: _______________
Signature Guaranteed*: _____________________________
*Note: The signature must be guaranteed by an institution which is a member
of one of the following recognized signature guarantee programs:
(1) The Securities Transfer Agent Medallion Program (STAMP);
(2) The New York Stock Exchange Medallion Program (MSP); or
(3) The Stock Exchange Medallion Program (SEMP).
A-5
<PAGE>
ASSIGNMENT FORM
To assign this Warrant, fill in the form below: (I) or (we) assign and
transfer this Warrant to
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint __________________________ to transfer this Warrant on
the books of the Company. The agent may substitute another to act for him.
Signature(s): ______________________________
Note: The above signature(s) must
correspond with the name written upon
the face of this Warrant Certificate
in every particular, without
alteration or enlargement or any
change whatsoever. If this Warrant is
held of record by two or more joint
owners, all such owners must sign.
Date: _______________
Signature Guaranteed*: ___________________________
*Note: The signature must be guaranteed by an institution which is a member
of one of the following recognized signature guarantee programs:
(1) The Securities Transfer Agent Medallion Program (STAMP);
(2) The New York Stock Exchange Medallion Program (MSP); or
(3) The Stock Exchange Medallion Program (SEMP).
A-6
<PAGE>
EXHIBIT 10.1
AMENDED AND RESTATED INVESTOR AGREEMENT
THIS AMENDED AND RESTATED INVESTOR AGREEMENT (this "Agreement"), dated as
of September 9, 1997, is by and between Security Capital Atlantic Incorporated,
a Maryland corporation (the "Company"), and Security Capital Group Incorporated,
a Maryland corporation ("SCG").
W I T N E S S E T H
-------------------
WHEREAS, the Company and SCG have entered into that certain Merger and
Issuance Agreement, dated as of March 24, 1997, as amended (the "Merger
Agreement"), pursuant to which, among other things, SCG will cause certain of
its subsidiaries to be merged into a subsidiary of the Company in exchange for
the Company's shares of common stock, $0.01 par value per share (the "Common
Shares");
WHEREAS, the Company and SCG are parties to that certain Investor
Agreement, dated October 28, 1993 (the "Original Agreement");
WHEREAS, the Company and SCG desire to update and to amend and restate the
Original Agreement to reflect their continuing relationship after the
consummation of the transactions contemplated by the Merger Agreement (the
"Transaction"); and
WHEREAS, the execution and delivery of this Agreement is a condition to the
consummation of the Transaction.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Definitions. In addition to the terms defined elsewhere herein, the
following terms shall have the following meanings:
"Approval Rights" shall have the meaning set forth in Section 5(d) of this
Agreement.
"Beneficial Owner" shall mean any Person deemed to be a "Beneficial Owner"
of or to "Beneficially Own" any Common Shares in accordance with the term
"beneficial ownership" as defined in Rule 13d-3 under the Exchange Act.
"Board" shall mean the Board of Directors of the Company.
"Bylaws" shall mean the Company's Second Amended and Restated Bylaws, as
now in effect or as amended from time to time.
<PAGE>
"Capital Expenditures" shall mean, on an annual basis, an amount equal to
the product of (a) the sum of the total square footage with respect to all
completed properties of the Company and its consolidated subsidiaries as of the
last day of each of the immediately preceding five calendar quarters, divided by
five, and (b) $0.15.
"Commission" shall mean the Securities and Exchange Commission or any
successor agency or entity thereto.
"Common Shares" shall have the meaning set forth in the preamble of this
Agreement.
"Company" shall have the meaning set forth in the first paragraph of this
Agreement.
"Charter" shall mean the Company's Amended and Restated Articles of
Incorporation, as amended and supplemented, as now in effect or as amended from
time to time.
"Disqualified Shares" shall mean any of the Company's shares of stock which
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable or exercisable) (a) matures or is subject to
mandatory redemption, pursuant to a sinking fund obligation or otherwise, (b) is
convertible into or exchangeable or exercisable for a Liability or Disqualified
Shares during the term of this Agreement, (c) is redeemable during the term of
this Agreement at the option of the holder of such security or (d) otherwise
requires any payments by the Company during the term of this Agreement.
"Distribution" shall mean, with respect to any shares of beneficial
interest or other equity security of the Company, (a) the retirement,
redemption, purchase or other acquisition for value of those securities by the
Company, (b) the declaration or payment of any dividend on or with respect to
those securities by the Company, (c) any loan or advance by the Company to, or
other investment by the Company in, the holder of any of those securities and
(d) any other payment by the Company with respect to those securities.
"Fixed Charge Coverage Ratio" shall mean, as of any date, the ratio of
(a)(i) Funds from Operations, plus (ii) Interest Expense, minus (iii) Capital
Expenditures, to (b) the sum of (i) Interest Expense, plus (ii) Distributions of
any kind or character or other proceeds paid or payable with respect to
Disqualified Shares, plus (iii) any regularly scheduled principal payments on
Total Indebtedness (excluding (1) any regularly scheduled principal payments on
Company's revolving line of credit with Morgan Guaranty Trust Company of New
York, or any renewals, extensions or replacements thereof, and (2) any regularly
scheduled principal payments on any Total Indebtedness which pays such Total
Indebtedness in full, but only to the extent that the amount of such final
payment is greater than the scheduled principal payment immediately preceding
such final payment), in each case for the four fiscal quarters ending on the
date of determination.
"Funds from Operations" shall mean for the Company and its consolidated
subsidiaries, net income plus depreciation and amortization (exclusive of
amortization of financing costs), all as determined in accordance with generally
accepted accounting principles; provided, that there
-2-
<PAGE>
shall not be included in such calculation (a) any proceeds of any insurance
policy other than rental or business interruption insurance received by the
Company, (b) any gain or loss which is classified as "extraordinary" in
accordance with generally accepted accounting principles or (c) capital gains
and taxes on capital gains (in each case exclusive of such amounts that are
attributable to Atlantic Development Services Incorporated). Funds from
Operations shall be calculated as if all minority interests in the Company's
consolidated subsidiaries have been converted into capital securities of the
Company. Funds from Operations shall not be increased or decreased by gains or
losses from sales of properties (in each case exclusive of amounts that are
attributable to Atlantic Development Services Incorporated).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Group" shall have the meaning assigned thereto in Section 13(d)(3) of the
Exchange Act.
"Interest Expense" shall mean all of the Company's paid, accrued or
capitalized interest expense on it Total Indebtedness (whether direct, indirect,
or contingent, and including interest on all convertible liabilities), but
excluding Interest Expense that is not paid or payable in cash and excluding
Interest Expense for the construction of Company projects which is capitalized
in accordance with generally accepted accounting principles.
"Interest Expense Coverage Ratio" shall mean, as of any date, the ratio of
(a) the sum of (i) the Company's Funds from Operations and (ii) the Company's
Interest Expense to (b) the sum of (i) Interest Expense and (ii) Distributions
of any kind or character or other proceeds paid or payable with respect to
Disqualified Shares, of the Company and is consolidated subsidiaries for the
four fiscal quarters ending on the date of determination.
"Liabilities" shall mean, without duplication, (a) any obligations required
by generally accepted accounting principles to be classified upon the Company's
balance sheet as liabilities, (b) any liabilities secured (or for which the
holder of the Liability has an existing right, remedy, power or privilege,
contingent or otherwise, to be so secured) by any Lien existing on property
owned or acquired by the Company, (c) any obligations that have been (or under
generally accepted accounting principles should be) capitalized for financial
reporting purposes and (d) any guaranties, endorsements and other contingent
obligations with respect to Liabilities or obligations of others.
"Lien" shall mean any lien, mortgage, security interest, pledge,
assignment, charge, title retention, agreement or encumbrance of any kind and
any other substantially similar arrangement for a creditor's claim to be
satisfied from assets or proceeds prior to the claims of other creditors or the
owners.
"Lender" shall have the meaning set forth in Section 6(i) of this
Agreement.
"Member" shall have the meaning set forth in Section 4 of this Agreement.
"Nominee" shall have the meaning set forth in Section 5(a) of this
Agreement.
-3-
<PAGE>
"Person" shall mean any individual, corporation, partnership, limited
liability company, joint venture, association, joint stock company, trust,
unincorporated organization, or other entity.
"Registrable Securities" shall have the meaning set forth in Section 6(h)
of this Agreement.
"SCG" shall have the meaning set forth in the first paragraph of this
Agreement.
"SCG Group" shall have the meaning set forth in Section 4 of this
Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Senior Officer" shall mean any Senior Vice President, Managing Director,
President, Chairman or Co-Chairman of the Company.
"Total Indebtedness" shall mean all Liabilities of the Company that are (a)
a Liability for borrowed money, (b) evidenced by bonds, debentures, notes or
similar instruments, (c) an obligation to pay the deferred purchase price of
property or services, except trade payables arising in the ordinary course of
business, (d) secured by a Lien existing on any property or any interest
therein, whether or not such Liability shall have been assumed by the Company,
(e) any capital lease or sublease that has been (or under generally accepted
accounting principles should be) capitalized on a balance sheet, (f) a guaranty,
endorsement or other contingent obligation (other than endorsements in the
ordinary course of business of negotiable or documents for deposit or
collection) and (g) accounts payable, dividends of any kind or character or
other proceeds payable with respect to any shares, accrued expenses and other
liabilities which in the aggregate are in excess of 5% of the amount of the
Company's total assets (determined in accordance with generally accepted
accounting principles) plus the amount of any accumulated depreciation with
respect to such assets, as of the date of determination.
"Transaction" shall have the meaning set forth in the preamble of this
Agreement.
"Value" shall mean the reported last sale price of a unit of security
regular way on a given day or, in case no such sale takes place on such day, the
average of the reported closing bid and asked prices regular way, in each case
on the New York Stock Exchange Composite Tape, or, if such securities are not
listed or admitted to trading on such exchange, on the principal national
securities exchange on which such securities are listed or admitted to trading;
or, if such securities are not listed or admitted to trading on any national
securities exchange, the closing sales price, or, if there is no closing sales
price, the average of the closing bid and asked prices, in the over-the-counter
market as reported by the National Association of Securities Dealers Automated
Quotation System, or, if not so reported, as reported by the National Quotation
Bureau, Incorporated, or any successor thereof; or, if not so reported, the
average of the closing bid and asked prices as furnished by any member of the
National Association of Securities Dealers, Inc. selected from time to time by
the Company for that purpose; or, if no such prices are furnished, the fair
market value of such security as estimated by a nationally
-4-
<PAGE>
recognized investment banking firm selected by SCG (subject to the Company's
approval, which will not be unreasonably withheld), which estimate shall be
prepared at the expense of the Company; provided, however, that any
determination of the "Value" of a security hereunder shall be based on the
assumption that such security is freely transferable without registration under
the Securities Act.
"Violation" shall have the meaning set forth in Section 6(f)(i) of this
Agreement.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to SCG as follows:
(a) Organization and Standing. The Company has been duly organized
and is validly existing as a corporation in good standing under the laws of
the State of Maryland, with full power and authority to own its properties
and conduct its business as now conducted and as proposed by it to be
conducted.
(b) No Defaults. The performance of this Agreement and the
consummation of the transactions herein contemplated will not conflict with
the Charter, Bylaws or other governing documents of the Company.
(c) Authority. The Company has full right, power and authority to
enter into this Agreement and to carry out its obligations hereunder. This
Agreement has been duly authorized, executed and delivered by the Company
and constitutes a valid and binding agreement of the Company enforceable
against it in accordance with its terms, except to the extent that its
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally and judicial limitations on the right of specific performance or
by general equitable principles, and except as enforceability of
indemnification provisions hereof may be limited by federal securities
laws.
(d) Investment Company Act. The Company is not required to be
registered under the Investment Company Act of 1940, as amended.
3. Representations and Warranties of SCG. SCG hereby represents and
warrants to the Company as follows:
(a) Organization and Standing. SCG has been duly organized and is
validly existing as a corporation in good standing under the laws of the
State of Maryland, with corporate power and authority to own its properties
and conduct its business as now conducted.
(b) Authorization. SCG has full right, power and authority to enter
into this Agreement and to carry out its obligations hereunder. This
Agreement has been duly authorized, executed and delivered by SCG and
constitutes a valid and binding agreement of SCG enforceable against it in
accordance with its terms, except to the extent that its
-5-
<PAGE>
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally and judicial limitations on the right of specific performance or
by general equitable principles. The performance by SCG of all of its
obligations under this Agreement and the consummation of the transactions
herein contemplated will not conflict with or result in a breach of any of
the terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other material agreement or
instrument to which SCG is a party or by which SCG is bound or to which any
of the property or assets of SCG is subject, nor will any such action
result in any violation of the provisions of the Articles of Incorporation
or the By-Laws of SCG or any applicable law or statute or any order, rule
or regulation of any court or governmental agency or body having
jurisdiction over SCG or any of its properties.
(c) Investment Company Act. SCG is not required to be registered
under the Investment Company Act of 1940, as amended.
4. Corporate Configuration. SCG and its affiliates, including the
Company (collectively, the "SCG Group" and each, a "Member"), constitute a group
of businesses engaged in real estate research, investment and management. Since
inception, the SCG Group has compiled an excellent record of growth in its
business. The parties recognize that the SCG Group has a distinct character
that is reflected in its objectives, principles, operating policies and
management style and that the SCG Group's overall objective is to create the
maximum value for Members and the shareholders thereof. The parties further
recognize that an important element of the SCG Group's success has been its
ability to attract, motivate, develop and retain talented individuals.
Historically, this has been accomplished by combining the operational aspects of
a Member with the organizational, management, technical and financial strengths
of SCG. Following the consummation of the Transaction, the parties desire that
the distinctive character of the SCG Group continue as between the Company, SCG
and the other Members and, accordingly, agree to the following provisions of
this Section 4.
(a) Statement of Purpose and Objectives. The parties believe that the
creation of value for the shareholders of the Company and the other Members
is dependent in large part on the ability of the Members to attract,
motivate, develop and retain talented individuals. The parties further
recognize that each Member enjoys the benefits and support derived from its
affiliates within the SCG Group and that these benefits and support are
important for the continued success of each of the Members. In that
regard, the Company and SCG agree that the provisions of this Section 4 are
necessary to continue the development of a corporate structure and depth of
management capable of sustaining a high rate of value-creation over a long
period of time. Further, the Company and SCG agree that it is critical to
the accomplishment of its goals to (i) recognize the intrinsic value of
each employee as an individual, (ii) treat each employee and applicant for
employment without discrimination as to race, creed, color, sex, age,
orientation or national origin, (iii) maintain an atmosphere that combines
professional achievement with personal enjoyment, (iv) provide training
opportunities that permit employees to perform their jobs in a better and
more meaningful manner, (v) provide
-6-
<PAGE>
each employee with opportunity for career growth and advancement within the
SCG Group based upon individual ability and performance, (v) recognize the
value and potential of self-motivation of people who thoroughly understand
their jobs so that individual initiative and thought will be encouraged in
the accomplishment of all tasks, (vi) compensate employees fairly and
competitively and (vii) maintain and enhance the strengths of each Member.
(b) Transferability of Employees. To accomplish the foregoing
objectives, each of the parties hereto agrees that SCG may notify the
Company's officers and employees of employment opportunities with other
Members of the SCG Group (including SCG) and may make such opportunities
available to such officers and employees; provided, that prior to making
any such opportunity available to any Senior Officer, SCG shall first give
the Board written notice of its intention to make any such opportunity
available to a Senior Officer at least 14 days prior to any discussions
with a Senior Officer regarding such opportunity. No Member (or any
director, trustee, officer, employee or shareholder of such Member) shall
have any liability to any other Member (or any director, trustee, officer,
employee or shareholder of such Member) as a result of the compliance by
such Member with the provisions of this Section 4. In the event that any
claims are made by any Person as a result of the compliance by a Member
with the provisions of this Section 4, each Member shall be responsible for
its own costs of defending against such claim.
(c) Termination. The provisions of this Section 4 shall continue and
remain in full force and effect until such time as the Company shall cease
to be a Member.
5. Covenants of the Company. The Company covenants and agrees with SCG
as follows:
(a) Board Representation. From and after the date hereof and for so
long thereafter as SCG Beneficially Owns 10% or more of the outstanding
Common Shares, the Company shall not increase the number of members of its
Board to more than seven (7), and SCG shall be entitled to designate one or
more Persons for nomination to the Board (such Person, a "Nominee") as
follows and the Company will use its best efforts to cause the election of
such Nominee or Nominees:
(i) So long as SCG Beneficially Owns at least 10% but less than
25% of the outstanding Common Shares, one (1) Nominee;
(ii) So long as SCG Beneficially Owns 25% or more of the
outstanding Common Shares, that number of Nominees as shall bear
approximately the same ratio (rounded down to the nearest whole
number) to the total number of members of the Board as the number of
Common Shares Beneficially Owned by SCG bears to the total number of
outstanding Common Shares, provided, that (A) SCG shall be entitled to
designate not more than three (3) Nominees so long as the Board
consists of not more than seven (7) members; and (B) any Person who is
-7-
<PAGE>
employed by SCG or who is an employee or a director of any corporation
of which SCG is a 25% shareholder (except for the Company) shall be
deemed to be a designee of SCG.
(b) File Reports. For as long as SCG shall continue to Beneficially
Own any Common Shares, the Company shall file on a timely basis all annual,
quarterly and other reports required to be filed by it under Sections 13
and 15(d) of the Exchange Act, and the Rules and Regulations of the
Commission thereunder, as amended from time to time.
(c) Advice of Actions. Without first having consulted with the
Nominee or Nominees of SCG designated by SCG in writing, the Company will
not seek approval by the Board of any proposal relating to:
(i) Budget. The Company's annual budget.
(ii) Expenses. Incurring expenses in any year exceeding (A) any
line item in the annual budget by the greater of $500,000 or 20% and
(B) the total expenses set forth in the annual budget by 15%.
(iii) Assets. The acquisition or sale of any assets in any
single transaction or any series of related transactions in the
ordinary course of the Company's business where the aggregate purchase
price paid or received by the Company exceeds $25,000,000.
(iv) Contracts. Entering into any new contract with a service
provider (A) for investment management, property management, or
leasing services or (B) that reasonably contemplates annual contract
payments by the Company in excess of $1,000,000.
Notwithstanding the foregoing, the Company shall have no obligation to
accept or comply with any advice offered by SCG or its designated Nominees
in any consultation pursuant to this Section 5(c).
(d) Approval Rights. So long as SCG Beneficially Owns 25% or more of
the Common Shares outstanding, SCG shall have the right (each, an "Approval
Right") to approve the following matters as proposed by the Company:
(i) Equity Securities. The (A) issuance or sale of any Common
Shares, (B) grant of any rights, options or warrants to subscribe for
or purchase Common Shares or any security convertible into or
exchangeable for Common Shares or (C) the issuance or sale of any
security convertible into or exchangeable for Common Shares, in any
such case, at a price per share less than the Value of a Common Share
on the date of such issuance, sale or grant. For purposes of the
preceding sentence Common Shares shall be deemed to be issued at less
than Value if the price per share for which Common Shares issuable
upon exercise of
-8-
<PAGE>
rights, options or warrants or upon conversion or exchange of
convertible or exchangeable securities is less than the Value on the
date of issuance. The provisions of this Section 5(d)(i) shall not
apply to (A) the sale or grant of any options to purchase shares of
stock of the Company pursuant to the provisions of any benefit plan
approved by the shareholders of the Company, (B) the issuance or sale
of shares of stock upon the exercise of any rights, options or
warrants granted, or upon the conversion or exchange of any
convertible or exchangeable security issued or sold, prior to the date
of this Agreement or in accordance with the provisions of this Section
5, (C) the issuance and sale of any shares of stock of the Company
pursuant to any dividend reinvestment and stock purchase plan approved
by the Board or (D) the issuance, grant or distribution of rights,
options or warrants to all holders of Common Shares entitling them to
subscribe for or purchase shares of stock of the Company or securities
convertible into or exercisable for shares of stock.
(ii) Fixed Charges. The issuance and sale of any Disqualified
Shares if, as a result thereof, the Company's Fixed Charge Coverage
Ratio would be less than 1.4 to 1.0.
(iii) Benefit Plans and Compensation. The adoption of any
employee benefit plan pursuant to which shares of stock of the Company
or any securities convertible into shares of stock of the Company may
be issued and any action with respect to the compensation of the
Senior Officers (including the granting or award of any bonuses or
stock-based incentive awards); provided, however, that SCG will not
have an Approval Right as to any action with respect to the
compensation of a Senior Officer as to whom SCG has delivered a notice
under Section 4, for so long as the employment opportunity that is the
subject of such notice is available to such Senior Officer.
(iv) Indebtedness. The incurrence of any additional indebtedness
(including guarantees and including renegotiations and restructurings
of existing indebtedness) if, as a result thereof, the Company's
Interest Expense Coverage Ratio would be less than 2.0 to 1.0.
Notwithstanding anything to the contrary contained herein, the Approval
Rights of SCG shall terminate and be of no further force or effect at such
time as SCG Beneficially Owns less than 25% of the Common Shares
outstanding.
(e) Approval Right Procedures. The Company shall submit any proposed
action with respect to any Approval Right for consideration by SCG,
together with information which sets forth in reasonable detail the
background and reasons for such action, reasonably in advance of the date
any action would be required to be taken by or on behalf of the Company to
permit SCG to review the information and make an informed decision. The
approval of SCG pursuant to Section 5(d), other than where written approval
is expressly required, shall be deemed to have been received if SCG
-9-
<PAGE>
does not communicate otherwise to the Company by the fifteenth day after
SCG shall have received a written request for such approval.
(f) Company Support. If there is a final judicial determination
before any court of competent jurisdiction that any or all of the Approval
Rights are not enforceable or exercisable in any manner by SCG, whether by
reason of Maryland statutory or common law or otherwise, the Company agrees
to defer any action proposed by the Company which is the subject of any of
the Approval Right which was so determined not to be enforceable or
exercisable and SCG shall have the right to cause the Company to call a
special meeting of shareholders at which meeting SCG may present an
alternative slate of directors for election (which slate may include some
of the same nominees as the then current Board). The Company and SCG agree
that they will each use their best efforts to prepare and file with the
Commission definitive proxy material, to have such material cleared by the
Commission and to mail such material to the Company's shareholders, as soon
as practicable. The Company shall in any event provide SCG with a list of
the shareholders of record for such meeting and a complete list of non-
objecting beneficial holders and deposits in securities positions listings
as of such date. The Company and SCG shall not, and their respective
directors, officers, employees and agents shall not, take any action that
would have the effect of delaying, preventing or impeding the special
meeting of shareholders or the mailing of proxy materials in respect of
such meeting, including the commencement of any action, suit or proceeding
at law or in equity seeking to enjoin, delay or impede the special meeting
or the mailing of proxy materials in respect of such meeting. The parties
shall each bear their own costs in connection with any special meeting of
shareholders pursuant to this Section 5(f); provided, that the Company
shall bear all costs typically borne by companies in connection with annual
meetings of shareholders.
(g) Non-interference. The Company shall not provide any Person with
rights which are similar or more extensive than the Approval Rights
provided to SCG hereunder and shall not grant to any Person or Group the
right to nominate a greater number of members to the Company's Board than
the number SCG is entitled to designate pursuant to Section 5(a), in each
case, without the prior approval of SCG, which may be withheld in SCG's
sole and absolute discretion; the Company shall not enter into any
agreement or arrangement with any Person which shall impede or impair the
Approval Rights in any manner.
(h) Inspection. At any time during regular business hours and as
often as reasonably requested of the Company's officers, the Company will
permit SCG or any authorized employee, agent or representative of SCG to
examine and make copies and abstracts from the records and books of account
of, and to visit the properties of, the Company and to discuss the affairs,
finances, and accounts of the Company with any of its officers or
directors; provided, that all costs and expenses of such inspection shall
be borne by SCG.
-10-
<PAGE>
6. Registration Rights.
(a) Demand. At any time after the date hereof and for so long
thereafter as SCG shall continue to own any Registrable Securities, SCG may
request registration of all or any part of its Registrable Securities
pursuant to Rule 415 under the Securities Act by delivering written notice
to the Company specifying the number of Registrable Securities that SCG
desires to sell, and the Company shall use its reasonable efforts to effect
the registration of such Registrable Securities under the Securities Act.
(b) Registration Procedures. If and whenever the Company is required
by any of the provisions of this Section 6 to use its reasonable efforts to
effect the registration of any of the Registrable Securities under the
Securities Act, the Company shall:
(i) prepare and file with the Commission a registration statement
with respect to such securities and use its reasonable efforts to
cause such registration statement to become effective and remain
effective for as long as shall be necessary to complete the
distribution of at least 90% of the Registrable Securities so
registered;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement, and the prospectus used in
connection therewith, as may be necessary to keep such registration
statement effective for so long as shall be necessary to complete the
distribution of at least 90% of the Registrable Securities so
registered and to comply with the provisions of the Securities Act
with respect to the sale or other disposition of all securities
covered by such registration statement whenever SCG shall desire to
sell or otherwise dispose of the same within such period;
(iii) furnish to SCG such numbers of copies of such registration
statement, each amendment and supplement thereto, the prospectus
included in such registration statement, including any preliminary
prospectus, and any amendment or supplement thereto, and such other
documents, as may be reasonably requested in order to facilitate the
sale or other disposition of the Registrable Securities owned by SCG;
(iv) use its reasonable efforts to register and qualify the
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as SCG shall
reasonably request, and do any and all other acts and things
reasonably requested by SCG to assist the public sale or other
disposition by SCG in such jurisdictions of the securities owned by
SCG, except that the Company shall not for any such purpose be
required to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified or to file therein any
general consent to service of process;
-11-
<PAGE>
(v) otherwise use its reasonable efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months,
beginning with the first fiscal quarter beginning after the effective
date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act;
(vi) use its reasonable efforts to list such securities on any
securities exchange or quotation system on which any securities of the
Company are then listed, if the listing of such securities is then
permitted under the rules of such exchange or quotation system; and
(vii) notify SCG, at any time when a prospectus relating to the
Registrable Securities is required to be delivered under the
Securities Act, of the happening of any event of which it has
knowledge as a result of which the prospectus included in such
registration statement, as then in effect, contains an untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then
existing.
(c) Number of Registrations. SCG shall be entitled to request one
registration of its Registrable Securities pursuant to Section 6(a) for
each $100 million in Value of Registrable Securities Beneficially Owned by
SCG on the date of such request.
(d) Company's Ability to Postpone. The Company shall have the right
to postpone the filing of a registration statement under this Section 6 for
a reasonable period of time (not exceeding 60 days) if the Company
furnishes SCG with a certificate signed by any Senior Officer stating that,
in its good faith judgment, the Board has determined that effecting the
registration at such time would adversely affect a material financing,
acquisition, disposition of assets or shares, merger or other comparable
transaction or would require the Company to make public disclosure of
information the public disclosure of which would have a material adverse
effect upon the Company.
(e) Expenses. All expenses incurred in the registration of
Registrable Securities under this Agreement shall be paid by the Company.
The expenses shall include, without limitation, the expenses of preparing
the registration statement and the prospectus used in connection therewith
and any amendment or supplement thereto, printing and photocopying
expenses, all registration and filing fees under Federal and state
securities laws, and expenses of complying with the securities or blue sky
laws of any jurisdictions; provided, however, that SCG shall be responsible
for paying the fees and disbursements of its own counsel and any
underwriting discounts, commissions and fees.
(f) Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 6:
-12-
<PAGE>
(i) Indemnity by Company. Without limitation of any other
indemnity provided to SCG, to the extent permitted by law, the Company
will indemnify and hold harmless SCG and its officers, directors and
each Person, if any, who controls SCG (within the meaning of the
Securities Act or the Exchange Act), against any losses, claims,
damages, liabilities and expenses (joint or several) to which they may
become subject under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages,
liabilities and expenses (or actions in respect thereof) arise out of
or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or
alleged untrue statement of a material fact contained in any
registration statement (including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements
thereto), (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading, or (iii) any violation or alleged violation
by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the
Securities Act, the Exchange Act or any state securities law, and the
Company will reimburse SCG and its officers, directors and any
controlling person thereof for any reasonable legal or other expenses
incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, expense or action; provided,
however, that the Company shall not be liable in any such case for any
such loss, claim, damage, liability, expense or action to the extent
that it arises out of or is based upon a Violation that occurs in
reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by SCG or any
officer, director or controlling person thereof.
(ii) Indemnity by SCG. In connection with any registration
statement in which SCG is participating, SCG will furnish to the
Company in writing such information and affidavits as the Company
reasonably requests for use in connection with any such registration
statement or prospectus and, to the extent permitted by law, will
indemnify the Company, its directors and officers and each Person who
controls the Company (within the meaning of the Securities Act or
Exchange Act) against any losses, claims, damages, liabilities and
expenses resulting from any Violation, but only to the extent that
such Violation is contained in any information or affidavit so
furnished in writing by SCG; provided, that the obligation to
indemnify will be several and not joint and several with any other
Person and will be limited to the net amount received by SCG from the
sale of Registrable Securities pursuant to such registration
statement.
(iii) Notice; Right to Defend. Promptly after receipt by an
indemnified party under this Section 6(f) of notice of the
commencement of any action (including any governmental action), such
indemnified party will, if a claim in respect thereof is to be made
against any indemnifying party under this Section 6(f), deliver to the
indemnifying party a written notice of the commencement
-13-
<PAGE>
thereof and the indemnifying party shall have the right to participate
in, and, if the indemnifying party agrees in writing that it will be
responsible for any costs, expenses, judgments, damages and losses
incurred by the indemnified party with respect to such claim, jointly
with any other indemnifying party similarly noticed, to assume the
defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party shall have the right to
retain its own counsel, with the fees and expenses to be paid by the
indemnifying party, if the indemnified party reasonably believes that
representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any
other party represented by such counsel in such proceeding. The
failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall relieve
such indemnifying party of any liability to the indemnified party
under this Section 6(f) only if and to the extent that such failure is
prejudicial to its ability to defend such action, and the omission to
deliver written notice to the indemnifying party will not relieve it
of any liability that it may have to any indemnified party other than
under this Section 6(f).
(iv) Contribution. If the indemnification provided for in this
Section 6(f) is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any loss,
liability, claim, damage or expense referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage
or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the
indemnified party on the other hand in connection with the statements
or omissions which resulted in such loss, liability, claim, damage or
expense as well as any other relevant equitable considerations. The
relevant fault of the indemnifying party and the indemnified party
shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission
to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. Notwithstanding the
foregoing, the amount SCG shall be obligated to contribute pursuant to
this Section 6(f)(iv) shall be limited to an amount equal to the
proceeds to SCG of the Registrable Securities sold pursuant to the
registration statement which gives rise to such obligation to
contribute (less the aggregate amount of any damages which SCG has
otherwise been required to pay in respect of such loss, claim, damage,
liability or action or any substantially similar loss, claim, damage,
liability or action arising from the sale of such Registrable
Securities).
-14-
<PAGE>
(v) Survival of Indemnity. The indemnification provided by this
Section 6(f) shall be a continuing right to indemnification and shall
survive the registration and sale of any securities by any Person
entitled to indemnification hereunder and the expiration or
termination of this Agreement.
(g) Limitations on Registration Rights.
(i) The Company shall not, without the prior written consent of
SCG, include in any registration in which SCG has a right to
participate pursuant to this Agreement any securities of any Person
other than SCG.
(ii) SCG shall not, without the prior written consent of the
Company, effect any public sale or distribution (including sales
pursuant to Rule 144 under the Securities Act) of securities of the
Company during any period commencing 30 days prior to and ending 60
days after the effective date of any registration statement filed by
the Company on behalf of any Person (including the Company), other
than a registration statement on Form S-8 or any successor form.
(h) Registrable Securities. The term "Registrable Securities" means
(i) any Common Shares now owned or hereafter acquired by SCG and (ii) any
Common Shares or other securities that may subsequently be issued with
respect to such Common Shares as a result of a stock split or dividend or
any sale, transfer, assignment or other transaction by the Company
involving the Common Shares and any securities into which the Common Shares
may thereafter be changed as a result of merger, consolidation,
recapitalization or otherwise. As to any particular Registrable
Securities, such securities will cease to be Registrable Securities when
they have been distributed to the public pursuant to an offering registered
under the Securities Act. All Registrable Securities shall cease to be
Registrable Securities when all such securities may be sold in any three-
month period pursuant to Rule 144, or any successor to such rule, under the
Securities Act.
(i) Assignment. SCG may assign without the consent of the Company its
rights under this Section 6 with respect to any Registrable Securities to
any party (a "Lender") to whom it provides a bona fide pledge, assignment
or hypothecation of such Registrable Securities. If (i) SCG assigns its
rights under this Section 6 with respect to Registrable Securities having
an aggregate offering value of at least $100,000,000 to a Lender and (ii)
any Event of Default occurs and is continuing under the related loan
agreement between SCG (or one of its subsidiaries) and the Lender, the
Lender may request one registration of all or part of its Registrable
Securities having an aggregate offering value of at least $100,000,000 on
Form S-3 (or any successor form) under the Securities Act by delivering
written notice to the Company specifying the number of Registrable
Securities that the Lender desires to sell and the Company shall use its
reasonable efforts to effect the registration of such Registrable
Securities under the Securities Act in accordance with and subject to the
provisions of this Section 6.
-15-
<PAGE>
7. Miscellaneous.
(a) Survival of Representations, Warranties and Covenants. All
representations, warranties and covenants contained herein shall survive the
execution of this Agreement and shall remain in full force and effect until
terminated in accordance with the provisions of this Agreement.
(b) Successors and Assigns. This Agreement shall be binding upon, and
inure to the benefit of, the parties hereto and their respective heirs, personal
representatives, successors, assigns and affiliates, but (except as provided in
Section 6(i)) shall not be assignable by any party hereto without the prior
written consent of the other party hereto.
(c) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, sent via a recognized
overnight courier with delivery confirmed in writing or sent via facsimile to
the parties at the following addresses (or such other address for a party as
shall be specified by like notice):
If to the Company:
Security Capital Atlantic Incorporated
Six Piedmont Center, Suite 600
Atlanta, Georgia 30305
Attention: Constance B. Moore
Facsimile: (404) 233-2379
If to SCG:
Security Capital Group Incorporated
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Attention: Jeffrey A. Klopf
Facsimile: (505) 988-8920
(d) Waiver. No party may waive any of the terms or conditions of this
Agreement, except by a duly executed writing referring to the specific provision
to be waived.
(e) Amendment. This Agreement may be amended only by a writing duly
executed by both the Company and SCG.
(f) Severability. Insofar as is possible, each provision of this Agreement
shall be interpreted so as to render it valid and enforceable under applicable
law and severable from the remainder of this Agreement. A finding that any such
provision is invalid or unenforceable in any jurisdiction shall not affect the
validity or enforceability of any other provision or the validity or
enforceability of such provision under the laws of any other jurisdiction.
-16-
<PAGE>
(g) Entire Agreement. This Agreement constitutes the entire agreement, and
supersedes all other prior agreements and understandings, both written and oral,
among the parties hereto and their affiliates, with respect to the subject
matter hereof.
(h) Expenses. Except as otherwise expressly contemplated herein to the
contrary, regardless of whether the transactions contemplated hereby are
consummated, each party hereto shall pay its own expenses incident to preparing
for, entering into and carrying out this Agreement and the consummation of the
transactions contemplated hereby.
(i) Captions. The Section and Paragraph captions herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
(j) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
(k) Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of Maryland.
(l) Specific Performance. Each of the parties hereto acknowledges that the
obligations undertaken by it pursuant to this Agreement are unique and that the
other party will not have an adequate remedy at law if it shall fail to perform
any of its obligations hereunder, and each of the parties hereto therefore
confirms that the right of the other party to specific performance of the terms
of this Agreement is essential to protect the rights and interests of such
party. Accordingly, in addition to any other remedies that either party hereto
may have at law or in equity, SCG shall have the right to have all obligations,
covenants, agreements and other provisions of this Agreement specifically
performed by the other party, and each party shall have the right to obtain
preliminary and permanent injunctive relief to secure specific performance and
to prevent a breach or contemplated breach of this Agreement by the other party.
* * * * *
-17-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the day and year first above written.
SECURITY CAPITAL ATLANTIC INCORPORATED
By: /s/ Constance B. Moore
---------------------------------------
Constance B. Moore
Co-Chairman
SECURITY CAPITAL GROUP INCORPORATED
By: /s/ Jeffrey A. Klopf
---------------------------------------
Jeffrey A. Klopf
Senior Vice President and Secretary
<PAGE>
EXHIBIT 10.2
THIRD AMENDED AND RESTATED INVESTOR AGREEMENT
THIS THIRD AMENDED AND RESTATED INVESTOR AGREEMENT (this "Agreement"),
dated as of September 9, 1997, is by and between Security Capital Pacific Trust,
a Maryland real estate investment trust (the "Company"), and Security Capital
Group Incorporated, a Maryland corporation ("SCG").
W I T N E S S E T H
-------------------
WHEREAS, the Company and SCG have entered into that certain Merger and
Issuance Agreement, dated as of March 24, 1997, as amended (the "Merger
Agreement"), pursuant to which, among other things, SCG will cause certain of
its subsidiaries to be merged into a subsidiary of the Company in exchange for
the Company's common shares of beneficial interest, $0.01 par value per share
(the "Common Shares");
WHEREAS, the Company and SCG are parties to that certain Investor
Agreement, dated and amended and restated as of February 23, 1990, which was
further amended by that certain Amended and Restated Investor Agreement dated as
of May 14, 1991, by that certain Supplemental Agreement dated as of May 14,
1991, and by that certain Second Amended and Restated Investor Agreement dated
as of July 11, 1994 (as so amended and restated and further amended, the
"Original Agreement");
WHEREAS, the Company and SCG have also entered into that certain
Supplemental Investment Agreement, dated as of October 1, 1991, that certain
Second Supplemental Investment Agreement dated as of December 7, 1993, and that
certain Third Supplemental Investment Agreement dated as of December 6, 1994
(collectively the "Investment Agreements");
WHEREAS, the Company and SCG desire to amend and restate the Original
Agreement to clarify certain ambiguities and update the Original Agreement, to
consolidate the provisions of the Investment Agreements with the provisions of
the Original Agreement and thereby terminate the Investment Agreements, and to
reflect the continuing relationship between the Company and SCG after
consummation of the transactions contemplated by the Merger Agreement (the
"Transaction"); and
WHEREAS, the execution and delivery of this Agreement is a condition to the
consummation of the Transaction.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Definitions. In addition to the terms defined elsewhere herein, the
following terms shall have the following meanings:
<PAGE>
"Affiliate" shall have the meaning ascribed thereto in Rule 12b-2 under the
Exchange Act as in effect on the date hereof; provided, that neither party
hereto shall be deemed to be an Affiliate of the other party hereto for purposes
of this Agreement unless otherwise stated herein.
"Approval Rights" shall have the meaning set forth in Section 5(d) of this
Agreement.
"Beneficial Owner" shall mean any Person deemed to be a "Beneficial Owner"
of or to "Beneficially Own" any Common Shares in accordance with the term
"beneficial ownership" as defined in Rule 13d-3 under the Exchange Act.
"Board" shall mean the Board of Trustees of the Company.
"Bylaws" shall mean the Company's Amended and Restated Bylaws, as now in
effect or as amended from time to time.
"Capital Expenditures" shall mean, on an annual basis, an amount equal to
the product of (a) the sum of the total square footage with respect to all
completed properties of the Company and its consolidated subsidiaries as of the
last day of each of the immediately preceding five calendar quarters, divided by
five, and (b) $0.15.
"Commission" shall mean the Securities and Exchange Commission or any
successor agency or entity thereto.
"Common Shares" shall have the meaning set forth in the preamble of this
Agreement.
"Company" shall have the meaning set forth in the first paragraph of this
Agreement.
"Declaration of Trust" shall mean the Company's Restated Declaration of
Trust, as amended and supplemented, as now in effect or as amended from time to
time.
"Disqualified Shares" shall mean any of the Company's shares of beneficial
interest which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable or exercisable) (a) matures or is
subject to mandatory redemption, pursuant to a sinking fund obligation or
otherwise, (b) is convertible into or exchangeable or exercisable for a
Liability or Disqualified Shares during the term of this Agreement, (c) is
redeemable during the term of this Agreement at the option of the holder of such
security or (d) otherwise requires any payments by the Company during the term
of this Agreement.
"Distribution" shall mean, with respect to any shares of beneficial
interest or other equity security of the Company, (a) the retirement,
redemption, purchase or other acquisition for value of those securities by the
Company, (b) the declaration or payment of any dividend on or with respect to
those securities by the Company, (c) any loan or advance by the Company to, or
other investment by the Company in, the holder of any of those securities and
(d) any other payment by the Company with respect to those securities.
"Fixed Charge Coverage Ratio" shall mean, as of any date, the ratio of
(a)(i) Funds from Operations, plus (ii) Interest Expense, minus (iii) Capital
Expenditures, to (b) the sum of (i)
-2-
<PAGE>
Interest Expense, plus (ii) Distributions of any kind or character or other
proceeds paid or payable with respect to Disqualified Shares, plus (iii) any
regularly scheduled principal payments on Total Indebtedness (excluding (1) any
regularly scheduled principal payments on Company's revolving line of credit
with Texas Commerce Bank National Association and Wells Fargo Realty Advisors
Funding, Incorporated, or any renewals, extensions or replacements thereof, and
(2) any regularly scheduled principal payments on any Total Indebtedness which
pays such Total Indebtedness in full, but only to the extent that the amount of
such final payment is greater than the scheduled principal payment immediately
preceding such final payment), in each case for the four fiscal quarters ending
on the date of determination.
"Funds from Operations" shall mean for the Company and its consolidated
subsidiaries, net income plus depreciation and amortization (exclusive of
amortization of financing costs), all as determined in accordance with generally
accepted accounting principles; provided, that there shall not be included in
such calculation (a) any proceeds of any insurance policy other than rental or
business interruption insurance received by the Company, (b) any gain or loss
which is classified as "extraordinary" in accordance with generally accepted
accounting principles or (c) capital gains and taxes on capital gains (in each
case exclusive of such amounts that are attributable to PTR Development Services
Incorporated). Funds from Operations shall be calculated as if all minority
interests in the Company's consolidated subsidiaries have been converted into
capital securities of the Company. Funds from Operations shall not be increased
or decreased by gains or losses from sales of properties (in each case exclusive
of amounts that are attributable to PTR Development Services Incorporated).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Group" shall have the meaning assigned thereto in Section 13(d)(3) of the
Exchange Act.
"Interest Expense" shall mean all of the Company's paid, accrued or
capitalized interest expense on it Total Indebtedness (whether direct, indirect,
or contingent, and including interest on all convertible liabilities), but
excluding Interest Expense that is not paid or payable in cash and excluding
Interest Expense for the construction of Company projects which is capitalized
in accordance with generally accepted accounting principles.
"Interest Expense Coverage Ratio" shall mean, as of any date, the ratio of
(a) the sum of (i) the Company's Funds from Operations and (ii) the Company's
Interest Expense to (b) the sum of (i) Interest Expense and (ii) Distributions
of any kind or character or other proceeds paid or payable with respect to
Disqualified Shares, of the Company and is consolidated subsidiaries for the
four fiscal quarters ending on the date of determination.
"Liabilities" shall mean, without duplication, (a) any obligations required
by generally accepted accounting principles to be classified upon the Company's
balance sheet as liabilities, (b) any liabilities secured (or for which the
holder of the Liability has an existing right, remedy, power or privilege,
contingent or otherwise, to be so secured) by any Lien existing on property
owned or acquired by the Company, (c) any obligations that have been (or under
generally accepted accounting principles should be) capitalized for financial
reporting purposes and (d) any guaranties, endorsements and other contingent
obligations with respect to Liabilities or obligations of others.
-3-
<PAGE>
"Lien" shall mean any lien, mortgage, security interest, pledge,
assignment, charge, title retention, agreement or encumbrance of any kind and
any other substantially similar arrangement for a creditor's claim to be
satisfied from assets or proceeds prior to the claims of other creditors or the
owners.
"Lender" shall have the meaning set forth in Section 7(i) of this
Agreement.
"Member" shall have the meaning set forth in Section 4 of this Agreement.
"Nominee" shall have the meaning set forth in Section 5(a) of this
Agreement.
"Person" shall mean any individual, corporation, partnership, limited
liability company, joint venture, association, joint stock company, trust,
unincorporated organization, or other entity.
"Registrable Securities" shall have the meaning set forth in Section 7(h)
of this Agreement.
"SCG" shall have the meaning set forth in the first paragraph of this
Agreement.
"SCG Group" shall have the meaning set forth in Section 4 of this
Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Senior Officer" shall mean any Senior Vice President, Managing Director,
President, Chairman or Co-Chairman of the Company.
"Total Indebtedness" shall mean all Liabilities of the Company that are (a)
a Liability for borrowed money, (b) evidenced by bonds, debentures, notes or
similar instruments, (c) an obligation to pay the deferred purchase price of
property or services, except trade payables arising in the ordinary course of
business, (d) secured by a Lien existing on any property or any interest
therein, whether or not such Liability shall have been assumed by the Company,
(e) any capital lease or sublease that has been (or under generally accepted
accounting principles should be) capitalized on a balance sheet, (f) a guaranty,
endorsement or other contingent obligation (other than endorsements in the
ordinary course of business of negotiable or documents for deposit or
collection) and (g) accounts payable, dividends of any kind or character or
other proceeds payable with respect to any shares, accrued expenses and other
liabilities which in the aggregate are in excess of 5% of the amount of the
Company's total assets (determined in accordance with generally accepted
accounting principles) plus the amount of any accumulated depreciation with
respect to such assets, as of the date of determination.
"Transaction" shall have the meaning set forth in the preamble of this
Agreement.
"Value" shall mean the reported last sale price of a unit of security
regular way on a given day or, in case no such sale takes place on such day, the
average of the reported closing bid and asked prices regular way, in each case
on the New York Stock Exchange Composite Tape, or, if such securities are not
listed or admitted to trading on such exchange, on the
-4-
<PAGE>
principal national securities exchange on which such securities are listed or
admitted to trading; or, if such securities are not listed or admitted to
trading on any national securities exchange, the closing sales price, or, if
there is no closing sales price, the average of the closing bid and asked
prices, in the over-the-counter market as reported by the National Association
of Securities Dealers Automated Quotation System, or, if not so reported, as
reported by the National Quotation Bureau, Incorporated, or any successor
thereof; or, if not so reported, the average of the closing bid and asked prices
as furnished by any member of the National Association of Securities Dealers,
Inc. selected from time to time by the Company for that purpose; or, if no such
prices are furnished, the fair market value of such security as estimated by a
nationally recognized investment banking firm selected by SCG (subject to the
Company's approval, which will not be unreasonably withheld), which estimate
shall be prepared at the expense of the Company; provided, however, that any
determination of the "Value" of a security hereunder shall be based on the
assumption that such security is freely transferable without registration under
the Securities Act.
"Violation" shall have the meaning set forth in Section 7(f)(i) of this
Agreement.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to SCG as follows:
(a) Organization and Standing. The Company has been duly organized
and is validly existing as a real estate investment trust in good standing
under the laws of the State of Maryland, with full power and authority to
own its properties and conduct its business as now conducted and as
proposed by it to be conducted.
(b) No Defaults. The performance of this Agreement and the
consummation of the transactions herein contemplated will not conflict with
the Declaration of Trust, Bylaws or other governing documents of the
Company.
(c) Authority. The Company has full right, power and authority to
enter into this Agreement and to carry out its obligations hereunder. This
Agreement has been duly authorized, executed and delivered by the Company
and constitutes a valid and binding agreement of the Company enforceable
against it in accordance with its terms, except to the extent that its
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally and judicial limitations on the right of specific performance or
by general equitable principles, and except as enforceability of
indemnification provisions hereof may be limited by federal securities
laws.
(d) Investment Company Act. The Company is not required to be
registered under the Investment Company Act of 1940, as amended.
-5-
<PAGE>
3. Representations and Warranties of SCG. SCG hereby represents and
warrants to the Company as follows:
(a) Organization and Standing. SCG has been duly organized and is
validly existing as a corporation in good standing under the laws of the
State of Maryland, with corporate power and authority to own its properties
and conduct its business as now conducted.
(b) Authorization. SCG has full right, power and authority to enter
into this Agreement and to carry out its obligations hereunder. This
Agreement has been duly authorized, executed and delivered by SCG and
constitutes a valid and binding agreement of SCG enforceable against it in
accordance with its terms, except to the extent that its enforceability may
be limited by applicable bankruptcy, insolvency, reorganization or other
laws affecting the enforcement of creditors' rights generally and judicial
limitations on the right of specific performance or by general equitable
principles. The performance by SCG of all of its obligations under this
Agreement and the consummation of the transactions herein contemplated will
not conflict with or result in a breach of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other material agreement or instrument to which SCG is a
party or by which SCG is bound or to which any of the property or assets of
SCG is subject, nor will any such action result in any violation of the
provisions of the Articles of Incorporation or the By-Laws of SCG or any
applicable law or statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over SCG or any of its
properties.
(c) Investment Company Act. SCG is not required to be registered
under the Investment Company Act of 1940, as amended.
4. Corporate Configuration. SCG and its affiliates, including the
Company (collectively, the "SCG Group and each, a "Member"), constitute a group
of businesses engaged in real estate research, investment and management. Since
inception, the SCG Group has compiled an excellent record of growth in its
business. The parties recognize that the SCG Group has a distinct character
that is reflected in its objectives, principles, operating policies and
management style and that the SCG Group's overall objective is to create the
maximum value for Members and the shareholders thereof. The parties further
recognize that an important element of the SCG Group's success has been its
ability to attract, motivate, develop and retain talented individuals.
Historically, this has been accomplished by combining the operational aspects of
a Member with the organizational, management, technical and financial strengths
of SCG. Following the consummation of the Transaction, the parties desire that
the distinctive character of the SCG Group continue as between the Company, SCG
and the other Members and, accordingly, agree to the following provisions of
this Section 4.
(a) Statement of Purpose and Objectives. The parties believe that the
creation of value for the shareholders of the Company and the other Members
is dependent in large part on the ability of the Members to attract,
motivate, develop and retain talented individuals. The parties further
recognize that each Member enjoys the benefits and support derived from its
affiliates within the SCG Group and that these benefits and
-6-
<PAGE>
support are important for the continued success of each of the Members. In
that regard, the Company and SCG agree that the provisions of this Section
4 are necessary to continue the development of a corporate structure and
depth of management capable of sustaining a high rate of value-creation
over a long period of time. Further, the Company and SCG agree that it is
critical to the accomplishment of its goals to (i) recognize the intrinsic
value of each employee as an individual, (ii) treat each employee and
applicant for employment without discrimination as to race, creed, color,
sex, age, orientation or national origin, (iii) maintain an atmosphere that
combines professional achievement with personal enjoyment, (iv) provide
training opportunities that permit employees to perform their jobs in a
better and more meaningful manner, (v) provide each employee with
opportunity for career growth and advancement within the SCG Group based
upon individual ability and performance, (v) recognize the value and
potential of self-motivation of people who thoroughly understand their jobs
so that individual initiative and thought will be encouraged in the
accomplishment of all tasks, (vi) compensate employees fairly and
competitively and (vii) maintain and enhance the strengths of each Member.
(b) Transferability of Employees. To accomplish the foregoing
objectives, each of the parties hereto agrees that SCG may notify the
Company's officers and employees of employment opportunities with other
Members of the SCG Group (including SCG) and may make such opportunities
available to such officers and employees; provided, that prior to making
any such opportunity available to any Senior Officer, SCG shall first give
the Board written notice of its intention to make any such opportunity
available to a Senior Officer at least 14 days prior to any discussions
with a Senior Officer regarding such opportunity. No Member (or any
director, trustee, officer, employee or shareholder of such Member) shall
have any liability to any other Member (or any director, trustee, officer,
employee or shareholder of such Member) as a result of the compliance by
such Member with the provisions of this Section 4. In the event that any
claims are made by any Person as a result of the compliance by a Member
with the provisions of this Section 4, each Member shall be responsible for
its own costs of defending against such claim.
(c) Termination. The provisions of this Section 4 shall continue and
remain in full force and effect until such time as the Company shall cease
to be a Member.
5. Covenants of the Company. The Company covenants and agrees with SCG
as follows:
(a) Board Representation. From and after the date hereof and for so
long thereafter as SCG Beneficially Owns 10% or more of the outstanding
Common Shares, the Company shall not increase the number of members of its
Board to more than eight (8), and SCG shall be entitled to designate one or
more Persons for nomination to the Board (such Person, a "Nominee") as
follows and the Company will use its best efforts to cause the election of
such Nominee or Nominees:
(i) So long as SCG Beneficially Owns at least 10% but less than
25% of the outstanding Common Shares, one (1) Nominee;
-7-
<PAGE>
(ii) So long as SCG Beneficially Owns 25% or more of the
outstanding Common Shares, that number of Nominees as shall bear
approximately the same ratio (rounded down to the nearest whole
number) to the total number of members of the Board as the number of
Common Shares Beneficially Owned by SCG bears to the total number of
outstanding Common Shares, provided, that (A) SCG shall be entitled to
designate not more than three (3) Nominees so long as the Board
consists of not more than eight (8) members; and (B) any Person who is
employed by SCG or who is an employee or a director of any corporation
of which SCG is a 25% shareholder (except for the Company) shall be
deemed to be a designee of SCG.
(b) File Reports. For as long as SCG shall continue to Beneficially
Own any Common Shares, the Company shall file on a timely basis all annual,
quarterly and other reports required to be filed by it under Sections 13
and 15(d) of the Exchange Act, and the Rules and Regulations of the
Commission thereunder, as amended from time to time.
(c) Advice of Actions. Without first having consulted with the
Nominee or Nominees of SCG designated by SCG in writing, the Company will
not seek approval by the Board of any proposal relating to:
(i) Budget. The Company's annual budget.
(ii) Expenses. Incurring expenses in any year exceeding (A) any
line item in the annual budget by the greater of $500,000 or 20% or
and (B) the total expenses set forth in the annual budget by 15%.
(iii) Assets. The acquisition or sale of any assets in any
single transaction or any series of related transactions in the
ordinary course of the Company's business where the aggregate purchase
price paid or received by the Company exceeds $25,000,000.
(iv) Contracts. Entering into any new contract with a service
provider (A) for investment management, property management, or
leasing services or (B) that reasonably contemplates annual contract
payments by the Company in excess of $1,000,000.
Notwithstanding the foregoing, the Company shall have no obligation to
accept or comply with any advice offered by SCG or its designated Nominees
in any consultation pursuant to this Section 5(c).
(d) Approval Rights. So long as SCG Beneficially Owns 25% or more of
the Common Shares outstanding, SCG shall have the right (each, an "Approval
Right") to approve the following matters as proposed by the Company:
(i) Equity Securities. The (A) issuance or sale of any Common
Shares, (B) grant of any rights, options or warrants to subscribe for
or purchase Common Shares or any security convertible into or
exchangeable for Common
-8-
<PAGE>
Shares or (C) the issuance or sale of any security convertible into or
exchangeable for Common Shares, in any such case, at a price per share
less than the Value of a Common Share on the date of such issuance,
sale or grant. For purposes of the preceding sentence Common Shares
shall be deemed to be issued at less than Value if the price per share
for which Common Shares issuable upon exercise of rights, options or
warrants or upon conversion or exchange of convertible or exchangeable
securities is less than the Value on the date of issuance. The
provisions of this Section 5(d)(i) shall not apply to (A) the sale or
grant of any options to purchase shares of beneficial interest of the
Company pursuant to the provisions of any benefit plan approved by the
shareholders of the Company, (B) the issuance or sale of shares of
beneficial interest upon the exercise of any rights, options or
warrants granted, or upon the conversion or exchange of any
convertible or exchangeable security issued or sold, prior to the date
of this Agreement or in accordance with the provisions of this Section
5, (C) the issuance and sale of any shares of beneficial interest of
the Company pursuant to any dividend reinvestment and share purchase
plan approved by the Board or (D) the issuance, grant of distribution
of rights, options or warrants to all holders of Common Shares
entitling them to subscribe for or purchase shares of beneficial
interest of the Company or securities convertible into or exercisable
for shares of beneficial interest.
(ii) Fixed Charges. The issuance and sale of any Disqualified
Shares if, as a result thereof, the Company's Fixed Charge Coverage
Ratio would be less than 1.4 to 1.0.
(iii) Benefit Plans and Compensation. The adoption of any
employee benefit plan pursuant to which shares of beneficial interest
of the Company or any securities convertible into shares of beneficial
interest of the Company may be issued and any action with respect to
the compensation of the Senior Officers (including the granting or
award of any bonuses or share-based incentive awards); provided,
however, that SCG will not have an Approval Right as to any action
with respect to the compensation of a Senior Officer as to whom SCG
has delivered a notice under Section 4, for so long as the employment
opportunity that is the subject of such notice is available to such
Senior Officer.
(iv) Indebtedness. The incurrence of any additional indebtedness
(including guarantees and including renegotiations and restructurings
of existing indebtedness) if, as a result thereof, the Company's
Interest Expense Coverage Ratio would be less than 2.0 to 1.0.
Notwithstanding anything to the contrary contained herein, the Approval Rights
of SCG shall terminate and be of no further force or effect at such time as SCG
Beneficially Owns less than 25% of the Common Shares outstanding.
(e) Approval Right Procedures. The Company shall submit any proposed
action with respect to any Approval Right for consideration by SCG,
together with information which sets forth in reasonable detail the
background and reasons for such
-9-
<PAGE>
action, reasonably in advance of the date any action would be required to
be taken by or on behalf of the Company to permit SCG to review the
information and make an informed decision. The approval of SCG pursuant to
Section 5(d), other than where written approval is expressly required,
shall be deemed to have been received if SCG does not communicate otherwise
to the Company by the fifteenth day after SCG shall have received a written
request for such approval.
(f) Company Support. If there is a final judicial determination
before any court of competent jurisdiction that any or all of the Approval
Rights are not enforceable or exercisable in any manner by SCG, whether by
reason of Maryland statutory or common law or otherwise, the Company agrees
to defer any action proposed by the Company which is the subject of any of
the Approval Right which was so determined not to be enforceable or
exercisable and SCG shall have the right to cause the Company to call a
special meeting of shareholders at which meeting SCG may present an
alternative slate of trustees for election (which slate may include some of
the same nominees as the then current Board). The Company and SCG agree
that they will each use their best efforts to prepare and file with the
Commission definitive proxy material, to have such material cleared by the
Commission and to mail such material to the Company's shareholders, as soon
as practicable. The Company shall in any event provide SCG with a list of
the shareholders of record for such meeting and a complete list of non-
objecting beneficial holders and deposits in securities positions listings
as of such date. The Company and SCG shall not, and their respective
directors, trustees, officers, employees and agents shall not, take any
action that would have the effect of delaying, preventing or impeding the
special meeting of shareholders or the mailing of proxy materials in
respect of such meeting, including the commencement of any action, suit or
proceeding at law or in equity seeking to enjoin, delay or impede the
special meeting or the mailing of proxy materials in respect of such
meeting. The parties shall each bear their own costs in connection with
any special meeting of shareholders pursuant to this Section 5(f);
provided, that the Company shall bear all costs typically borne by
companies in connection with annual meetings of shareholders.
(g) Non-interference. The Company shall not provide any Person with
rights which are similar or more extensive than the Approval Rights
provided to SCG hereunder and shall not grant to any Person or Group the
right to nominate a greater number of members to the Company's Board than
the number SCG is entitled to designate pursuant to Section 5(a), in each
case, without the prior approval of SCG, which may be withheld in SCG's
sole and absolute discretion; the Company shall not enter into any
agreement or arrangement with any Person which shall impede or impair the
Approval Rights in any manner.
(h) Inspection. At any time during regular business hours and as
often as reasonably requested of the Company's officers, the Company will
permit SCG or any authorized employee, agent or representative of SCG to
examine and make copies and abstracts from the records and books of account
of, and to visit the properties of, the Company and to discuss the affairs,
finances, and accounts of the Company with any of its officers or
directors; provided, that all costs and expenses of such inspection shall
be borne by SCG.
-10-
<PAGE>
(i) Continuing Exemption. The Company hereby covenants and agrees
that (i) the Board resolution exempting SCG from the application of the
provisions of Article 2, Section 7(c) of the Declaration of Trust to the
extent that SCG acquires or shall have acquired securities of the Company
giving it Beneficial Ownership of an aggregate of not more than 49% of the
outstanding Common Shares, (ii) the Board resolution irrevocably exempting
SCG from the application of Title 3, Subtitle 6 of the Corporations and
Associations Article of the Annotated Code of Maryland entitled "Special
Voting Requirements" (Section 3-601 through and including Section 3-604) so
long as SCG Beneficially Owns 49% or less of the outstanding Common Shares,
and (iii) the Bylaw amendment exempting SCG from the application of the
provisions of Title 3, Subtitle 7 of the Corporations and Associations
Article of the Annotated Code of Maryland entitled "Voting Rights of
Certain Control Shares" (Section 3-701 through and including Section 3-709)
with respect to any Common Shares acquired in connection with the Original
Agreement, will not be rendered ineffective, and will continue to exempt
the transactions contemplated hereby from the application of the provisions
of Article 2, Section 7(c) of the Declaration of Trust, and Title 3,
Subtitles 6 and 7 of the Corporations and Associations Article of the
Annotated Code of Maryland, notwithstanding the Beneficial Ownership of SCG
of more than 49% of the outstanding Common Shares, when such ownership
results solely from (i) a reduction in the number of outstanding Common
Shares as a result of acquisitions of Common Shares by the Company, or (ii)
any other action taken solely by the Company or any Person other than SCG
or its Affiliates.
6. Covenants of SCG.
(a) During the term of this Agreement, neither (x) SCG nor (y) any
person acting in concert with SCG pursuant to a written or oral agreement
to acquire Beneficial Ownership of more than 49% of the outstanding Common
Shares, will, directly or indirectly (including through the acquisition of
ownership of more than 25% of the interest in a Person owning Common Shares
or securities convertible or exchangeable into or exercisable for Common
Shares) (it being understood that SCG shall not structure its shareholder
interests or its ownership interests in other entities so as to
intentionally circumvent the provisions of this Section 6(a)), acquire any
Common Shares or securities convertible or exchangeable into or exercisable
for Common Shares if the effect of such acquisition would be to increase
the Beneficial Ownership of all Common Shares then owned by the Persons
included within clauses (x) and (y) of this Section 6(a) to greater than
49% of the outstanding Common Shares; provided that, such Persons or SCG
may acquire Common Shares or securities convertible or exchangeable into or
exercisable for Common Shares without regard to the foregoing limitation
pursuant to a tender offer for Company securities that meets the following
conditions:
(i) the tender offer is made for all Company securities not
held by SCG;
(ii) the consideration offered is all cash and is offered
equally to all holders; and
(iii) the tender offer is held open for at least 90 days.
-11-
<PAGE>
(b) The Board shall have no restrictions on its ability to oppose any
such tender offer, including the activation of its shareholder defenses and
attempting to find better offers.
(c) Notwithstanding anything in this Agreement to the contrary, SCG
may make a tender offer for Common Shares at any time and having whatever
terms that SCG deems appropriate (including terms inconsistent with (i) -
(iii), inclusive, of Section 6(a)), and purchase any Common Shares
tendered, if such tender offer is made in response to a tender offer made
by a party which is not an Affiliate of SCG and is not instigated by SCG
for the purpose of avoiding its obligations under this Agreement.
(d) During the term of this Agreement, neither SCG, any officer or
director of SCG nor any Person that owns, directly or indirectly, more than
20% of SCG's then outstanding voting securities will, directly or
indirectly, act in concert with any other Person or Persons or form a Group
for the purpose of acquiring Common Shares or securities convertible or
exchangeable into or exercisable for Common Shares; provided, however,
nothing in this Section 6(d) shall prohibit SCG from acquiring Common
Shares or securities convertible or exchangeable into or exercisable for
Common Shares pursuant to Section 6(a) of this Agreement.
7. Registration Rights.
(a) Demand. At any time after the date hereof and for so long
thereafter as SCG shall continue to own any Registrable Securities, SCG may
request registration of all or any part of its Registrable Securities
pursuant to Rule 415 under the Securities Act by delivering written notice
to the Company specifying the number of Registrable Securities that SCG
desires to sell, and the Company shall use its reasonable efforts to effect
the registration of such Registrable Securities under the Securities Act.
(b) Registration Procedures. If and whenever the Company is required
by any of the provisions of this Section 7 to use its reasonable efforts to
effect the registration of any of the Registrable Securities under the
Securities Act, the Company shall:
(i) prepare and file with the Commission a registration statement
with respect to such securities and use its reasonable efforts to
cause such registration statement to become effective and remain
effective for as long as shall be necessary to complete the
distribution of at least 90% of the Registrable Securities so
registered;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement, and the prospectus used in
connection therewith, as may be necessary to keep such registration
statement effective for so long as shall be necessary to complete the
distribution of at least 90% of the Registrable Securities so
registered and to comply with the provisions of the Securities Act
with respect to the sale or other disposition of all securities
covered by such registration statement whenever SCG shall desire to
sell or otherwise dispose of the same within such period;
-12-
<PAGE>
(iii) furnish to SCG such numbers of copies of such registration
statement, each amendment and supplement thereto, the prospectus
included in such registration statement, including any preliminary
prospectus, and any amendment or supplement thereto, and such other
documents, as may be reasonably requested in order to facilitate the
sale or other disposition of the Registrable Securities owned by SCG;
(iv) use its reasonable efforts to register and qualify the
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as SCG shall
reasonably request, and do any and all other acts and things
reasonably requested by SCG to assist the public sale or other
disposition by SCG in such jurisdictions of the securities owned by
SCG, except that the Company shall not for any such purpose be
required to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified or to file therein any
general consent to service of process;
(v) otherwise use its reasonable efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months,
beginning with the first fiscal quarter beginning after the effective
date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act;
(vi) use its reasonable efforts to list such securities on any
securities exchange or quotation system on which any securities of the
Company are then listed, if the listing of such securities is then
permitted under the rules of such exchange or quotation system; and
(vii) notify SCG, at any time when a prospectus relating to the
Registrable Securities is required to be delivered under the
Securities Act, of the happening of any event of which it has
knowledge as a result of which the prospectus included in such
registration statement, as then in effect, contains an untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then
existing.
(c) Number of Registrations. SCG shall be entitled to request one
registration of its Registrable Securities pursuant to Section 7(a) for
each $100 million in Value of Registrable Securities Beneficially Owned by
SCG on the date of such request.
(d) Company's Ability to Postpone. The Company shall have the right
to postpone the filing of a registration statement under this Section 7 for
a reasonable period of time (not exceeding 60 days) if the Company
furnishes SCG with a certificate signed by any Senior Officer stating that,
in its good faith judgment, the Board has determined that effecting the
registration at such time would adversely affect a material financing,
acquisition, disposition of assets or shares, merger or other comparable
transaction or
-13-
<PAGE>
would require the Company to make public disclosure of information the
public disclosure of which would have a material adverse effect upon the
Company.
(e) Expenses. All expenses incurred in the registration of
Registrable Securities under this Agreement shall be paid by the Company.
The expenses shall include, without limitation, the expenses of preparing
the registration statement and the prospectus used in connection therewith
and any amendment or supplement thereto, printing and photocopying
expenses, all registration and filing fees under Federal and state
securities laws, and expenses of complying with the securities or blue sky
laws of any jurisdictions; provided, however, that SCG shall be responsible
for paying the fees and disbursements of its own counsel and any
underwriting discounts, commissions and fees.
(f) Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 7:
(i) Indemnity by Company. Without limitation of any other
indemnity provided to SCG, to the extent permitted by law, the Company
will indemnify and hold harmless SCG and its officers, directors and
each Person, if any, who controls SCG (within the meaning of the
Securities Act or the Exchange Act), against any losses, claims,
damages, liabilities and expenses (joint or several) to which they may
become subject under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages,
liabilities and expenses (or actions in respect thereof) arise out of
or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or
alleged untrue statement of a material fact contained in any
registration statement (including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements
thereto), (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading, or (iii) any violation or alleged violation
by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the
Securities Act, the Exchange Act or any state securities law, and the
Company will reimburse SCG and its officers, directors and any
controlling person thereof for any reasonable legal or other expenses
incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, expense or action; provided,
however, that the Company shall not be liable in any such case for any
such loss, claim, damage, liability, expense or action to the extent
that it arises out of or is based upon a Violation that occurs in
reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by SCG or any
officer, director or controlling person thereof.
(ii) Indemnity by SCG. In connection with any registration
statement in which SCG is participating, SCG will furnish to the
Company in writing such information and affidavits as the Company
reasonably requests for use in connection with any such registration
statement or prospectus and, to the extent
-14-
<PAGE>
permitted by law, will indemnify the Company, its trustees and
officers and each Person who controls the Company (within the meaning
of the Securities Act or Exchange Act) against any losses, claims,
damages, liabilities and expenses resulting from any Violation, but
only to the extent that such Violation is contained in any information
or affidavit so furnished in writing by SCG; provided, that the
obligation to indemnify will be several and not joint and several with
any other Person and will be limited to the net amount received by SCG
from the sale of Registrable Securities pursuant to such registration
statement.
(iii) Notice; Right to Defend. Promptly after receipt by an
indemnified party under this Section 7(f) of notice of the
commencement of any action (including any governmental action), such
indemnified party will, if a claim in respect thereof is to be made
against any indemnifying party under this Section 7(f), deliver to the
indemnifying party a written notice of the commencement thereof and
the indemnifying party shall have the right to participate in, and, if
the indemnifying party agrees in writing that it will be responsible
for any costs, expenses, judgments, damages and losses incurred by the
indemnified party with respect to such claim, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof
with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying
party, if the indemnified party reasonably believes that
representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any
other party represented by such counsel in such proceeding. The
failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall relieve
such indemnifying party of any liability to the indemnified party
under this Section 7(f) only if and to the extent that such failure is
prejudicial to its ability to defend such action, and the omission to
deliver written notice to the indemnifying party will not relieve it
of any liability that it may have to any indemnified party other than
under this Section 7(f).
(iv) Contribution. If the indemnification provided for in this
Section 7(f) is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any loss,
liability, claim, damage or expense referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage
or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the
indemnified party on the other hand in connection with the statements
or omissions which resulted in such loss, liability, claim, damage or
expense as well as any other relevant equitable considerations. The
relevant fault of the indemnifying party and the indemnified party
shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission
to state a material fact relates to information supplied by the
indemnifying party or by the
-15-
<PAGE>
indemnified party and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or
omission. Notwithstanding the foregoing, the amount SCG shall be
obligated to contribute pursuant to this Section 7(f)(iv) shall be
limited to an amount equal to the proceeds to SCG of the Registrable
Securities sold pursuant to the registration statement which gives
rise to such obligation to contribute (less the aggregate amount of
any damages which SCG has otherwise been required to pay in respect of
such loss, claim, damage, liability or action or any substantially
similar loss, claim, damage, liability or action arising from the sale
of such Registrable Securities).
(v) Survival of Indemnity. The indemnification provided by this
Section 7(f) shall be a continuing right to indemnification and shall
survive the registration and sale of any securities by any Person
entitled to indemnification hereunder and the expiration or
termination of this Agreement.
(g) Limitations on Registration Rights.
(i) The Company shall not, without the prior written consent of
SCG, include in any registration in which SCG has a right to
participate pursuant to this Agreement any securities of any Person
other than SCG.
(ii) SCG shall not, without the prior written consent of the
Company, effect any public sale or distribution (including sales
pursuant to Rule 144 under the Securities Act) of securities of the
Company during any period commencing 30 days prior to and ending 60
days after the effective date of any registration statement filed by
the Company on behalf of any Person (including the Company), other
than a registration statement on Form S-8 or any successor form.
(h) Registrable Securities. The term "Registrable Securities" means
(i) any Common Shares now owned or hereafter acquired by SCG and (ii) any
Common Shares or other securities that may subsequently be issued with
respect to such Common Shares as a result of a share split or dividend or
any sale, transfer, assignment or other transaction by the Company
involving the Common Shares and any securities into which the Common Shares
may thereafter be changed as a result of merger, consolidation,
recapitalization or otherwise. As to any particular Registrable
Securities, such securities will cease to be Registrable Securities when
they have been distributed to the public pursuant to an offering registered
under the Securities Act. All Registrable Securities shall cease to be
Registrable Securities when all such securities may be sold in any three-
month period pursuant to Rule 144, or any successor to such rule, under the
Securities Act.
(i) Assignment. SCG may assign without the consent of the Company its
rights under this Section 7 with respect to any Registrable Securities to
any party (a "Lender") to whom it provides a bona fide pledge, assignment
or hypothecation of such Registrable Securities. If (i) SCG assigns its
rights under this Section 7 with respect to
-16-
<PAGE>
Registrable Securities having an aggregate offering value of at least
$100,000,000 to a Lender and (ii) any Event of Default occurs and is
continuing under the related loan agreement between SCG (or one of its
subsidiaries) and the Lender, the Lender may request one registration of
all or part of its Registrable Securities having an aggregate offering
value of at least $100,000,000 on Form S-3 (or any successor form) under
the Securities Act by delivering written notice to the Company specifying
the number of Registrable Securities that the Lender desires to sell and
the Company shall use its reasonable efforts to effect the registration of
such Registrable Securities under the Securities Act in accordance with and
subject to the provisions of this Section 7.
8. Miscellaneous.
(a) Survival of Representations, Warranties and Covenants. All
representations, warranties and covenants contained herein shall survive
the execution of this Agreement and shall remain in full force and effect
until terminated in accordance with the provisions of this Agreement.
(b) Successors and Assigns. This Agreement shall be binding upon, and
inure to the benefit of, the parties hereto and their respective heirs,
personal representatives, successors, assigns and affiliates, but (except
as provided in Section 7(i)) shall not be assignable by any party hereto
without the prior written consent of the other party hereto.
(c) Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, sent via a
recognized overnight courier with delivery confirmed in writing or sent via
facsimile to the parties at the following addresses (or such other address
for a party as shall be specified by like notice):
If to the Company:
Security Capital Pacific Trust
7670 South Chester Street
Englewood, Colorado 80112
Attention: R. Scot Sellers
Facsimile: (303) 708-5999
If to SCG:
Security Capital Group Incorporated
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Attention: Jeffrey A. Klopf
Facsimile: (505) 988-8920
(d) Waiver. No party may waive any of the terms or conditions of this
Agreement, except by a duly executed writing referring to the specific
provision to be waived.
-17-
<PAGE>
(e) Amendment. This Agreement may be amended only by a writing duly
executed by both the Company and SCG.
(f) Severability. Insofar as is possible, each provision of this
Agreement shall be interpreted so as to render it valid and enforceable
under applicable law and severable from the remainder of this Agreement. A
finding that any such provision is invalid or unenforceable in any
jurisdiction shall not affect the validity or enforceability of any other
provision or the validity or enforceability of such provision under the
laws of any other jurisdiction.
(g) Entire Agreement. This Agreement constitutes the entire
agreement, and supersedes all other prior agreements and understandings,
both written and oral, among the parties hereto and their affiliates, with
respect to the subject matter hereof.
(h) Expenses. Except as otherwise expressly contemplated herein to
the contrary, regardless of whether the transactions contemplated hereby
are consummated, each party hereto shall pay its own expenses incident to
preparing for, entering into and carrying out this Agreement and the
consummation of the transactions contemplated hereby.
(i) Captions. The Section and Paragraph captions herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions
hereof.
(j) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same instrument.
(k) Governing Law. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of Maryland.
(l) Specific Performance. Each of the parties hereto acknowledges
that the obligations undertaken by it pursuant to this Agreement are unique
and that the other party will not have an adequate remedy at law if it
shall fail to perform any of its obligations hereunder, and each of the
parties hereto therefore confirms that the right of the other party to
specific performance of the terms of this Agreement is essential to protect
the rights and interests of such party. Accordingly, in addition to any
other remedies that either party hereto may have at law or in equity, SCG
shall have the right to have all obligations, covenants, agreements and
other provisions of this Agreement specifically performed by the other
party, and each party shall have the right to obtain preliminary and
permanent injunctive relief to secure specific performance and to prevent a
breach or contemplated breach of this Agreement by the other party.
-18-
<PAGE>
(m) Limitation of Liability. Any obligation or liability whatsoever
of the Company which may arise at any time under this Agreement or any
obligation or liability which may be incurred by it pursuant to any other
instrument, transaction or undertaking contemplated hereby shall be
satisfied, if at all, out of the Company's assets only. No such obligation
or liability shall be personally binding upon, nor shall resort for the
enforcement thereof be had to, the property of any of its shareholders,
trustees, officers, employees or agents, regardless of whether such
obligation or liability is in the nature of contract, tort or otherwise.
* * * * *
-19-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the day and year first above written.
SECURITY CAPITAL PACIFIC TRUST
By: /s/ R. Scot Sellers
-----------------------------------------
R. Scot Sellers
President and Chief Executive Officer
SECURITY CAPITAL GROUP INCORPORATED
By: /s/ Jeffery A. Klopf
-----------------------------------------
Jeffrey A. Klopf
Senior Vice President and Secretary
<PAGE>
EXHIBIT 10.3
THIRD AMENDED AND RESTATED INVESTOR AGREEMENT
THIS THIRD AMENDED AND RESTATED INVESTOR AGREEMENT (this "Agreement"),
dated as of September 9, 1997, is by and between Security Capital Industrial
Trust, a Maryland real estate investment trust (the "Company"), and Security
Capital Group Incorporated, a Maryland corporation ("SCG").
W I T N E S S E T H
-------------------
WHEREAS, the Company and SCG have entered into that certain Merger and
Issuance Agreement, dated as of March 24, 1997, as amended (the "Merger
Agreement"), pursuant to which, among other things, SCG will cause certain of
its subsidiaries to be merged into a subsidiary of the Company in exchange for
the Company's common shares of beneficial interest, $0.01 par value per share
(the "Common Shares");
WHEREAS, the Company and SCG are parties to that certain Second Amended and
Restated Investor Agreement, dated November 18, 1993, as supplemented by that
certain First Supplemental Investment Agreement, dated as of August 23, 1995 (as
so supplemented, the "Original Agreement");
WHEREAS, the Company and SCG desire to update and to amend and restate the
Original Agreement to reflect their continuing relationship after the
consummation of the transactions contemplated by the Merger Agreement (the
"Transaction"); and
WHEREAS, the execution and delivery of this Agreement is a condition to the
consummation of the Transaction.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Definitions. In addition to the terms defined elsewhere herein, the
following terms shall have the following meanings:
"Approval Rights" shall have the meaning set forth in Section 5(d) of this
Agreement.
"Beneficial Owner" shall mean any Person deemed to be a "Beneficial Owner"
of or to "Beneficially Own" any Common Shares in accordance with the term
"beneficial ownership" as defined in Rule 13d-3 under the Exchange Act.
"Board" shall mean the Board of Trustees of the Company.
"Bylaws" shall mean the Company's Amended and Restated Bylaws, as now in
effect or as amended from time to time.
<PAGE>
"Capital Expenditures" shall mean, on an annual basis, an amount equal to
the product of (a) the sum of the total square footage with respect to all
completed properties of the Company and its consolidated subsidiaries as of the
last day of each of the immediately preceding five calendar quarters, divided by
five, and (b) $0.15.
"Commission" shall mean the Securities and Exchange Commission or any
successor agency or entity thereto.
"Common Shares" shall have the meaning set forth in the preamble of this
Agreement.
"Company" shall have the meaning set forth in the first paragraph of this
Agreement.
"Declaration of Trust" shall mean the Company's Amended and Restated
Declaration of Trust, as now in effect or as amended from time to time.
"Disqualified Shares" shall mean any of the Company's shares of beneficial
interest which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable or exercisable) (a) matures or is
subject to mandatory redemption, pursuant to a sinking fund obligation or
otherwise, (b) is convertible into or exchangeable or exercisable for a
Liability or Disqualified Shares during the term of this Agreement, (c) is
redeemable during the term of this Agreement at the option of the holder of such
security or (d) otherwise requires any payments by the Company during the term
of this Agreement.
"Distribution" shall mean, with respect to any shares of beneficial
interest or other equity security of the Company, (a) the retirement,
redemption, purchase or other acquisition for value of those securities by the
Company, (b) the declaration or payment of any dividend on or with respect to
those securities by the Company, (c) any loan or advance by the Company to, or
other investment by the Company in, the holder of any of those securities and
(d) any other payment by the Company with respect to those securities.
"Fixed Charge Coverage Ratio" shall mean, as of any date, the ratio of
(a)(i) Funds from Operations, plus (ii) Interest Expense, minus (iii) Capital
Expenditures, to (b) the sum of (i) Interest Expense, plus (ii) Distributions of
any kind or character or other proceeds paid or payable with respect to
Disqualified Shares, plus (iii) any regularly scheduled principal payments on
Total Indebtedness (excluding (1) any regularly scheduled principal payments on
Company's revolving line of credit with NationsBank of Texas, N.A., or any
renewals, extensions or replacements thereof, and (2) any regularly scheduled
principal payments on any Total Indebtedness which pays such Total Indebtedness
in full, but only to the extent that the amount of such final payment is greater
than the scheduled principal payment immediately preceding such final payment),
in each case for the four fiscal quarters ending on the date of determination.
"Funds from Operations" shall mean for the Company and its consolidated
subsidiaries, net income plus depreciation and amortization (exclusive of
amortization of financing costs), all as determined in accordance with generally
accepted accounting principles; provided, that there shall not be included in
such calculation (a) any proceeds of any insurance policy other than
-2-
<PAGE>
rental or business interruption insurance received by the Company, (b) any gain
or loss which is classified as "extraordinary" in accordance with generally
accepted accounting principles or (c) capital gains and taxes on capital gains
(in each case exclusive of such amounts that are attributable to SCI Development
Services Incorporated). Funds from Operations shall be calculated as if all
minority interests in the Company's consolidated subsidiaries have been
converted into capital securities of the Company. Funds from Operations shall
not be increased or decreased by gains or losses from sales of properties (in
each case exclusive of amounts that are attributable to SCI Development Services
Incorporated).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Group" shall have the meaning assigned thereto in Section 13(d)(3) of the
Exchange Act.
"Interest Expense" shall mean all of the Company's paid, accrued or
capitalized interest expense on it Total Indebtedness (whether direct, indirect,
or contingent, and including interest on all convertible liabilities), but
excluding Interest Expense that is not paid or payable in cash and excluding
Interest Expense for the construction of Company projects which is capitalized
in accordance with generally accepted accounting principles.
"Interest Expense Coverage Ratio" shall mean, as of any date, the ratio of
(a) the sum of (i) the Company's Funds from Operations and (ii) the Company's
Interest Expense to (b) the sum of (i) Interest Expense and (ii) Distributions
of any kind or character or other proceeds paid or payable with respect to
Disqualified Shares, of the Company and is consolidated subsidiaries for the
four fiscal quarters ending on the date of determination.
"Liabilities" shall mean, without duplication, (a) any obligations required
by generally accepted accounting principles to be classified upon the Company's
balance sheet as liabilities, (b) any liabilities secured (or for which the
holder of the Liability has an existing right, remedy, power or privilege,
contingent or otherwise, to be so secured) by any Lien existing on property
owned or acquired by the Company, (c) any obligations that have been (or under
generally accepted accounting principles should be) capitalized for financial
reporting purposes and (d) any guaranties, endorsements and other contingent
obligations with respect to Liabilities or obligations of others.
"Lien" shall mean any lien, mortgage, security interest, pledge,
assignment, charge, title retention, agreement or encumbrance of any kind and
any other substantially similar arrangement for a creditor's claim to be
satisfied from assets or proceeds prior to the claims of other creditors or the
owners.
"Lender" shall have the meaning set forth in Section 6(i) of this
Agreement.
"Member" shall have the meaning set forth in Section 4 of this Agreement.
"Nominee" shall have the meaning set forth in Section 5(a) of this
Agreement.
-3-
<PAGE>
"Person" shall mean any individual, corporation, partnership, limited
liability company, joint venture, association, joint stock company, trust,
unincorporated organization, or other entity.
"Registrable Securities" shall have the meaning set forth in Section 6(h)
of this Agreement.
"SCG" shall have the meaning set forth in the first paragraph of this
Agreement.
"SCG Group" shall have the meaning set forth in Section 4 of this
Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Senior Officer" shall mean any Senior Vice President, Managing Director,
President, Chairman or Co-Chairman of the Company.
"Total Indebtedness" shall mean all Liabilities of the Company that are (a)
a Liability for borrowed money, (b) evidenced by bonds, debentures, notes or
similar instruments, (c) an obligation to pay the deferred purchase price of
property or services, except trade payables arising in the ordinary course of
business, (d) secured by a Lien existing on any property or any interest
therein, whether or not such Liability shall have been assumed by the Company,
(e) any capital lease or sublease that has been (or under generally accepted
accounting principles should be) capitalized on a balance sheet, (f) a guaranty,
endorsement or other contingent obligation (other than endorsements in the
ordinary course of business of negotiable or documents for deposit or
collection) and (g) accounts payable, dividends of any kind or character or
other proceeds payable with respect to any shares, accrued expenses and other
liabilities which in the aggregate are in excess of 5% of the amount of the
Company's total assets (determined in accordance with generally accepted
accounting principles) plus the amount of any accumulated depreciation with
respect to such assets, as of the date of determination.
"Transaction" shall have the meaning set forth in the preamble of this
Agreement.
"Value" shall mean the reported last sale price of a unit of security
regular way on a given day or, in case no such sale takes place on such day, the
average of the reported closing bid and asked prices regular way, in each case
on the New York Stock Exchange Composite Tape, or, if such securities are not
listed or admitted to trading on such exchange, on the principal national
securities exchange on which such securities are listed or admitted to trading;
or, if such securities are not listed or admitted to trading on any national
securities exchange, the closing sales price, or, if there is no closing sales
price, the average of the closing bid and asked prices, in the over-the-counter
market as reported by the National Association of Securities Dealers Automated
Quotation System, or, if not so reported, as reported by the National Quotation
Bureau, Incorporated, or any successor thereof; or, if not so reported, the
average of the closing bid and asked prices as furnished by any member of the
National Association of Securities Dealers, Inc. selected from time to time by
the Company for that purpose; or, if no such prices are furnished, the fair
market value of such security as estimated by a nationally
-4-
<PAGE>
recognized investment banking firm selected by SCG (subject to the Company's
approval, which will not be unreasonably withheld), which estimate shall be
prepared at the expense of the Company; provided, however, that any
determination of the "Value" of a security hereunder shall be based on the
assumption that such security is freely transferable without registration under
the Securities Act.
"Violation" shall have the meaning set forth in Section 6(f)(i) of this
Agreement.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to SCG as follows:
(a) Organization and Standing. The Company has been duly organized
and is validly existing as a real estate investment trust in good standing
under the laws of the State of Maryland, with full power and authority to
own its properties and conduct its business as now conducted and as
proposed by it to be conducted.
(b) No Defaults. The performance of this Agreement and the
consummation of the transactions herein contemplated will not conflict with
the Declaration of Trust, Bylaws or other governing documents of the
Company.
(c) Authority. The Company has full right, power and authority to
enter into this Agreement and to carry out its obligations hereunder. This
Agreement has been duly authorized, executed and delivered by the Company
and constitutes a valid and binding agreement of the Company enforceable
against it in accordance with its terms, except to the extent that its
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally and judicial limitations on the right of specific performance or
by general equitable principles, and except as enforceability of
indemnification provisions hereof may be limited by federal securities
laws.
(d) Investment Company Act. The Company is not required to be
registered under the Investment Company Act of 1940, as amended.
3. Representations and Warranties of SCG. SCG hereby represents and
warrants to the Company as follows:
(a) Organization and Standing. SCG has been duly organized and is
validly existing as a corporation in good standing under the laws of the
State of Maryland, with corporate power and authority to own its properties
and conduct its business as now conducted.
(b) Authorization. SCG has full right, power and authority to enter
into this Agreement and to carry out its obligations hereunder. This
Agreement has been duly authorized, executed and delivered by SCG and
constitutes a valid and binding agreement of SCG enforceable against it in
accordance with its terms, except to the extent that its
-5-
<PAGE>
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally and judicial limitations on the right of specific performance or
by general equitable principles. The performance by SCG of all of its
obligations under this Agreement and the consummation of the transactions
herein contemplated will not conflict with or result in a breach of any of
the terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other material agreement or
instrument to which SCG is a party or by which SCG is bound or to which any
of the property or assets of SCG is subject, nor will any such action
result in any violation of the provisions of the Articles of Incorporation
or the By-Laws of SCG or any applicable law or statute or any order, rule
or regulation of any court or governmental agency or body having
jurisdiction over SCG or any of its properties.
(c) Investment Company Act. SCG is not required to be registered
under the Investment Company Act of 1940, as amended.
4. Corporate Configuration. SCG and its affiliates, including the
Company (collectively, the "SCG Group" and each, a "Member"), constitute a group
of businesses engaged in real estate research, investment and management. Since
inception, the SCG Group has compiled an excellent record of growth in its
business. The parties recognize that the SCG Group has a distinct character
that is reflected in its objectives, principles, operating policies and
management style and that the SCG Group's overall objective is to create the
maximum value for Members and the shareholders thereof. The parties further
recognize that an important element of the SCG Group's success has been its
ability to attract, motivate, develop and retain talented individuals.
Historically, this has been accomplished by combining the operational aspects of
a Member with the organizational, management, technical and financial strengths
of SCG. Following the consummation of the Transaction, the parties desire that
the distinctive character of the SCG Group continue as between the Company, SCG
and the other Members and, accordingly, agree to the following provisions of
this Section 4.
(a) Statement of Purpose and Objectives. The parties believe that the
creation of value for the shareholders of the Company and the other Members
is dependent in large part on the ability of the Members to attract,
motivate, develop and retain talented individuals. The parties further
recognize that each Member enjoys the benefits and support derived from its
affiliates within the SCG Group and that these benefits and support are
important for the continued success of each of the Members. In that
regard, the Company and SCG agree that the provisions of this Section 4 are
necessary to continue the development of a corporate structure and depth of
management capable of sustaining a high rate of value-creation over a long
period of time. Further, the Company and SCG agree that it is critical to
the accomplishment of its goals to (i) recognize the intrinsic value of
each employee as an individual, (ii) treat each employee and applicant for
employment without discrimination as to race, creed, color, sex, age,
orientation or national origin, (iii) maintain an atmosphere that combines
professional achievement with personal enjoyment, (iv) provide training
opportunities that permit employees to perform their jobs in a better and
more meaningful manner, (v) provide
-6-
<PAGE>
each employee with opportunity for career growth and advancement within the
SCG Group based upon individual ability and performance, (v) recognize the
value and potential of self-motivation of people who thoroughly understand
their jobs so that individual initiative and thought will be encouraged in
the accomplishment of all tasks, (vi) compensate employees fairly and
competitively and (vii) maintain and enhance the strengths of each Member.
(b) Transferability of Employees. To accomplish the foregoing
objectives, each of the parties hereto agrees that SCG may notify the
Company's officers and employees of employment opportunities with other
Members of the SCG Group (including SCG) and may make such opportunities
available to such officers and employees; provided, that prior to making
any such opportunities available to any Senior Officer, SCG shall first
give the Board written notice of its intention to make any such opportunity
available to a Senior Officer at least 14 days prior to any discussions
with a Senior Officer regarding such opportunity. No Member (or any
director, trustee, officer, employee or shareholder of such Member) shall
have any liability to any other Member (or any director, trustee, officer,
employee or shareholder of such Member) as a result of the compliance by
such Member with the provisions of this Section 4. In the event that any
claims are made by any Person as a result of the compliance by a Member
with the provisions of this Section 4, each Member shall be responsible for
its own costs of defending against such claim.
(c) Termination. The provisions of this Section 4 shall continue and
remain in full force and effect until such time as the Company shall cease
to be a Member.
5. Covenants of the Company. The Company covenants and agrees with SCG
as follows:
(a) Board Representation. From and after the date hereof and for so
long thereafter as SCG Beneficially Owns 10% or more of the outstanding
Common Shares, the Company shall not increase the number of members of its
Board to more than seven (7), and SCG shall be entitled to designate one or
more Persons for nomination to the Board (such Person, a "Nominee") as
follows and the Company will use its best efforts to cause the election of
such Nominee or Nominees:
(i) So long as SCG Beneficially Owns at least 10% but less than
25% of the outstanding Common Shares, one (1) Nominee;
(ii) So long as SCG Beneficially Owns 25% or more of the
outstanding Common Shares, that number of Nominees as shall bear
approximately the same ratio (rounded down to the nearest whole
number) to the total number of members of the Board as the number of
Common Shares Beneficially Owned by SCG bears to the total number of
outstanding Common Shares, provided, that (A) SCG shall be entitled to
designate not more than three (3) Nominees so long as the Board
consists of not more than seven (7) members; and (B) any Person who is
-7-
<PAGE>
employed by SCG or who is an employee or a director of any corporation
of which SCG is a 25% shareholder (except for the Company) shall be
deemed to be a designee of SCG.
(b) File Reports. For as long as SCG shall continue to Beneficially
Own any Common Shares, the Company shall file on a timely basis all annual,
quarterly and other reports required to be filed by it under Sections 13
and 15(d) of the Exchange Act, and the Rules and Regulations of the
Commission thereunder, as amended from time to time.
(c) Advice of Actions. Without first having consulted with the
Nominee or Nominees of SCG designated by SCG in writing, the Company will
not seek approval by the Board of any proposal relating to:
(i) Budget. The Company's annual budget.
(ii) Expenses. Incurring expenses in any year exceeding (A) any
line item in the annual budget by the greater of $500,000 or 20% and
(B) the total expenses set forth in the annual budget by 15%.
(iii) Assets. The acquisition or sale of any assets in any
single transaction or any series of related transactions in the
ordinary course of the Company's business where the aggregate purchase
price paid or received by the Company exceeds $25,000,000.
(iv) Contracts. Entering into any new contract with a service
provider (A) for investment management, property management, or
leasing services or (B) that reasonably contemplates annual contract
payments by the Company in excess of $1,000,000.
Notwithstanding the foregoing, the Company shall have no obligation to
accept or comply with any advice offered by SCG or its designated Nominees
in any consultation pursuant to this Section 5(c).
(d) Approval Rights. So long as SCG Beneficially Owns 25% or more of
the Common Shares outstanding, SCG shall have the right (each, an "Approval
Right") to approve the following matters as proposed by the Company:
(i) Equity Securities. The (A) issuance or sale of any Common
Shares, (B) grant of any rights, options or warrants to subscribe for
or purchase Common Shares or any security convertible into or
exchangeable for Common Shares or (C) the issuance or sale of any
security convertible into or exchangeable for Common Shares, in any
such case, at a price per share less than the Value of a Common Share
on the date of such issuance, sale or grant. For purposes of the
preceding sentence Common Shares shall be deemed to be issued at less
than Value if the price per share for which Common Shares issuable
upon exercise of
-8-
<PAGE>
rights, options or warrants or upon conversion or exchange of
convertible or exchangeable securities is less than the Value on the
date of issuance. The provisions of this Section 5(d)(i) shall not
apply to (A) the sale or grant of any options to purchase shares of
beneficial interest of the Company pursuant to the provisions of any
benefit plan approved by the shareholders of the Company, (B) the
issuance or sale of shares of beneficial interest upon the exercise of
any rights, options or warrants granted, or upon the conversion or
exchange of any convertible or exchangeable security issued or sold,
prior to the date of this Agreement or in accordance with the
provisions of this Section 5, (C) the issuance and sale of any shares
of beneficial interest of the Company pursuant to any dividend
reinvestment and share purchase plan approved by the Board or (D) the
issuance, grant or distribution of rights, options or warrants to all
holders of Common Shares entitling them to subscribe for or purchase
shares of beneficial interest of the Company or securities convertible
into or exercisable for shares of beneficial interest.
(ii) Fixed Charges. The issuance and sale of any Disqualified
Shares if, as a result thereof, the Company's Fixed Charge Coverage
Ratio would be less than 1.4 to 1.0.
(iii) Benefit Plans and Compensation. The adoption of any
employee benefit plan pursuant to which shares of beneficial interest
of the Company or any securities convertible into shares of beneficial
interest of the Company may be issued and any action with respect to
the compensation of the Senior Officers (including the granting or
award of any bonuses or share-based incentive awards); provided,
however, that SCG will not have an Approval Right as to any action
with respect to the compensation of a Senior Officer as to whom SCG
has delivered a notice under Section 4, for so long as the employment
opportunity that is the subject of such notice is available to such
Senior Officer.
(iv) Indebtedness. The incurrence of any additional indebtedness
(including guarantees and including renegotiations and restructurings
of existing indebtedness) if, as a result thereof, the Company's
Interest Expense Coverage Ratio would be less than 2.0 to 1.0.
Notwithstanding anything to the contrary contained herein, the Approval Rights
of SCG shall terminate and be of no further force or effect at such time as SCG
Beneficially Owns less than 25% of the Common Shares outstanding.
(e) Approval Right Procedures. The Company shall submit any proposed
action with respect to any Approval Right for consideration by SCG,
together with information which sets forth in reasonable detail the
background and reasons for such action, reasonably in advance of the date
any action would be required to be taken by or on behalf of the Company to
permit SCG to review the information and make an informed decision. The
approval of SCG pursuant to Section 5(d), other than where
-9-
<PAGE>
written approval is expressly required, shall be deemed to have been
received if SCG does not communicate otherwise to the Company by the
fifteenth day after SCG shall have received a written request for such
approval.
(f) Company Support. If there is a final judicial determination
before any court of competent jurisdiction that any or all of the Approval
Rights are not enforceable or exercisable in any manner by SCG, whether by
reason of Maryland statutory or common law or otherwise, the Company agrees
to defer any action proposed by the Company which is the subject of any of
the Approval Right which was so determined not to be enforceable or
exercisable and SCG shall have the right to cause the Company to call a
special meeting of shareholders at which meeting SCG may present an
alternative slate of trustees for election (which slate may include some of
the same nominees as the then current Board). The Company and SCG agree
that they will each use their best efforts to prepare and file with the
Commission definitive proxy material, to have such material cleared by the
Commission and to mail such material to the Company's shareholders, as soon
as practicable. The Company shall in any event provide SCG with a list of
the shareholders of record for such meeting and a complete list of non-
objecting beneficial holders and deposits in securities positions listings
as of such date. The Company and SCG shall not, and their respective
directors, trustees, officers, employees and agents shall not, take any
action that would have the effect of delaying, preventing or impeding the
special meeting of shareholders or the mailing of proxy materials in
respect of such meeting, including the commencement of any action, suit or
proceeding at law or in equity seeking to enjoin, delay or impede the
special meeting or the mailing of proxy materials in respect of such
meeting. The parties shall each bear their own costs in connection with
any special meeting of shareholders pursuant to this Section 5(f);
provided, that the Company shall bear all costs typically borne by
companies in connection with annual meetings of shareholders.
(g) Non-interference. The Company shall not provide any Person with
rights which are similar or more extensive than the Approval Rights
provided to SCG hereunder and shall not grant to any Person or Group the
right to nominate a greater number of members to the Company's Board than
the number SCG is entitled to designate pursuant to Section 5(a), in each
case, without the prior approval of SCG, which may be withheld in SCG's
sole and absolute discretion; the Company shall not enter into any
agreement or arrangement with any Person which shall impede or impair the
Approval Rights in any manner.
(h) Inspection. At any time during regular business hours and as
often as reasonably requested of the Company's officers, the Company will
permit SCG or any authorized employee, agent or representative of SCG to
examine and make copies and abstracts from the records and books of account
of, and to visit the properties of, the Company and to discuss the affairs,
finances, and accounts of the Company with any of its officers or
directors; provided, that all costs and expenses of such inspection shall
be borne by SCG.
-10-
<PAGE>
6. Registration Rights.
(a) Demand. At any time after the date hereof and for so long
thereafter as SCG shall continue to own any Registrable Securities, SCG may
request registration of all or any part of its Registrable Securities
pursuant to Rule 415 under the Securities Act by delivering written notice
to the Company specifying the number of Registrable Securities that SCG
desires to sell, and the Company shall use its reasonable efforts to effect
the registration of such Registrable Securities under the Securities Act.
(b) Registration Procedures. If and whenever the Company is required
by any of the provisions of this Section 6 to use its reasonable efforts to
effect the registration of any of the Registrable Securities under the
Securities Act, the Company shall:
(i) prepare and file with the Commission a registration statement
with respect to such securities and use its reasonable efforts to
cause such registration statement to become effective and remain
effective for as long as shall be necessary to complete the
distribution of at least 90% of the Registrable Securities so
registered;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement, and the prospectus used in
connection therewith, as may be necessary to keep such registration
statement effective for so long as shall be necessary to complete the
distribution of at least 90% of the Registrable Securities so
registered and to comply with the provisions of the Securities Act
with respect to the sale or other disposition of all securities
covered by such registration statement whenever SCG shall desire to
sell or otherwise dispose of the same within such period;
(iii) furnish to SCG such numbers of copies of such registration
statement, each amendment and supplement thereto, the prospectus
included in such registration statement, including any preliminary
prospectus, and any amendment or supplement thereto, and such other
documents, as may be reasonably requested in order to facilitate the
sale or other disposition of the Registrable Securities owned by SCG;
(iv) use its reasonable efforts to register and qualify the
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as SCG shall
reasonably request, and do any and all other acts and things
reasonably requested by SCG to assist the public sale or other
disposition by SCG in such jurisdictions of the securities owned by
SCG, except that the Company shall not for any such purpose be
required to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified or to file therein any
general consent to service of process;
-11-
<PAGE>
(v) otherwise use its reasonable efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months,
beginning with the first fiscal quarter beginning after the effective
date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act;
(vi) use its reasonable efforts to list such securities on any
securities exchange or quotation system on which any securities of the
Company are then listed, if the listing of such securities is then
permitted under the rules of such exchange or quotation system; and
(vii) notify SCG, at any time when a prospectus relating to the
Registrable Securities is required to be delivered under the
Securities Act, of the happening of any event of which it has
knowledge as a result of which the prospectus included in such
registration statement, as then in effect, contains an untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then
existing.
(c) Number of Registrations. SCG shall be entitled to request one
registration of its Registrable Securities pursuant to Section 6(a) for
each $100 million in Value of Registrable Securities Beneficially Owned by
SCG on the date of such request.
(d) Company's Ability to Postpone. The Company shall have the right
to postpone the filing of a registration statement under this Section 6 for
a reasonable period of time (not exceeding 60 days) if the Company
furnishes SCG with a certificate signed by any Senior Officer stating that,
in its good faith judgment, the Board has determined that effecting the
registration at such time would adversely affect a material financing,
acquisition, disposition of assets or shares, merger or other comparable
transaction or would require the Company to make public disclosure of
information the public disclosure of which would have a material adverse
effect upon the Company.
(e) Expenses. All expenses incurred in the registration of
Registrable Securities under this Agreement shall be paid by the Company.
The expenses shall include, without limitation, the expenses of preparing
the registration statement and the prospectus used in connection therewith
and any amendment or supplement thereto, printing and photocopying
expenses, all registration and filing fees under Federal and state
securities laws, and expenses of complying with the securities or blue sky
laws of any jurisdictions; provided, however, that SCG shall be responsible
for paying the fees and disbursements of its own counsel and any
underwriting discounts, commissions and fees.
(f) Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 6:
-12-
<PAGE>
(i) Indemnity by Company. Without limitation of any other
indemnity provided to SCG, to the extent permitted by law, the Company
will indemnify and hold harmless SCG and its officers, directors and
each Person, if any, who controls SCG (within the meaning of the
Securities Act or the Exchange Act), against any losses, claims,
damages, liabilities and expenses (joint or several) to which they may
become subject under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages,
liabilities and expenses (or actions in respect thereof) arise out of
or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or
alleged untrue statement of a material fact contained in any
registration statement (including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements
thereto), (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading, or (iii) any violation or alleged violation
by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the
Securities Act, the Exchange Act or any state securities law, and the
Company will reimburse SCG and its officers, directors and any
controlling person thereof for any reasonable legal or other expenses
incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, expense or action; provided,
however, that the Company shall not be liable in any such case for any
such loss, claim, damage, liability, expense or action to the extent
that it arises out of or is based upon a Violation that occurs in
reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by SCG or any
officer, director or controlling person thereof.
(ii) Indemnity by SCG. In connection with any registration
statement in which SCG is participating, SCG will furnish to the
Company in writing such information and affidavits as the Company
reasonably requests for use in connection with any such registration
statement or prospectus and, to the extent permitted by law, will
indemnify the Company, its trustees and officers and each Person who
controls the Company (within the meaning of the Securities Act or
Exchange Act) against any losses, claims, damages, liabilities and
expenses resulting from any Violation, but only to the extent that
such Violation is contained in any information or affidavit so
furnished in writing by SCG; provided, that the obligation to
indemnify will be several and not joint and several with any other
Person and will be limited to the net amount received by SCG from the
sale of Registrable Securities pursuant to such registration
statement.
(iii) Notice; Right to Defend. Promptly after receipt by an
indemnified party under this Section 6(f) of notice of the
commencement of any action (including any governmental action), such
indemnified party will, if a claim in respect thereof is to be made
against any indemnifying party under this Section 6(f), deliver to the
indemnifying party a written notice of the commencement
-13-
<PAGE>
thereof and the indemnifying party shall have the right to participate
in, and, if the indemnifying party agrees in writing that it will be
responsible for any costs, expenses, judgments, damages and losses
incurred by the indemnified party with respect to such claim, jointly
with any other indemnifying party similarly noticed, to assume the
defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party shall have the right to
retain its own counsel, with the fees and expenses to be paid by the
indemnifying party, if the indemnified party reasonably believes that
representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any
other party represented by such counsel in such proceeding. The
failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall relieve
such indemnifying party of any liability to the indemnified party
under this Section 6(f) only if and to the extent that such failure is
prejudicial to its ability to defend such action, and the omission to
deliver written notice to the indemnifying party will not relieve it
of any liability that it may have to any indemnified party other than
under this Section 6(f).
(iv) Contribution. If the indemnification provided for in this
Section 6(f) is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any loss,
liability, claim, damage or expense referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage
or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the
indemnified party on the other hand in connection with the statements
or omissions which resulted in such loss, liability, claim, damage or
expense as well as any other relevant equitable considerations. The
relevant fault of the indemnifying party and the indemnified party
shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission
to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. Notwithstanding the
foregoing, the amount SCG shall be obligated to contribute pursuant to
this Section 6(f)(iv) shall be limited to an amount equal to the
proceeds to SCG of the Registrable Securities sold pursuant to the
registration statement which gives rise to such obligation to
contribute (less the aggregate amount of any damages which SCG has
otherwise been required to pay in respect of such loss, claim, damage,
liability or action or any substantially similar loss, claim, damage,
liability or action arising from the sale of such Registrable
Securities).
-14-
<PAGE>
(v) Survival of Indemnity. The indemnification provided by this
Section 6(f) shall be a continuing right to indemnification and shall
survive the registration and sale of any securities by any Person
entitled to indemnification hereunder and the expiration or
termination of this Agreement.
(g) Limitations on Registration Rights.
(i) The Company shall not, without the prior written consent of
SCG, include in any registration in which SCG has a right to
participate pursuant to this Agreement any securities of any Person
other than SCG.
(ii) SCG shall not, without the prior written consent of the
Company, effect any public sale or distribution (including sales
pursuant to Rule 144 under the Securities Act) of securities of the
Company during any period commencing 30 days prior to and ending 60
days after the effective date of any registration statement filed by
the Company on behalf of any Person (including the Company), other
than a registration statement on Form S-8 or any successor form.
(h) Registrable Securities. The term "Registrable Securities" means
(i) any Common Shares now owned or hereafter acquired by SCG and (ii) any
Common Shares or other securities that may subsequently be issued with
respect to such Common Shares as a result of a share split or dividend or
any sale, transfer, assignment or other transaction by the Company
involving the Common Shares and any securities into which the Common Shares
may thereafter be changed as a result of merger, consolidation,
recapitalization or otherwise. As to any particular Registrable
Securities, such securities will cease to be Registrable Securities when
they have been distributed to the public pursuant to an offering registered
under the Securities Act. All Registrable Securities shall cease to be
Registrable Securities when all such securities may be sold in any three-
month period pursuant to Rule 144, or any successor to such rule, under the
Securities Act.
(i) Assignment. SCG may assign without the consent of the Company its
rights under this Section 6 with respect to any Registrable Securities to
any party (a "Lender") to whom it provides a bona fide pledge, assignment
or hypothecation of such Registrable Securities. If (i) SCG assigns its
rights under this Section 6 with respect to Registrable Securities having
an aggregate offering value of at least $100,000,000 to a Lender and (ii)
any Event of Default occurs and is continuing under the related loan
agreement between SCG (or one of its subsidiaries) and the Lender, the
Lender may request one registration of all or part of its Registrable
Securities having an aggregate offering value of at least $100,000,000 on
Form S-3 (or any successor form) under the Securities Act by delivering
written notice to the Company specifying the number of Registrable
Securities that the Lender desires to sell and the Company shall use its
reasonable efforts to effect the registration of such Registrable
Securities under the Securities Act in accordance with and subject to the
provisions of this Section 6.
-15-
<PAGE>
7. Miscellaneous.
(a) Survival of Representations, Warranties and Covenants. All
representations, warranties and covenants contained herein shall survive the
execution of this Agreement and shall remain in full force and effect until
terminated in accordance with the provisions of this Agreement.
(b) Successors and Assigns. This Agreement shall be binding upon, and
inure to the benefit of, the parties hereto and their respective heirs, personal
representatives, successors, assigns and affiliates, but (except as provided in
Section 6(i)) shall not be assignable by any party hereto without the prior
written consent of the other party hereto.
(c) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, sent via a recognized
overnight courier with delivery confirmed in writing or sent via facsimile to
the parties at the following addresses (or such other address for a party as
shall be specified by like notice):
If to the Company:
Security Capital Industrial Trust
14100 East 35th Place
Aurora, Colorado 80011
Attention: K. Dane Brooksher
Facsimile: (303) 576-2600
If to SCG:
Security Capital Group Incorporated
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Attention: Jeffrey A. Klopf
Facsimile: (505) 988-8920
(d) Waiver. No party may waive any of the terms or conditions of this
Agreement, except by a duly executed writing referring to the specific provision
to be waived.
(e) Amendment. This Agreement may be amended only by a writing duly
executed by both the Company and SCG.
(f) Severability. Insofar as is possible, each provision of this Agreement
shall be interpreted so as to render it valid and enforceable under applicable
law and severable from the remainder of this Agreement. A finding that any such
provision is invalid or unenforceable in any jurisdiction shall not affect the
validity or enforceability of any other provision or the validity or
enforceability of such provision under the laws of any other jurisdiction.
-16-
<PAGE>
(g) Entire Agreement. This Agreement constitutes the entire agreement, and
supersedes all other prior agreements and understandings, both written and oral,
among the parties hereto and their affiliates, with respect to the subject
matter hereof.
(h) Expenses. Except as otherwise expressly contemplated herein to the
contrary, regardless of whether the transactions contemplated hereby are
consummated, each party hereto shall pay its own expenses incident to preparing
for, entering into and carrying out this Agreement and the consummation of the
transactions contemplated hereby.
(i) Captions. The Section and Paragraph captions herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
(j) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
(k) Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of Maryland.
(l) Specific Performance. Each of the parties hereto acknowledges that the
obligations undertaken by it pursuant to this Agreement are unique and that the
other party will not have an adequate remedy at law if it shall fail to perform
any of its obligations hereunder, and each of the parties hereto therefore
confirms that the right of the other party to specific performance of the terms
of this Agreement is essential to protect the rights and interests of such
party. Accordingly, in addition to any other remedies that either party hereto
may have at law or in equity, SCG shall have the right to have all obligations,
covenants, agreements and other provisions of this Agreement specifically
performed by the other party, and each party shall have the right to obtain
preliminary and permanent injunctive relief to secure specific performance and
to prevent a breach or contemplated breach of this Agreement by the other party.
(m) Limitation of Liability. Any obligation or liability whatsoever of the
Company which may arise at any time under this Agreement or any obligation or
liability which may be incurred by it pursuant to any other instrument,
transaction or undertaking contemplated hereby shall be satisfied, if at all,
out of the Company's assets only. No such obligation or liability shall be
personally binding upon, nor shall resort for the enforcement thereof be had to,
the property of any of its shareholders, trustees, officers, employees or
agents, regardless of whether such obligation or liability is in the nature of
contract, tort or otherwise.
* * * * *
-17-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the day and year first above written.
SECURITY CAPITAL INDUSTRIAL TRUST
By: /s/ Robert J. Watson
---------------------------------------
Robert J. Watson
Managing Director
SECURITY CAPITAL GROUP INCORPORATED
By: /s/ Jeffrey A. Klopf
---------------------------------------
Jeffrey A. Klopf
Senior Vice President and Secretary
<PAGE>
EXHIBIT 10.4
ADMINISTRATIVE SERVICES AGREEMENT
---------------------------------
THIS ADMINISTRATIVE SERVICES AGREEMENT (this "Agreement") is made and
entered into as of this 9th day of September, 1997, by and between Security
Capital Atlantic Incorporated, a Maryland corporation (the "Company"), and SC
Group Incorporated, a Texas corporation ("SC Group"), and a wholly owned direct
or indirect subsidiary of Security Capital Group Incorporated.
WHEREAS, the Company wishes to purchase from SC Group certain
administrative services designed to assist the Company in the cost-efficient
management of the Company's corporate and business affairs in the manner and
pursuant to terms and conditions as more specifically described herein; and
WHEREAS, SC Group desires to provide or cause to be provided those services
requested by the Company under such terms and conditions; and
WHEREAS, SC Group will perform similar administrative services for other
entities (collectively "SC Group Clients") which may vary from time to time; and
WHEREAS, the Company will retain the sole and absolute right and authority
to fully and completely operate and manage its business and properties.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, the parties hereto agree as follows:
Section 1. Services.
1.1 Services to be Rendered. SC Group shall provide the Company with
the services described below (each, a "Service", and collectively, the
"Services") as selected by the Company from time to time:
(a) Insurance Administration. Assistance in securing all forms of
insurance, including property, casualty, workers' compensation and
directors' and officers' liability coverage; managing insurance policies;
negotiation of premiums; arranging payment terms; managing claims; and
preparation of loss fund analysis. The amount and levels of insurance
shall be determined in the sole and absolute discretion of the Company.
(b) Accounts Payable. Provision of all accounts payable functions
(currently all non site-level invoices); processing of all employee expense
reports and reimbursements of travel and entertainment expenses; and
maintenance of accounts payable and cash disbursement systems, including
reasonable internal controls.
<PAGE>
(c) Internal Audit. Provision of internal audit coverage and audit
support, including property audits, financial audits, operational audits
and information system audits, as requested and authorized in advance by
the Company.
(d) Cash Management. Operation and maintenance of collection systems,
concentration systems, and electronic disbursements (including wire
transfers, ACH payments and short term investing); maintenance of bank
accounts, including opening and closing of operating, security deposits,
local depository and petty cash accounts; bank administration, and
maintenance of bank relationships.
(e) Human Resources.
(i) Benefit Administration. Negotiation and administration of
all health, dental, vision, life and long-term and short-term
disability insurance plans as well as 401(k) and flexible spending
plans; and administration of other miscellaneous employee benefits.
(ii) Human Resources Information Systems. Administration and
employee and labor relations including statutory compliance with all
governmental agencies, affirmative action, work force demographics;
processing wage and hour claims and utilization and EEO charges; and
compliance with annual reporting requirements.
(iii) Payroll. Production of payroll and related items;
maintenance of required records; compliance with federal and state
wage and hour regulations; tracking benefit hours; tracking and paying
wage garnishments and related orders; maintenance of Forms W-2; and
production and processing of special payroll checks.
(iv) Pre-Employment. Development of employment policies and
procedures; verification of applicant information such as drivers
license numbers, social security numbers, education, criminal
offenses, and past employment; and drug testing.
(v) Recruiting. Recruiting and retaining employees of the
Company for the El Paso Operations Center who will perform services
for the Company, including placement of newspaper advertisements,
contracting and negotiating with search consultants, screening of
candidates, interviews and employee orientation; processing new hires,
terminations, transfers, leaves of absence and miscellaneous status
changes as requested and authorized in advance by the Company.
-2-
<PAGE>
(f) Management Information Systems.
(i) Applications Development. Development, maintenance and
continuing evolution of system applications to provide technology
solutions to business needs and problems, as requested and authorized
in advance by the Company.
(ii) Telecommunications. Design, operation and maintenance of
network infrastructure, including telephone and data transmission
lines, voice mail, facsimile machines, cellular phones, pager, etc.;
negotiation of contracts with third party vendors and suppliers; and
local area network and wide area network communications support.
(iii) Operations/Technical Support and User Support. Design,
maintenance and operation of the computing environment, including
business specific applications, network wide applications, electronic
mail and other systems; purchase and maintenance of equipment,
including hardware and software; configuration, installation and
support of computer equipment; and education and training of the user
community.
(g) Tax Administration. Supervision and direction of the preparation,
review and filing of all federal, state and other required tax returns;
supervision and direction of ad hoc requests for assistance on tax related
matters; and coordination of all activities with the Company's outside tax
preparer, as requested and authorized in advance by the Company. All tax
matters shall be determined by the Company in its absolute and sole
discretion.
(h) Special Projects. Direction and support of all special projects,
as requested and authorized in advance by the Company.
(i) Legal. Coordination and supervision of all third party legal
services; assistance in the preparation of public filings and registration
statements; and oversight of processing of claims against the Company.
(j) Research. Provision of periodic market research reports and
special research assignments as requested by the Company.
(k) Investor Relations/Communications.
(i) Capital Markets. Advice and services relating to capital
raising transactions and relationship with shareholders, but not
including solicitation of investors as a broker, dealer or underwriter
in any capital raising transactions of the Company.
-3-
<PAGE>
(ii) Communications. Preparation and coordination of annual and
quarterly reports to shareholders; presentations to public; public
relations; preparation of marketing materials; and investor relations
services.
(l) Debt Financing. Advice and services relating to revolving lines
of credit and other issuances of indebtedness.
1.2 Scope of Services and Charges. The parties will agree from time
to time on the Services to be provided, the scope of Services listed in Section
1.1 and the charges for such Services. The scope of Services shall consist of
the estimated amount of items to be processed or hours to be spent for a
category of the Services in any year as agreed to by the parties. The charges
for Services shall consist of an amount equal to SC Group's costs incurred in
providing such Services, multiplied by 120%. If the scope of Services actually
performed by SC Group in any category of Services is different than that agreed
to by the parties, or if the scope of Services is increased at the request of
the Company, then the parties shall negotiate in good faith to revise the scope
of Services and to adjust the charges for such Services. The parties shall
review annually the Services provided, the scope of Services and the charges for
such Services and negotiate in good faith and make appropriate adjustments. The
parties agree to complete each annual review not later than November 30 in each
year of this Agreement.
1.3 Performance of Services. SC Group covenants that it will perform
or cause to be performed the Services in a timely, efficient and workmanlike
manner and in substantially the same manner in which SC Group is providing such
services to the Company currently. SC Group further covenants that it will
maintain or contract for a sufficient staff of trained personnel to enable it to
perform the Services hereunder. SC Group may retain third parties or its
affiliates to provide certain of the Services hereunder. In such cases, and
notwithstanding anything herein to the contrary, the Company shall reimburse SC
Group for only its actual cost for arranging for such Services. Any
arrangements between SC Group and its affiliates for the provision of Services
hereunder shall be commercially reasonable and on terms not less favorable than
those which could be obtained from unaffiliated third parties.
1.4 Payment for Services. SC Group shall bill the Company, at the
end of each calendar month, one-twelfth of the amount agreed to from time to
time pursuant to Section 1.2 for the applicable Service. Such amount shall be
payable by the Company in full within 30 days of receipt thereof by the Company.
On the forty-fifth day following the end of each calendar year, SC Group shall
provide to the Company a statement, certified by a senior officer of SC Group,
setting forth by category of Service the amount and nature of such Services
actually performed during the period covered by such statement. Such statement
shall also set forth the dollar amount, if any, by which the amounts previously
paid by the Company for the provision of each specific category of Services for
such period is greater or less than the charges agreed for such Services (in
each such case, an "excess", and, if a shortfall, a "shortfall"). Any such
excess or shortfall shall be refunded to the Company or paid by the Company, as
applicable, within 30 days of the receipt of the statement. Notwithstanding
anything in this Agreement to the contrary, the aggregate fees for Services
provided by SC Group to the
-4-
<PAGE>
Company (exclusive of reimbursement of third-party costs) shall not exceed
$5,201,985 during the Initial Term (subject to the actual usage of Services by
the Company not being materially in excess of that set forth in the budget
previously provided by SC Group to the Company).
1.5 Reimbursement. The Company shall reimburse SC Group for all
reasonable third party out-of-pocket expenses it incurs on behalf of the Company
not billed directly to the Company within 30 days of receipt of the invoice
therefor.
Section 2. Facilities. SC Group hereby grants to the Company the right
to use the Facilities set forth on Exhibit A. The Company shall not pay any
additional compensation to SC Group for the use of such Facilities during the
twelve-month period following the date of this Agreement. From and after the
expiration of such twelve-month period, the Company shall pay SC Group rental
for the use of such Facilities as may be agreed between the parties negotiating
in good faith. SC Group and the Company agree that during the term of this
Agreement they shall cooperate and use reasonable efforts in order to allocate
the Facilities in accordance with the reasonable requests (based on their
business needs) of each of SC Group, the Company and other SC Group Clients.
The Company acknowledges and agrees that within 60 days of the expiration of the
term of this Agreement, it shall leave the Facilities in the same condition as
at the commencement of the term of the Agreement, ordinary wear and tear and
damage by casualty excepted.
Section 3. Term. The initial term of this Agreement shall commence on
the date hereof and shall be through December 31, 1998 (the "Initial Term") and
shall be renewable by the Company every year thereafter, subject to approval by
a majority of the Independent Directors (which they may withhold or grant in
their sole discretion). Absent written notice of non-renewal as provided in
this Section 3, this Agreement shall be automatically renewed for successive
one-year terms (each, a "Renewal Term") upon the expiration of the Initial Term
and each Renewal Term. Upon termination of this Agreement, SC Group shall
promptly return to the Company all monies, books, records and other materials
held by it for or on behalf of the Company. Notice of non-renewal, if given,
shall be given in writing by either party hereto not less than ninety (90)
calendar days before the expiration of the Initial Term or any Renewal Term. As
used herein, the term "Independent Directors" means each member of the Company's
Board of Directors who is not affiliated with Security Capital Group
Incorporated ("SCG") or any of its affiliates, directly or indirectly, whether
by ownership of, ownership interest in, employment by, any material business or
professional relationship with, or service as an officer of SCG or any of its
affiliates, and is not serving as a trustee or director for more than three real
estate investment trusts organized by a sponsor of the Company.
Section 4. Audit of Services. At any time during regular business hours
and as often as reasonably requested by the Company's officers, SC Group shall
permit the Company or its authorized representatives to examine and make copies
and abstracts from the records and books of SC Group for the purpose of auditing
the performance of, and the charges of, SC Group under the terms of this
Agreement; provided, that all costs and expenses of such inspection shall be
borne by the Company.
-5-
<PAGE>
Section 5. Prevention of Performance. SC Group shall not be determined
to be in violation of this Agreement if it is prevented from performing any
Services hereunder for any reason beyond its reasonable control, including
without limitation, acts of God, nature, or of public enemy, strikes, or
limitations of law, regulations or rules of the Federal or of any state or local
government or of any agency thereof.
Section 6. Indemnification.
6.1 By the Company. The Company shall indemnify, defend and hold SC
Group, and its directors, officers, and employees harmless from and against all
damages, losses and reasonable out-of-pocket expenses (including fees) incurred
by them in the course of performing the duties on behalf of the Company and its
subsidiaries as prescribed hereby, except for matters covered by subsection 6.2
hereof.
6.2 By SC Group. SC Group shall indemnify, defend and hold the
Company, its directors, officers and employees harmless from and against all
damages, losses and reasonable out-of-pocket expenses (including fees) caused by
or arising out of any willful misconduct or gross negligence in the performance
of any obligation or agreement of SC Group herein.
6.3 Remedy. Except as otherwise provided in subsection 6.2 hereof,
SC Group does not assume any responsibility under this Agreement other than to
render the services called for under this Agreement in good faith and in a
manner reasonably believed to be in the best interests of the Company. Except
as otherwise provided in subsection 6.2 hereof, the Company's sole remedy on
account of the failure of SC Group to render the services as and when required
hereunder shall be to procure services elsewhere and to charge SC Group the
difference between the reasonable increased cost, if any, to procure new
services, and the current cost to the Company to procure services under this
Agreement.
Section 7. Notices.
7.1 Manner of Delivery. Each notice, demand, request, consent,
report, approval or communication (each a "Notice") which is or may be required
to be given by either party to the other party in connection with this Agreement
and the transactions contemplated hereby, shall be in writing, and given by
telecopy, personal delivery, receipted delivery service, or by certified mail,
return receipt requested, prepaid and properly addressed to the party to be
served.
-6-
<PAGE>
7.2 Addresses. Notices shall be addressed as follows:
If to the Company:
Security Capital Atlantic Incorporated
Six Piedmont Center, Suite 600
Atlanta, Georgia 30305
Attention: Constance B. Moore
If to SC Group:
SC Group Incorporated
7777 Market Center Avenue
El Paso, Texas 79912
Attention: Paul E. Szurek
7.3 Effective Date. Notices shall be effective on the date sent via
telecopy, the date delivered personally or by receipted delivery service, or
three (3) days after the date mailed.
7.4 Change of Address. Each party may designate by notice to the
others in writing, given in the foregoing manner, a new address to which any
notice may thereafter be so given, served or sent.
Section 8. Entire Agreement. This Agreement, together with the Exhibit
hereto, constitutes and sets forth the entire agreement and understanding of the
parties pertaining to the subject matter hereof, and no prior or contemporaneous
written or oral agreements, understandings, undertakings, negotiations,
promises, discussions, warranties or covenants not specifically referred to or
contained herein or attached hereto shall be valid and enforceable. No
supplement, modification, termination in whole or in part, or waiver of this
Agreement shall be binding unless executed in writing by the party to be bound
thereby. No waiver of any of the provisions of this Agreement shall be deemed,
or shall constitute, a waiver of any other provision hereof (whether or not
similar), nor shall any such waiver constitute a continuing waiver unless
otherwise expressly provided.
Section 9. Binding Effect. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto, each of their respective
successors and permitted assigns, but may not be assigned by either party
without the prior written consent of the other party, and no other persons shall
have or derive any right, benefit or obligation hereunder.
Section 10. Headings. The headings and titles of the various paragraphs
of this Agreement are inserted merely for the purpose of convenience, and do not
expressly or by implication limit, define, extend or affect the meaning or
interpretation of this Agreement or the specific terms or text of the paragraph
so designated.
-7-
<PAGE>
Section 11. Governing Law. This Agreement shall be governed in all
respects, whether as to validity, construction, capacity, performance or
otherwise, by the laws of the State of Texas.
Section 12. Severability. If any provision of this Agreement shall be
held invalid by a court with jurisdiction over the parties to this Agreement,
then and in that event such provision shall be deleted from the Agreement, which
shall then be construed to give effect to the remaining provisions thereof. If
any one or more of the provisions contained in this Agreement or in any other
instrument referred to herein shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, then in that event, to the maximum
extent permitted by law, such invalidity, illegality or enforceability shall not
affect any other provisions of this Agreement or any other such instrument.
Section 13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall be considered one and the same instrument.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
SECURITY CAPITAL ATLANTIC INCORPORATED
By:/s/ CONSTANCE B. MOORE
-------------------------------------
Constance B. Moore
Co-Chairman
SC GROUP INCORPORATED
By:/s/ PAUL E. SZUREK
-------------------------------------
Paul E. Szurek
Managing Director
<PAGE>
EXHIBIT A
Description of Facilities
-------------------------
For purposes of the Administrative Services Agreement, Facilities shall
mean the facilities maintained by SC Group or one of its affiliates at the
following addresses:
7777 Market Center Avenue
El Paso, Texas 79912
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Facilities shall also include any other premises owned, leased or subleased
by SC Group at which the Company desires to utilize such premises as well as the
utilities, fixtures, furniture and equipment used in connection with the
operation of such premises.
<PAGE>
EXHIBIT 10.5
ADMINISTRATIVE SERVICES AGREEMENT
---------------------------------
THIS ADMINISTRATIVE SERVICES AGREEMENT (this "Agreement") is made and
entered into as of this 9th day of September, 1997, by and between Security
Capital Pacific Trust, a Maryland real estate investment trust (the "Company"),
and SC Group Incorporated, a Texas corporation ("SC Group"), and a wholly owned
direct or indirect subsidiary of Security Capital Group Incorporated.
WHEREAS, the Company wishes to purchase from SC Group certain
administrative services designed to assist the Company in the cost-efficient
management of the Company's trust and business affairs in the manner and
pursuant to terms and conditions as more specifically described herein; and
WHEREAS, SC Group desires to provide or cause to be provided those services
requested by the Company under such terms and conditions; and
WHEREAS, SC Group will perform similar administrative services for other
entities (collectively "SC Group Clients") which may vary from time to time; and
WHEREAS, the Company will retain the sole and absolute right and authority
to fully and completely operate and manage its business and properties.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, the parties hereto agree as follows:
Section 1. Services.
1.1 Services to be Rendered. SC Group shall provide the Company with
the services described below (each, a "Service", and collectively, the
"Services") as selected from time to time by the Company:
(a) Insurance Administration. Assistance in securing all forms of
insurance, including property, casualty, workers' compensation and
trustees' and officers' liability coverage; managing insurance policies;
negotiation of premiums; arranging payment terms; managing claims; and
preparation of loss fund analysis. The amount and levels of insurance
shall be determined in the sole and absolute discretion of the Company.
(b) Accounts Payable. Provision of all accounts payable functions
(currently all non site-level invoices); processing of all employee expense
reports and reimbursements of travel and entertainment expenses; and
maintenance of accounts payable and cash disbursement systems, including
reasonable internal controls.
<PAGE>
(c) Internal Audit. Provision of internal audit coverage and audit
support, including property audits, financial audits, operational audits
and information system audits, as requested and authorized in advance by
the Company.
(d) Cash Management. Operation and maintenance of collection systems,
concentration systems, and electronic disbursements (including wire
transfers, ACH payments and short term investing); maintenance of bank
accounts, including opening and closing of operating, security deposits,
local depository and petty cash accounts; bank administration, and
maintenance of bank relationships.
(e) Human Resources.
(i) Benefit Administration. Negotiation and administration of
all health, dental, vision, life and long-term and short-term
disability insurance plans as well as 401(k) and flexible spending
plans; and administration of other miscellaneous employee benefits.
(ii) Human Resources Information Systems. Administration and
employee and labor relations including statutory compliance with all
governmental agencies, affirmative action, work force demographics;
processing wage and hour claims and utilization and EEO charges; and
compliance with annual reporting requirements.
(iii) Payroll. Production of payroll and related items;
maintenance of required records; compliance with federal and state
wage and hour regulations; tracking benefit hours; tracking and paying
wage garnishments and related orders; maintenance of Forms W-2; and
production and processing of special payroll checks.
(iv) Pre-Employment. Development of employment policies and
procedures; verification of applicant information such as drivers
license numbers, social security numbers, education, criminal
offenses, and past employment; and drug testing.
(v) Recruiting. Recruiting and retaining employees of the
Company for the El Paso Operations Center who will perform services
for the Company, including placement of newspaper advertisements,
contracting and negotiating with search consultants, screening of
candidates, interviews and employee orientation; processing new hires,
terminations, transfers, leaves of absence and miscellaneous status
changes as requested and authorized in advance by the Company.
-2-
<PAGE>
(f) Management Information Systems.
(i) Applications Development. Development, maintenance and
continuing evolution of system applications to provide technology
solutions to business needs and problems, as requested and authorized
in advance by the Company.
(ii) Telecommunications. Design, operation and maintenance of
network infrastructure, including telephone and data transmission
lines, voice mail, facsimile machines, cellular phones, pager, etc.;
negotiation of contracts with third party vendors and suppliers; and
local area network and wide area network communications support.
(iii) Operations/Technical Support and User Support. Design,
maintenance and operation of the computing environment, including
business specific applications, network wide applications, electronic
mail and other systems; purchase and maintenance of equipment,
including hardware and software; configuration, installation and
support of computer equipment; and education and training of the user
community.
(g) Tax Administration. Supervision and direction of the preparation,
review and filing of all federal, state and other required tax returns;
supervision and direction of ad hoc requests for assistance on tax related
matters; and coordination of all activities with the Company's outside tax
preparer, as requested and authorized in advance by the Company. All tax
matters shall be determined by the Company in its absolute and sole
discretion.
(h) Special Projects. Direction and support of all special projects,
as requested and authorized in advance by the Company.
(i) Legal. Coordination and supervision of all third party legal
services; assistance in the preparation of public filings and registration
statements; and oversight of processing of claims against the Company.
(j) Research. Provision of periodic market research reports and
special research assignments as requested by the Company.
(k) Investor Relations/Communications.
(i) Capital Markets. Advice and services relating to capital
raising transactions and relationship with shareholders, but not
including solicitation of investors as a broker, dealer or underwriter
in any capital raising transactions of the Company.
-3-
<PAGE>
(ii) Communications. Preparation and coordination of annual and
quarterly reports to shareholders; presentations to public; public
relations; preparation of marketing materials; and investor relations
services.
(l) Debt Financing. Advice and services relating to revolving lines
of credit and other issuances of indebtedness.
1.2 Scope of Services and Charges. The parties will agree from time
to time on the Services to be provided, the scope of Services listed in Section
1.1 and the charges for such Services. The scope of Services shall consist of
the estimated amount of items to be processed or hours to be spent for a
category of the Services in any year as agreed to by the parties. The charges
for Services shall consist of an amount equal to SC Group's costs incurred in
providing such Services, multiplied by 120%. If the scope of Services actually
performed by SC Group in any category of Services is different than that agreed
to by the parties, or if the scope of Services is increased at the request of
the Company, then the parties shall negotiate in good faith to revise the scope
of Services and to adjust the charges for such Services. The parties shall
review annually the Services provided, the scope of Services and the charges for
such Services and negotiate in good faith and make appropriate adjustments. The
parties agree to complete each annual review not later than November 30 in each
year of this Agreement.
1.3 Performance of Services. SC Group covenants that it will perform
or cause to be performed the Services in a timely, efficient and workmanlike
manner and in substantially the same manner in which SC Group is providing such
services to the Company currently. SC Group further covenants that it will
maintain or contract for a sufficient staff of trained personnel to enable it to
perform the Services hereunder. SC Group may retain third parties or its
affiliates to provide certain of the Services hereunder. In such cases, and
notwithstanding anything herein to the contrary, the Company shall reimburse SC
Group for only its actual cost for arranging for such Services. Any
arrangements between SC Group and its affiliates for the provision of Services
hereunder shall be commercially reasonable and on terms not less favorable than
those which could be obtained from unaffiliated third parties.
1.4 Payment for Services. SC Group shall bill the Company, at the
end of each calendar month, one-twelfth of the amount agreed to from time to
time pursuant to Section 1.2 for the applicable Service. Such amount shall be
payable by the Company in full within 30 days of receipt thereof by the Company.
On the forty-fifth day following the end of each calendar year, SC Group shall
provide to the Company a statement, certified by a senior officer of SC Group,
setting forth by category of Service the amount and nature of such Services
actually performed during the period covered by such statement. Such statement
shall also set forth the dollar amount, if any, by which the amounts previously
paid by the Company for the provision of each specific category of Services for
such period is greater or less than the charges agreed for such Services (in
each such case, an "excess", and, if a shortfall, a "shortfall"). Any such
excess or shortfall shall be refunded to the Company or paid by the Company, as
applicable, within 30 days of the receipt of the statement. Notwithstanding
anything in this Agreement to the contrary, the aggregate fees for Services
provided by SC Group to the
-4-
<PAGE>
Company (exclusive of reimbursements of third-party costs) shall not exceed
$7,717,447 during the Initial Term (subject to the actual usage of Services by
the Company not being materially in excess of that set forth in the budget
previously provided by SC Group to the Company).
1.5 Reimbursement. The Company shall reimburse SC Group for all
reasonable third party out-of-pocket expenses it incurs on behalf of the Company
not billed directly to the Company within 30 days of receipt of the invoice
therefor.
Section 2. Facilities. SC Group hereby grants to the Company the right
to use the Facilities set forth on Exhibit A. The Company shall not pay any
additional compensation to SC Group for the use of such Facilities during the
twelve-month period following the date of this Agreement. From and after the
expiration of such twelve-month period, the Company shall pay SC Group rental
for the use of such Facilities as may be agreed between the parties negotiating
in good faith. SC Group and the Company agree that during the term of this
Agreement they shall cooperate and use reasonable efforts in order to allocate
the Facilities in accordance with the reasonable requests (based on their
business needs) of each of SC Group, the Company and other SC Group Clients.
The Company acknowledges and agrees that within 60 days of the expiration of the
term of this Agreement, it shall leave the Facilities in the same condition as
at the commencement of the term of the Agreement, ordinary wear and tear and
damage by casualty excepted.
Section 3. Term. The initial term of this Agreement shall commence on
the date hereof and shall be through December 31, 1998 (the "Initial Term") and
shall be renewable by the Company every year thereafter, subject to approval by
a majority of the Independent Trustees (which they may withhold or grant in
their sole discretion). Absent written notice of non-renewal as provided in
this Section 3, this Agreement shall be automatically renewed for successive
one-year terms (each, a "Renewal Term") upon the expiration of the Initial Term
and each Renewal Term. Notice of non-renewal, if given, shall be given in
writing by either party hereto not less than ninety (90) calendar days before
the expiration of the Initial Term or any Renewal Term. Upon termination of
this Agreement, SC Group shall promptly return to the Company all monies, books,
records and other materials held by it for or on behalf of the Company. As used
herein, the term "Independent Trustees" means each member of the Company's Board
of Trustees who is not affiliated with Security Capital Group Incorporated
("SCG") or any of its affiliates, directly or indirectly, whether by ownership
of, ownership interest in, employment by, any material business or professional
relationship with, or service as an officer of SCG or any of its affiliates, and
is not serving as a trustee or director for more than three real estate
investment trusts organized by a sponsor of the Company.
Section 4. Audit of Services. At any time during regular business hours
and as often as reasonably requested by the Company's officers, SC Group shall
permit the Company or its authorized representatives to examine and make copies
and abstracts from the records and books of SC Group for the purpose of auditing
the performance of, and the charges of, SC Group under the terms of this
Agreement; provided, that all costs and expenses of such inspection shall be
borne by the Company.
-5-
<PAGE>
Section 5. Prevention of Performance. SC Group shall not be determined
to be in violation of this Agreement if it is prevented from performing any
Services hereunder for any reason beyond its reasonable control, including
without limitation, acts of God, nature, or of public enemy, strikes, or
limitations of law, regulations or rules of the Federal or of any state or local
government or of any agency thereof.
Section 6. Indemnification.
6.1 By the Company. The Company shall indemnify, defend and hold SC
Group, and its directors, officers, and employees harmless from and against all
damages, losses and reasonable out-of-pocket expenses (including fees) incurred
by them in the course of performing the duties on behalf of the Company and its
subsidiaries as prescribed hereby, except for matters covered by subsection 6.2
hereof.
6.2 By SC Group. SC Group shall indemnify, defend and hold the
Company, its trustees, officers and employees harmless from and against all
damages, losses and reasonable out-of-pocket expenses (including fees) caused by
or arising out of any willful misconduct or gross negligence in the performance
of any obligation or agreement of SC Group herein.
6.3 Remedy. Except as otherwise provided in subsection 6.2 hereof,
SC Group does not assume any responsibility under this Agreement other than to
render the services called for under this Agreement in good faith and in a
manner reasonably believed to be in the best interests of the Company. Except
as otherwise provided in subsection 6.2 hereof, the Company's sole remedy on
account of the failure of SC Group to render the services as and when required
hereunder shall be to procure services elsewhere and to charge SC Group the
difference between the reasonable increased cost, if any, to procure new
services, and the current cost to the Company to procure services under this
Agreement.
Section 7. Notices.
7.1 Manner of Delivery. Each notice, demand, request, consent,
report, approval or communication (each a "Notice") which is or may be required
to be given by either party to the other party in connection with this Agreement
and the transactions contemplated hereby, shall be in writing, and given by
telecopy, personal delivery, receipted delivery service, or by certified mail,
return receipt requested, prepaid and properly addressed to the party to be
served.
-6-
<PAGE>
7.2 Addresses. Notices shall be addressed as follows:
If to the Company:
Security Capital Pacific Trust
7670 South Chester Street
Englewood, Colorado 80112
Attention: R. Scot Sellers
If to SC Group:
SC Group Incorporated
7777 Market Center Avenue
El Paso, Texas 79912
Attention: Paul E. Szurek
7.3 Effective Date. Notices shall be effective on the date sent via
telecopy, the date delivered personally or by receipted delivery service, or
three (3) days after the date mailed.
7.4 Change of Address. Each party may designate by notice to the
others in writing, given in the foregoing manner, a new address to which any
notice may thereafter be so given, served or sent.
Section 8. Entire Agreement. This Agreement, together with the Exhibit
hereto, constitutes and sets forth the entire agreement and understanding of the
parties pertaining to the subject matter hereof, and no prior or contemporaneous
written or oral agreements, understandings, undertakings, negotiations,
promises, discussions, warranties or covenants not specifically referred to or
contained herein or attached hereto shall be valid and enforceable. No
supplement, modification, termination in whole or in part, or waiver of this
Agreement shall be binding unless executed in writing by the party to be bound
thereby. No waiver of any of the provisions of this Agreement shall be deemed,
or shall constitute, a waiver of any other provision hereof (whether or not
similar), nor shall any such waiver constitute a continuing waiver unless
otherwise expressly provided.
Section 9. Binding Effect. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto, each of their respective
successors and permitted assigns, but may not be assigned by either party
without the prior written consent of the other party, and no other persons shall
have or derive any right, benefit or obligation hereunder.
Section 10. Headings. The headings and titles of the various paragraphs
of this Agreement are inserted merely for the purpose of convenience, and do not
expressly or by implication limit, define, extend or affect the meaning or
interpretation of this Agreement or the specific terms or text of the paragraph
so designated.
-7-
<PAGE>
Section 11. Governing Law. This Agreement shall be governed in all
respects, whether as to validity, construction, capacity, performance or
otherwise, by the laws of the State of Texas.
Section 12. Severability. If any provision of this Agreement shall be
held invalid by a court with jurisdiction over the parties to this Agreement,
then and in that event such provision shall be deleted from the Agreement, which
shall then be construed to give effect to the remaining provisions thereof. If
any one or more of the provisions contained in this Agreement or in any other
instrument referred to herein shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, then in that event, to the maximum
extent permitted by law, such invalidity, illegality or enforceability shall not
affect any other provisions of this Agreement or any other such instrument.
Section 13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall be considered one and the same instrument.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
SECURITY CAPITAL PACIFIC TRUST
By: /s/ R. SCOT SELLERS
-----------------------------------------
R. Scot Sellers
President and Chief Executive Officer
SC GROUP INCORPORATED
By: /s/ PAUL E. SZUREK
-----------------------------------------
Paul E. Szurek
Managing Director
<PAGE>
EXHIBIT A
Description of Facilities
-------------------------
For purposes of the Administrative Services Agreement, Facilities shall
mean the facilities maintained by SC Group or one of its affiliates at the
following addresses:
7777 Market Center Avenue
El Paso, Texas 79912
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Facilities shall also include any other premises owned, leased or subleased
by SC Group at which the Company desires to utilize such premises as well as the
utilities, fixtures, furniture and equipment used in connection with the
operation of such premises.
<PAGE>
EXHIBIT 10.6
ADMINISTRATIVE SERVICES AGREEMENT
---------------------------------
THIS ADMINISTRATIVE SERVICES AGREEMENT (this "Agreement") is made and
entered into as of this 9th day of September, 1997, by and between Security
Capital Industrial Trust, a Maryland real estate investment trust (the
"Company"), and SC Group Incorporated, a Texas corporation ("SC Group"), and a
wholly owned direct or indirect subsidiary of Security Capital Group
Incorporated.
WHEREAS, the Company wishes to purchase from SC Group certain
administrative services designed to assist the Company in the cost-efficient
management of the Company's trust and business affairs in the manner and
pursuant to terms and conditions as more specifically described herein; and
WHEREAS, SC Group desires to provide or cause to be provided those services
requested by the Company under such terms and conditions; and
WHEREAS, SC Group will perform similar administrative services for other
entities (collectively "SC Group Clients") which may vary from time to time; and
WHEREAS, the Company will retain the sole and exclusive right and authority
to fully and completely operate and manage its business and properties.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, the parties hereto agree as follows:
Section 1. Services.
1.1 Services to be Rendered. SC Group shall provide the Company with
the services described below (each, a "Service", and collectively, the
"Services") as selected by the Company from time to time:
(a) Insurance Administration. Assistance in securing all forms of
insurance, including property, casualty, workers' compensation and
trustees' and officers' liability coverage; managing insurance policies;
negotiation of premiums; arranging payment terms; managing claims; and
preparation of loss fund analysis. The amount and levels of insurance
shall be determined in the sole and absolute discretion of the Company.
(b) Accounts Payable. Provision of all accounts payable functions
(currently all non site-level invoices); processing of all employee expense
reports and reimbursements of travel and entertainment expenses; and
maintenance of accounts payable and cash disbursement systems, including
reasonable internal controls.
<PAGE>
(c) Internal Audit. Provision of internal audit coverage and audit
support, including property audits, financial audits, operational audits
and information system audits, as requested and authorized in advance by
the Company.
(d) Cash Management. Operation and maintenance of collection systems,
concentration systems, and electronic disbursements (including wire
transfers, ACH payments and short term investing); maintenance of bank
accounts, including opening and closing of operating, security deposits,
local depository and petty cash accounts; bank administration, and
maintenance of bank relationships.
(e) Human Resources.
(i) Benefit Administration. Negotiation and administration of
all health, dental, vision, life and long-term and short-term
disability insurance plans as well as 401(k) and flexible spending
plans; and administration of other miscellaneous employee benefits.
(ii) Human Resources Information Systems. Administration and
employee and labor relations including statutory compliance with all
governmental agencies, affirmative action, work force demographics;
processing wage and hour claims and utilization and EEO charges; and
compliance with annual reporting requirements.
(iii) Payroll. Production of payroll and related items;
maintenance of required records; compliance with federal and state
wage and hour regulations; tracking benefit hours; tracking and paying
wage garnishments and related orders; maintenance of Forms W-2; and
production and processing of special payroll checks.
(iv) Pre-Employment. Development of employment policies and
procedures; verification of applicant information such as drivers
license numbers, social security numbers, education, criminal
offenses, and past employment; and drug testing.
(v) Recruiting. Recruiting and retaining employees of the
Company for the El Paso Operations Center who will perform services
for the Company, including placement of newspaper advertisements,
contracting and negotiating with search consultants, screening of
candidates, interviews and employee orientation; processing new hires,
terminations, transfers, leaves of absence and miscellaneous status
changes as requested and authorized in advance by the Company.
-2-
<PAGE>
(f) Management Information Systems.
(i) Applications Development. Development, maintenance and
continuing evolution of system applications to provide technology
solutions to business needs and problems, as requested and authorized
in advance by the Company.
(ii) Telecommunications. Design, operation and maintenance of
network infrastructure, including telephone and data transmission
lines, voice mail, facsimile machines, cellular phones, pager, etc.;
negotiation of contracts with third party vendors and suppliers; and
local area network and wide area network communications support.
(iii) Operations/Technical Support and User Support. Design,
maintenance and operation of the computing environment, including
business specific applications, network wide applications, electronic
mail and other systems; purchase and maintenance of equipment,
including hardware and software; configuration, installation and
support of computer equipment; and education and training of the user
community.
(g) Tax Administration. Supervision and direction of the preparation,
review and filing of all federal, state and other required tax returns;
supervision and direction of ad hoc requests for assistance on tax related
matters; and coordination of all activities with the Company's outside tax
preparer, as requested and authorized in advance by the Company. All tax
matters shall be determined by the Company in its absolute and sole
discretion.
(h) Special Projects. Direction and support of all special projects,
as requested and authorized in advance by the Company.
(i) Legal. Coordination and supervision of all third party legal
services; assistance in the preparation of public filings and registration
statements; and oversight of processing of claims against the Company.
(j) Research. Provision of periodic market research reports and
special research assignments as requested by the Company.
(k) Investor Relations/Communications.
(i) Capital Markets. Advice and services relating to capital
raising transactions and relationship with shareholders, but not
including solicitation of investors as a broker, dealer or underwriter
in any capital raising transactions of the Company.
-3-
<PAGE>
(ii) Communications. Preparation and coordination of annual and
quarterly reports to shareholders; presentations to public; public
relations; preparation of marketing materials; and investor relations
services.
(l) Debt Financing. Advice and services relating to revolving lines
of credit and other issuances of indebtedness.
1.2 Scope of Services and Charges. The parties will agree from time
to time on the Services to be provided, the scope of Services listed in Section
1.1 and the charges for such Services. The scope of Services shall consist of
the estimated amount of items to be processed or hours to be spent for a
category of the Services in any year as agreed to by the parties. The charges
for Services shall consist of an amount equal to SC Group's costs incurred in
providing such Services, multiplied by 120%. If the scope of Services actually
performed by SC Group in any category of Services is different than that agreed
to by the parties, or if the scope of Services is increased at the request of
the Company, then the parties shall negotiate in good faith to revise the scope
of Services and to adjust the charges for such Services. The parties shall
review annually the Services provided, the scope of Services and the charges for
such Services and negotiate in good faith and make appropriate adjustments. The
parties agree to complete each annual review not later than November 30 in each
year of this Agreement.
1.3 Performance of Services. SC Group covenants that it will perform
or cause to be performed the Services in a timely, efficient and workmanlike
manner and in substantially the same manner in which SC Group is providing such
services to the Company currently. SC Group further covenants that it will
maintain or contract for a sufficient staff of trained personnel to enable it to
perform the Services hereunder. SC Group may retain third parties or its
affiliates to provide certain of the Services hereunder. In such cases, and
notwithstanding anything herein to the contrary, the Company shall reimburse SC
Group for only its actual cost for arranging for such Services. Any
arrangements between SC Group and its affiliates for the provision of Services
hereunder shall be commercially reasonable and on terms not less favorable than
those which could be obtained from unaffiliated third parties.
1.4 Payment for Services. SC Group shall bill the Company, at the
end of each calendar month, one-twelfth of the amount agreed to from time to
time pursuant to Section 1.2 for the applicable Service. Such amount shall be
payable by the Company in full within 30 days of receipt thereof by the Company.
On the forty-fifth day following the end of each calendar year, SC Group shall
provide to the Company a statement, certified by a senior officer of SC Group,
setting forth by category of Service the amount and nature of such Services
actually performed during the period covered by such statement. Such statement
shall also set forth the dollar amount, if any, by which the amounts previously
paid by the Company for the provision of each specific category of Services for
such period is greater or less than the charges agreed for such Services (in
each such case, an "excess", and, if a shortfall, a "shortfall"). Any such
excess or shortfall shall be refunded to the Company or paid by the Company, as
applicable, within 30 days of the receipt of the statement. Notwithstanding
anything in this Agreement to the contrary, the aggregate fees for Services
provided by SC Group to the
-4-
<PAGE>
Company (exclusive of reimbursement of third-party costs) shall not exceed
$7,088,457 during the Initial Term (subject to the actual usage of Services by
the Company not being materially in excess of that set forth in the budget
previously provided by SC Group to the Company).
1.5 Reimbursement. The Company shall reimburse SC Group for all
reasonable third party out-of-pocket expenses it incurs on behalf of the Company
not billed directly to the Company within 30 days of receipt of the invoice
therefor.
Section 2. Facilities. SC Group hereby grants to the Company the right
to use the Facilities set forth on Exhibit A. The Company shall not pay any
additional compensation to SC Group for the use of such Facilities during the
twelve-month period following the date of this Agreement. From and after the
expiration of such twelve-month period, the Company shall pay SC Group rental
for the use of such Facilities as may be agreed between the parties negotiating
in good faith. SC Group and the Company agree that during the term of this
Agreement they shall cooperate and use reasonable efforts in order to allocate
the Facilities in accordance with the reasonable requests (based on their
business needs) of each of SC Group, the Company and other SC Group Clients.
The Company acknowledges and agrees that within 60 days of the expiration of the
term of this Agreement, it shall leave the Facilities in the same condition as
at the commencement of the term of the Agreement, ordinary wear and tear and
damage by casualty excepted.
Section 3. Term. The initial term of this Agreement shall commence on
the date hereof and shall be through December 31, 1998 (the "Initial Term") and
shall be renewable by the Company every year thereafter, subject to approval by
a majority of the Independent Trustees (which they may withhold or grant in
their sole discretion). Absent written notice of non-renewal as provided in
this Section 3, this Agreement shall be automatically renewed for successive
one-year terms (each, a "Renewal Term") upon the expiration of the Initial Term
and each Renewal Term. Notice of non-renewal, if given, shall be given in
writing by either party hereto not less than ninety (90) calendar days before
the expiration of the Initial Term or any Renewal Term. Upon termination of
this Agreement, SC Group shall promptly return to the Company all monies, books,
records and other materials held by it for or on behalf of the Company. As used
herein, the term "Independent Trustees" means each member of the Company's Board
of Trustees who is not affiliated with Security Capital Group Incorporated
("SCG") or any of its affiliates, directly or indirectly, whether by ownership
of, ownership interest in, employment by, any material business or professional
relationship with, or service as an officer of SCG or any of its affiliates, and
is not serving as a trustee or director for more than three real estate
investment trusts organized by a sponsor of the Company.
Section 4. Audit of Services. At any time during regular business hours
and as often as reasonably requested by the Company's officers, SC Group shall
permit the Company or its authorized representatives to examine and make copies
and abstracts from the records and books of SC Group for the purpose of auditing
the performance of, and the charges of, SC Group under the terms of this
Agreement; provided, that all costs and expenses of such inspection shall be
borne by the Company.
-5-
<PAGE>
Section 5. Prevention of Performance. SC Group shall not be determined
to be in violation of this Agreement if it is prevented from performing any
Services hereunder for any reason beyond its reasonable control, including
without limitation, acts of God, nature, or of public enemy, strikes, or
limitations of law, regulations or rules of the Federal or of any state or local
government or of any agency thereof.
Section 6. Indemnification.
6.1 By the Company. The Company shall indemnify, defend and hold SC
Group, and its directors, officers, and employees harmless from and against all
damages, losses and reasonable out-of-pocket expenses (including fees) incurred
by them in the course of performing the duties on behalf of the Company and its
subsidiaries as prescribed hereby, except for matters covered by subsection 6.2
hereof.
6.2 By SC Group. SC Group shall indemnify, defend and hold the
Company, its trustees, officers and employees harmless from and against all
damages, losses and reasonable out-of-pocket expenses (including fees) caused by
or arising out of any willful misconduct or gross negligence in the performance
of any obligation or agreement of SC Group herein.
6.3 Remedy. Except as otherwise provided in subsection 6.2 hereof,
SC Group does not assume any responsibility under this Agreement other than to
render the services called for under this Agreement in good faith and in a
manner reasonably believed to be in the best interests of the Company. Except
as otherwise provided in subsection 6.2 hereof, the Company's sole remedy on
account of the failure of SC Group to render the services as and when required
hereunder shall be to procure services elsewhere and to charge SC Group the
difference between the reasonable increased cost, if any, to procure new
services, and the current cost to the Company to procure services under this
Agreement.
Section 7. Notices.
7.1 Manner of Delivery. Each notice, demand, request, consent,
report, approval or communication (each a "Notice") which is or may be required
to be given by either party to the other party in connection with this Agreement
and the transactions contemplated hereby, shall be in writing, and given by
telecopy, personal delivery, receipted delivery service, or by certified mail,
return receipt requested, prepaid and properly addressed to the party to be
served.
-6-
<PAGE>
7.2 Addresses. Notices shall be addressed as follows:
If to the Company:
Security Capital Industrial Trust
14100 East 35th Place
Aurora, Colorado 80011
Attention: K. Dane Brooksher
If to SC Group:
SC Group Incorporated
7777 Market Center Avenue
El Paso, Texas 79912
Attention: Paul E. Szurek
7.3 Effective Date. Notices shall be effective on the date sent via
telecopy, the date delivered personally or by receipted delivery service, or
three (3) days after the date mailed.
7.4 Change of Address. Each party may designate by notice to the
others in writing, given in the foregoing manner, a new address to which any
notice may thereafter be so given, served or sent.
Section 8. Entire Agreement. This Agreement, together with the Exhibit
hereto, constitutes and sets forth the entire agreement and understanding of the
parties pertaining to the subject matter hereof, and no prior or contemporaneous
written or oral agreements, understandings, undertakings, negotiations,
promises, discussions, warranties or covenants not specifically referred to or
contained herein or attached hereto shall be valid and enforceable. No
supplement, modification, termination in whole or in part, or waiver of this
Agreement shall be binding unless executed in writing by the party to be bound
thereby. No waiver of any of the provisions of this Agreement shall be deemed,
or shall constitute, a waiver of any other provision hereof (whether or not
similar), nor shall any such waiver constitute a continuing waiver unless
otherwise expressly provided.
Section 9. Binding Effect. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto, each of their respective
successors and permitted assigns, but may not be assigned by either party
without the prior written consent of the other party, and no other persons shall
have or derive any right, benefit or obligation hereunder.
Section 10. Headings. The headings and titles of the various paragraphs
of this Agreement are inserted merely for the purpose of convenience, and do not
expressly or by implication limit, define, extend or affect the meaning or
interpretation of this Agreement or the specific terms or text of the paragraph
so designated.
-7-
<PAGE>
Section 11. Governing Law. This Agreement shall be governed in all
respects, whether as to validity, construction, capacity, performance or
otherwise, by the laws of the State of Texas.
Section 12. Severability. If any provision of this Agreement shall be
held invalid by a court with jurisdiction over the parties to this Agreement,
then and in that event such provision shall be deleted from the Agreement, which
shall then be construed to give effect to the remaining provisions thereof. If
any one or more of the provisions contained in this Agreement or in any other
instrument referred to herein shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, then in that event, to the maximum
extent permitted by law, such invalidity, illegality or enforceability shall not
affect any other provisions of this Agreement or any other such instrument.
Section 13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall be considered one and the same instrument.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
SECURITY CAPITAL INDUSTRIAL TRUST
By: /s/ ROBERT J. WATSON
------------------------------------
Robert J. Watson
Managing Director
SC GROUP INCORPORATED
By: /s/ PAUL E. SZUREK
------------------------------------
Paul E. Szurek
Managing Director
<PAGE>
EXHIBIT A
Description of Facilities
-------------------------
For purposes of the Administrative Services Agreement, Facilities shall
mean the facilities maintained by SC Group or one of its affiliates at the
following addresses:
7777 Market Center Avenue
El Paso, Texas 79912
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Facilities shall also include any other premises owned, leased or subleased
by SC Group at which the Company desires to utilize such premises as well as the
utilities, fixtures, furniture and equipment used in connection with the
operation of such premises.
<PAGE>
EXHIBIT 11
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
FULLY DILUTED EARNINGS PER COMMON SHARE
AND COMMON EQUIVALENT SHARE
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1997 1996
----------- ----------
<S> <C> <C>
Reconciliation of net earnings per primary earnings per
common share and common equivalent share computation
to amount used for fully diluted computation:
Net earnings per Consolidated Statements of
Operations.......................................... $ 50,294 $ 46
Add: Series A Preferred Share dividends.............. 8,310 5,213
Add: Interest expense--convertible debt, net of tax
effect.............................................. 53,881 44,869
----------- ----------
Net earnings, as adjusted........................ $ 112,485 $ 50,128
=========== ==========
Reconciliation of weighted average number of Class B
shares outstanding per primary earnings per Class B
share and Class B share equivalent share computation
to amount used for fully diluted computation:
Weighted average number of Class B shares outstanding
per primary earnings per Class B share and common
equivalent Class B share computation................ 69,368,575 55,487,450
Adjustments applicable to computation of fully
diluted weighted average shares outstanding:
Additional dilution under the treasury stock method
applicable to options and warrants.................. 1,953,299 42,450
Weighted average effect of conversion of Series A
Preferred Shares into Class B shares................ 5,294,800 3,536,300
Weighted average effect of conversion of convertible
debentures into Class B shares...................... 46,525,250 36,145,950
----------- ----------
Weighted average number of Class B shares, as
adjusted........................................ 123,141,924 95,212,150
=========== ==========
Primary earnings per common share and common equivalent
share................................................. $ .73 $ .001
=========== ==========
Fully diluted earnings per common share and common
equivalent share (1).................................. $ .91 $ .53
=========== ==========
</TABLE>
- --------
(1) Fully diluted earnings per common share and common equivalent share is not
presented on the Consolidated Statements of Operations as the effect of
the conversion of the preferred shares and the convertible debt into
common shares would be anti-dilutive.
<PAGE>
EXHIBIT 11.1
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
FULLY DILUTED EARNINGS PER COMMON SHARE
AND COMMON EQUIVALENT SHARE
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1997 1996
----------- -----------
<S> <C> <C>
Reconciliation of net earnings per primary earnings
per common share and common equivalent share
computation to amount used for fully diluted
computation:
Net earnings per Consolidated Statements of
Operations....................................... $ 47,926 $ 10,908
Add: Series A Preferred Share dividends........... 3,097 2,607
Add: Interest expense--convertible debt, net of
tax effect....................................... 18,376 15,619
----------- -----------
Net earnings, as adjusted..................... $ 69,399 $ 29,134
=========== ===========
Reconciliation of weighted average number of Class B
shares outstanding per primary earnings per Class B
share and Class B share equivalent share computa-
tion to amount used for fully diluted computation:
Weighted average number of Class B shares
outstanding per primary earnings per Class B
share and common equivalent Class B share
computation...................................... 72,400,217 58,215,100
Adjustments applicable to computation of fully
diluted weighted average shares outstanding:
Additional dilution under the treasury stock
method applicable to options and warrants........ 1,501,208 10,500
Weighted average effect of conversion of Series A
Preferred Shares into Class B shares............. 5,294,800 5,294,800
Weighted average effect of conversion of
convertible debentures into Class B shares....... 47,447,200 38,603,850
----------- -----------
Weighted average number of Class B shares, as
adjusted..................................... 126,643,425 102,124,250
=========== ===========
Primary earnings per common share and common
equivalent share................................... $ .66 $ .19
=========== ===========
Fully diluted earnings per common share and common
equivalent share................................... $ .55 $ .29(1)
=========== ===========
</TABLE>
- --------
(1) Fully diluted earnings per common share and common equivalent share is not
presented on the Consolidated Statement of Operations, for the three
months ended September 30, 1996, as the effect of the conversion of the
preferred shares and the convertible debt into common shares would be
anti-dilutive.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
Form 10-Q for the nine months ended September 30, 1997, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 333,785
<SECURITIES> 130,211
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,800,784
<DEPRECIATION> 73,604
<TOTAL-ASSETS> 4,235,941
<CURRENT-LIABILITIES> 0
<BONDS> 1,512,258
0
139,000
<COMMON> 239
<OTHER-SE> 1,593,135
<TOTAL-LIABILITY-AND-EQUITY> 4,235,941
<SALES> 0
<TOTAL-REVENUES> 367,771
<CGS> 0
<TOTAL-COSTS> 209,746
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 103,227
<INCOME-PRETAX> 148,193
<INCOME-TAX> 70,879
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58,604
<EPS-PRIMARY> .73
<EPS-DILUTED> 0<F1>
<FN>
<F1> Earnings per share - fully diluted is not presented as the conversion of
the preferred shares and convertible debt into common shares are not
assumed as the effect would be anti-dilutive.
</FN>
</TABLE>
