<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 1997
NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
SECURITY CAPITAL GROUP INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS GOVERNING INSTRUMENTS)
----------------
MARYLAND 6719 36-3692698
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
125 LINCOLN AVENUE
SANTA FE, NEW MEXICO 87501
(505) 982-9292
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
----------------
JEFFREY A. KLOPF, SECRETARY
SECURITY CAPITAL GROUP INCORPORATED
125 LINCOLN AVENUE
SANTA FE, NEW MEXICO 87501
(505) 982-9292
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPIES TO:
EDWARD J. SCHNEIDMAN JEFFREY SMALL
MAYER, BROWN & PLATT EUGENE C. GREGOR
190 SOUTH LASALLE STREET DAVIS POLK & WARDWELL
CHICAGO, ILLINOIS 60603 450 LEXINGTON AVENUE
(312) 782-0600 NEW YORK, NEW YORK 10017
(212) 450-4000
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF SECURITIES BEING AGGREGATE AMOUNT OF REGISTRATION
REGISTERED OFFERING PRICE(1) FEE
- -------------------------------------------------------------------------------
<S> <C> <C>
Class B Common Stock, par
value $.01 per share........ $287,500,000 $87,121.22
- -------------------------------------------------------------------------------
Preferred Share Purchase
Rights...................... None None
- -------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of determining the registration fee.
Includes shares issuable upon exercise of an overallotment option granted
to the Underwriters.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS Subject to Completion
Dated April 29, 1997
Shares
LOGO
Class B Common Stock
(par value $.01 per share)
All of the shares of Class B Common Stock, par value $.01 per share (the "Class
B Shares"), of Security Capital Group Incorporated ("Security Capital" or the
"Company"), being offered hereby are being offered by Security Capital. Prior
to this offering (the "Offering"), there has been no public market for the
Class B Shares. It is currently anticipated that the initial public offering
price will be between $ and $ per Class B Share. See "Underwriting"
for further information regarding factors to be considered in determining the
initial public offering price.
Security Capital's authorized capital stock includes Class B Shares and Class A
Common Stock, par value $.01 per share (the "Class A Shares," and together with
the Class B Shares, the "Shares"). The rights of holders of Class A Shares and
Class B Shares differ as follows: the holders of Class A Shares are entitled to
one vote, while the holders of Class B Shares are entitled to one two-hundredth
( 1/200th) of a vote, for each share held of record on all matters submitted to
a vote of shareholders; and holders of Class B Shares are entitled to receive
dividends and distributions (including liquidating distributions) equal to one-
fiftieth ( 1/50th) of the amount per share declared by the Board of Directors
of Security Capital (the "Board") for each Class A Share. Upon completion of
the Offering, the holders of the Class A Shares will control approximately
% of the total voting power of Security Capital ( % if the Underwriters'
over-allotment option is exercised in full). Each Class A Share can be
converted into 50 Class B Shares beginning on January 1, 1998 at the option of
the holder thereof.
Application will be made for listing of the Class B Shares on the New York
Stock Exchange ("NYSE") under the symbol " ", although no assurance can be
given that such application will be granted.
Class B Shares are being reserved for sale to certain directors and employees
of the Company and its affiliates at the initial public offering price. See
"Underwriting." Such directors and employees are expected to purchase, in the
aggregate, not more than % of the Class B Shares offered in the Offering.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) SECURITY CAPITAL (2)
- -------------------------------------------------------------
<S> <C> <C> <C>
Per Class B Share $ $ $
- -------------------------------------------------------------
Total (3) $ $ $
- -------------------------------------------------------------
</TABLE>
(1)Security Capital has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by Security Capital
estimated at $ .
(3)Security Capital has granted the Underwriters an option, exercisable within
30 days from the date of this Prospectus, to purchase up to
additional Class B Shares on the same terms and conditions as set forth above,
solely to cover over-allotments, if any. If such option is exercised in full,
the total Price to Public, Underwriting Discount and Proceeds to Security
Capital will be $ , $ and $ , respectively. See
"Underwriting."
The Class B Shares being offered by this Prospectus are offered by the
Underwriters, subject to prior sale, when, as and if delivered to and accepted
by the Underwriters, and subject to approval of certain legal matters by Davis
Polk & Wardwell, counsel for the Underwriters. It is expected that delivery of
the Class B Shares offered hereby will be made against payment therefor on or
about , 1997, at the offices of J.P. Morgan Securities Inc., 60 Wall
Street, New York, New York.
J.P. MORGAN & CO.
, 1997
<PAGE>
No person is authorized to give any information or to make any representations
not contained in this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Company or the Underwriters. This Prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy, the Class B Shares in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the date hereof or that
information contained herein is correct as of any time subsequent to the date
hereof.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 7
Use of Proceeds..................... 13
Dividend Policy..................... 13
Capitalization...................... 14
Dilution............................ 15
Business............................ 16
Management.......................... 31
Selected Financial Information...... 43
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 44
Relationships with Operating
Companies.......................... 53
Certain Relationships and
Transactions....................... 63
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Principal Shareholders.............. 65
Description of Capital Stock........ 68
Certain Provisions of Maryland Law
and of Security Capital's Charter
and Bylaws......................... 73
Shares Available for Future Sale.... 75
Certain United States Federal Tax
Considerations for Non-U.S. Holders
of Class B Shares.................. 76
ERISA Matters....................... 79
Underwriting........................ 81
Experts............................. 82
Legal Matters....................... 83
Available Information............... 83
Index to Financial Statements....... F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE CLASS B SHARES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
Security Capital intends to furnish its shareholders with annual reports
containing audited consolidated financial statements certified by an
independent public accounting firm and with quarterly reports containing
unaudited consolidated financial information for the first three quarters of
each fiscal year.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CLASS A SHARES OR
CLASS B SHARES. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION
WITH THE OFFERING, AND MAY BID FOR, AND PURCHASE, CLASS A SHARES OR CLASS B
SHARES IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by, and should be read in conjunction
with, the more detailed information and financial statements appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information
contained in this Prospectus assumes (i) an estimated initial public offering
price of $ per Class B Share (the midpoint of the range of estimated
initial public offering prices set forth on the cover page of this Prospectus),
(ii) no exercise of the Underwriters' over-allotment option and (iii) approval
by the shareholders of ATLANTIC, PTR and SCI (each as defined below) of the
proposed merger transactions described below (see "Business--The Proposed
Mergers").
SECURITY CAPITAL GROUP INCORPORATED
Security Capital is a real estate research, investment and management company.
Management has assembled a superior team of operating and investment
professionals to implement the firm's strategy. Prior to the Offering, Security
Capital was owned primarily by directors, officers, employees and 65 major
domestic and foreign institutional investors.
Security Capital's strategy is to create the optimal organization to lead and
profit from global real estate securitization. Security Capital will implement
this strategy by:
. Providing leadership in real estate research conducted on a global basis.
Security Capital's proprietary research, which is available to Security
Capital's affiliates, provides a strong foundation for its capital
deployment strategy.
. Continuing to invest its capital in fully integrated, value-added
operating companies that have strong prospects for sustained growth.
Security Capital plans to utilize the results of its research to identify
opportunities in which it can invest its capital in the start-up of
highly focused, private operating companies with the objective of
becoming publicly traded and having the prospect of dominating their
respective niches. In addition, Security Capital will continue to make
investments in public companies in which it can provide strategic and
operating guidance and capital and thereby enable the companies to pursue
an attractive growth strategy.
.Creating a global real estate securities management business.
Since its commencement of operations in 1991, Security Capital has continually
committed research and development capital to generate new start-up, fully
integrated real estate operating companies and new business services. Based on
such research and development activities, Security Capital has established a
range of real estate research, service and management businesses and made a
series of investments in Security Capital Pacific Trust ("PTR"), Security
Capital Industrial Trust ("SCI"), Security Capital Atlantic Incorporated
("ATLANTIC"), Security Capital U.S. Realty ("Security Capital USREALTY") and
Homestead Village Incorporated ("Homestead"), each of which is now publicly
traded. Through March 31, 1997, Security Capital has invested an aggregate of
approximately $2.0 billion in the common shares of PTR, SCI, ATLANTIC, Security
Capital USREALTY and Homestead and warrants of Homestead. Those securities had
an aggregate market value of approximately $2.9 billion (based on the closing
price of those securities on the principal exchange on which such securities
are listed on March 31, 1997). As of April 25, 1997, Security Capital owned
approximately 36% of PTR, 44% of SCI, 51% of ATLANTIC, 37% of Security Capital
USREALTY and 62% of Homestead and, pursuant to a series of investor agreements,
advisory agreements, board representation or other control rights, has
significant influence over the operations of each of these entities. As of
March 31, 1997, these five publicly traded real estate companies had a
collective equity market capitalization (assuming full conversion or exercise
of convertible securities, options and warrants) of approximately $7.8 billion.
Security Capital USREALTY has made strategic investments in three publicly
traded companies, CarrAmerica Realty Corporation ("CarrAmerica"), Storage USA,
Inc. ("Storage USA") and Regency Realty Corporation ("REGENCY"), and one
private company, Pacific Retail Trust ("PACIFIC RETAIL"), which had a
collective equity market capitalization of approximately $3.8 billion as of
March 31, 1997 (assuming contractual equity commitments by investors have been
funded, and full conversion or exercise of convertible securities, options and
warrants). For further information on the Company's relationship to these
publicly traded companies, see "Business--Operating Strategy," "--Operating
Companies Market Price Information and Financial Performance" and
"Relationships with Operating Companies."
3
<PAGE>
Security Capital has several new business initiatives which are in varying
stages of research and development. Security Capital USREALTY also has several
new business initiatives expected to be operational by the end of 1997. See
"Business--Future Strategy." Security Capital believes that an important
component of its future growth will come from new business initiatives and the
implementation of new business strategies, although there can be no assurance
that current new business initiatives will be continued or prove successful.
Security Capital's and its affiliates' principal business activities are
carried out in offices located in Atlanta, Brussels, Chicago, Denver, El Paso,
London, Luxembourg, New York and Santa Fe.
THE PROPOSED MERGER TRANSACTIONS
Security Capital, through its affiliates, currently provides real estate
investment trust ("REIT") management and property management services to each
of ATLANTIC, PTR and SCI. In December 1996, management of Security Capital
proposed to its Board that Security Capital exchange its REIT management
companies and property management companies for common shares of ATLANTIC, PTR
and SCI, respectively. In January 1997, based upon the direction of the Board,
Security Capital proposed to the Board of Directors of ATLANTIC, and the Board
of Trustees of each of PTR and SCI, that each of ATLANTIC, PTR and SCI become
internally managed. On March 24, 1997, Security Capital and each of ATLANTIC,
PTR and SCI entered into Merger and Issuance Agreements (collectively, the
"Merger Agreements"), pursuant to which Security Capital will cause its
affiliates providing REIT management and property management services to each
of ATLANTIC, PTR and SCI to be merged into newly formed subsidiaries of such
respective entities (the "Mergers") with the result that all personnel employed
in the REIT management and property management businesses would become officers
and employees of ATLANTIC, PTR and SCI, respectively. In exchange for the
transfer of those businesses, Security Capital will receive $54,608,549 of
ATLANTIC's shares of common stock, $75,838,457 of PTR's common shares of
beneficial interest and $81,870,626 of SCI's common shares of beneficial
interest. The number of shares of each entity issuable to Security Capital will
depend on the value of such shares on the record date for determining
shareholders entitled to vote at the meetings of shareholders to be held to
consider the respective Mergers, subject to a maximum and minimum number of
shares being issued by each of ATLANTIC, PTR and SCI. Each Merger is subject to
approval of the shareholders of each of ATLANTIC, PTR and SCI, respectively,
and to various customary closing conditions.
In order to allow the common shareholders of ATLANTIC, PTR and SCI,
respectively, to maintain their relative percentage ownership interests in each
of their companies, concurrently with proxy solicitations seeking approval of
the Mergers, each of ATLANTIC, PTR and SCI will conduct a rights offering
entitling its common shareholders (other than Security Capital) to purchase
additional common shares. The rights offering price for each company is
expected to be the same basis at which common shares will be issued to Security
Capital pursuant to the respective Merger Agreements. In addition, as part of
the transactions contemplated by the Merger Agreements, and to permit the
shareholders of ATLANTIC, PTR and SCI to benefit from the Mergers on the same
terms as Security Capital equity holders, Security Capital will issue warrants
to purchase an aggregate of $250 million of Class B Shares ("Warrants") to the
common equity holders (and holders of certain securities convertible into
common shares) of each of ATLANTIC, PTR and SCI (other than Security Capital)
after the closing of the Mergers (the "Warrant Issuance"). The exercise price
of the Warrants will be based on the market price of the Class B Shares on a
date to be established following completion of the Offering, and the Warrants
will have a term of one year.
RISK FACTORS
An investment in the Class B Shares involves certain risks including the
following: (i) recent underlying favorable conditions in the real estate
industry may not continue and Security Capital may not continue to grow at
rates similar to those which it has achieved in the past; (ii) there can be no
assurance that Security Capital will be successful in creating new businesses;
(iii) Security Capital is dependent on dividends, capital gains and management
and service fees from its operating companies to meet its operating needs and
to pay principal and interest on debt; (iv) Security Capital is subject to
general real estate investment risks; (v) there are limitations on the
shareholders' ability to change control of Security Capital; (vi) there has
been no prior market for the Class B Shares; and (vii) investors in the
Offering will experience immediate dilution of net tangible book value of the
Class B Shares. See "Risk Factors."
4
<PAGE>
THE OFFERING
CLASS B COMMON STOCK OFFERED......
COMMON STOCK OUTSTANDING:
<TABLE>
<CAPTION>
Before the
Offering After the Offering
------------------ ------------------
Number Number
(1) Voting % (1) Voting %
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Class A Common Stock (1)................ 1,301,010 100 (2) 1,301,010 (2)
Class B Common Stock (3)................ -- -- (2)
</TABLE>
USE OF PROCEEDS................... The Offering is intended to provide
funds to be used for general corporate
purposes, which may include the
allocation of capital to new
businesses and the partial repayment
of outstanding indebtedness of
Security Capital. See "Use of
Proceeds."
VOTING RIGHTS..................... Generally, the holders of the Class A
Shares and the Class B Shares vote
together as a single class on all
matters submitted to a vote of
shareholders, with each Class A Share
entitled to one vote and each Class B
Share entitled to one two-hundredth
(1/200th) of a vote for each share
held of record. See "Description of
Capital Stock--Common Stock."
DIVIDEND RIGHTS................... Holders of Class B Shares are entitled
to receive dividends and distributions
(including liquidating distributions)
equal to one-fiftieth (1/50th) of the
amount per share declared by the Board
for each Class A Share. Security
Capital does not anticipate paying
cash dividends on the Class A Shares
or the Class B Shares in the
foreseeable future. See "Description
of Capital Stock--Common Stock" and
"Dividend Policy."
CONVERTIBILITY OF CLASS A COMMON Commencing January 1, 1998, each Class
STOCK............................. A Share may be converted into fifty
(50) Class B Shares at the holder's
option. Class B Shares are not
convertible into Class A Shares or any
other security. See "Description of
Capital Stock--Common Stock."
PROPOSED NYSE SYMBOLS:
Class A Common Stock...........
" "
Class B Common Stock...........
" "
- -------
(1) As of March 31, 1997; excludes (i) 191,689 Class A Shares reserved for
issuance upon exercise of options and conversion of the Convertible
Subordinated Debentures due June 30, 2014 (the "2014 Convertible Debentures")
issuable upon exercise of options under Security Capital's employee benefit
plans, (ii) 105,896 Class A Shares reserved for issuance upon conversion of the
Series A Cumulative Convertible Redeemable Voting Preferred Stock (the "Series
A Preferred Stock"), (iii) 682,293 Class A Shares reserved for issuance upon
conversion of outstanding 2014 Convertible Debentures, (iv) 279,949 Class A
Shares reserved for issuance upon conversion of outstanding Convertible
Subordinated Debentures due March 29, 2016 (the "2016 Convertible Debentures"
and together with the 2014 Convertible Debentures, the "Convertible
Debentures") and (v) 69,383 Class A Shares reserved for issuance upon the
exercise of outstanding warrants and conversion of 2014 Convertible Debentures
issuable upon exercise of outstanding warrants.
(2) Does not include voting rights of the holders of the outstanding shares of
Series A Preferred Stock. See "Description of Capital Stock--Preferred Stock."
(3) Excludes an aggregate of $250 million of Class B Shares reserved for
issuance upon the exercise of Warrants to be issued pursuant to the Merger
Agreements and 131,511,000 Class B Shares reserved for issuance upon conversion
of outstanding Class A Shares and Class A Shares issuable upon exercise of
securities convertible or exercisable into Class A Shares in the manner
described in Note (1) above. See "Shares Available for Future Sale."
5
<PAGE>
SUMMARY SELECTED FINANCIAL INFORMATION
The following table sets forth summary selected financial information for
Security Capital as of and for the years ended December 31, 1996, 1995, 1994,
1993, 1992 and 1991. The following summary selected financial information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and with the Company's
consolidated financial statements and notes thereto included in this
Prospectus.
-----------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
Dollars in thousands, 1996 1995 (1) 1994 1993 1992 1991
except per share data ---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Equity in earnings $ 168,473 $ 45,685 $ 8,812 $ 6,032 $ 1,722 $ 242
Rental revenues 145,907 103,634 146,545 10,916 1,592 -
Services Division
revenues (2) 77,512 49,404 - - - -
Total revenues 398,122 200,534 156,855 17,503 3,534 467
Rental expenses 54,050 37,948 23,052 1,428 292 -
General and
administrative (2) 116,122 79,100 18,755 2,555 679 205
Interest expense:
Security Capital:
Convertible
Debentures/notes (3) 93,912 78,785 29,647 1,228 180 -
Line of credit 6,256 5,977 6,424 2,196 960 88
Majority-owned
subsidiaries (4) 17,056 19,042 17,718 362 - -
---------- --------- --------- --------- --------- ---------
Total interest expense 117,224 103,804 53,789 3,786 1,140 88
Net earnings (loss)
attributable to Class A
Shares (5) $ 24,145 $ (51,112) $ (7,685) $ 5,155 $ 1,014 $ 141
-----------------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1995 (1) 1994 1993 1992 1991
---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Series A Preferred Stock
dividends $ 56.25 - - - - -
Net earnings (loss)
attributable to
Class A Shares $ 21.30 $ (57.00) $ (16.74) $ 39.12 $ 21.61 $ 3.96
Class A Share
distributions paid (6) - - $ 33.50 $ 60.00 $ 55.00 $ 24.95
Weighted-average Class A
Shares outstanding 1,133,711 896,681 458,945 131,776 46,913 35,565
-----------------------------------------------------
<CAPTION>
AS OF DECEMBER 31,
1996 1995 (1) 1994 1993 1992 1991
Dollars in thousands ---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET
DATA:
Investments, at equity $1,438,937 $ 930,043 $ 230,756 $ 161,270 $ 68,160 $ 24,911
Real estate, net of
accumulated
depreciation (1) 1,365,373 865,367 2,005,937 478,630 41,577 -
Total assets 3,071,884 2,005,578 2,300,613 673,019 110,765 25,003
Long-term debt:
Security Capital (3) 940,197 718,611 514,383 48,970 6,532 -
Majority-owned
subsidiaries (4) 257,099 118,524 301,787 47,988 - -
Minority interests 394,537 159,339 554,752 157,545 4,884 -
Total shareholders'
equity $1,061,302 $ 679,061 $ 359,859 $ 293,821 $ 57,847 $ 16,314
</TABLE>
- -------
(1) Prior to 1995, Security Capital consolidated the accounts of SCI and
Security Capital Pacific Incorporated ("PACIFIC"). During 1995, Security
Capital's ownership of SCI decreased to less than 50% and PACIFIC was merged
into PTR. Accordingly, these entities were deconsolidated effective January 1,
1995.
(2) Security Capital resulted from the merger of two affiliated, but not
commonly controlled, entities on January 1, 1995 (the "1995 Merger"). See Note
1 to the Company's consolidated financial statements included in this
Prospectus for more information concerning the 1995 Merger and the predecessor
entity.
(3) During 1994, Security Capital made a $757.50 per share distribution of the
2014 Convertible Debentures resulting in a total increase of $417.2 million in
outstanding 2014 Convertible Debentures.
(4) Security Capital does not guarantee the debt of any of its consolidated or
unconsolidated operating companies.
(5) On April 17, 1997, shareholders approved an amended and restated charter
which created Class A Shares and Class B Shares. All outstanding common shares
as of April 18, 1997 automatically became Class A Shares and all securities
convertible into or exchangeable for common shares became convertible into or
exchangeable for Class A Shares.
(6) For the years ended December 31, 1994, 1993 and 1992, Security Capital
elected to be taxed as a REIT and made cash distributions to its shareholders.
6
<PAGE>
RISK FACTORS
Prospective purchasers of the Class B Shares offered hereby should consider
carefully the information set forth below, as well as the other information set
forth in this Prospectus. This Prospectus contains, in addition to historical
information, forward looking statements that involve risks and uncertainties.
Those statements appear in a number of places in this Prospectus and include
statements regarding the intent, belief or current expectations of the Company,
its Board or its officers with respect to (i) future revenues, (ii) future
performance of the Company's businesses and (iii) future business initiatives
of the Company. The Company's actual results could differ materially from those
anticipated in the forward looking statements as a result of certain factors,
including those discussed below and elsewhere in this Prospectus.
PAST GROWTH RATE NOT INDICATIVE OF FUTURE RESULTS
Security Capital was started in 1991 and its early stages of development
occurred when it was an optimal time to purchase real estate. Over the five-
year period ended December 31, 1996, Security Capital's book value per share
(after payment of convertible debt interest and preferred stock dividends)
increased at a compounded average growth rate of 10.99% per year. There can be
no assurance that underlying favorable conditions in the real estate industry
will continue or that, in the future, the stock price of the Class A Shares or
Class B Shares will increase, or the book value per share will continue to
grow, at rates similar to those which Security Capital has achieved in the
past.
CREATION OF NEW BUSINESSES
Since its inception, Security Capital has continually devoted substantial
resources to the creation of new businesses. Security Capital currently has
several new business initiatives which are in varying stages of research and
development and Security Capital USREALTY also has several new business
initiatives that are expected to be operational by the end of 1997. These new
business initiatives, to the extent they are developed into new businesses,
will be subject to all risks generally associated with new business activities.
In addition, there can be no assurance that these new business initiatives will
be completed, or if completed, prove to be successful or viable. See
"Business--Future Strategy."
DEPENDENCE ON KEY PERSONNEL
Security Capital's success depends upon attracting and retaining the services
of executive officers, including C. Ronald Blankenship, William D. Sanders and
Thomas G. Wattles, who are members of the Operating Committee, as well as
several key senior officers, consisting of the Managing Directors of its
operating companies and service businesses, including Jeffrey A. Cozad, W.
Joseph Houlihan, Anthony R. Manno, Jr., Caroline S. McBride, Daniel F. Miranda,
Mary Lou Rogers and Paul E. Szurek. Security Capital has experienced
individuals who manage its operating companies, including R. Scot Sellers and
Patrick R. Whelan, Managing Directors of PTR, K. Dane Brooksher and Irving F.
Lyons, III, Co-Chairmen of SCI, Constance B. Moore and James C. Potts, Co-
Chairmen of ATLANTIC, and Michael D. Cryan and David C. Dressler Jr., Co-
Chairmen of Homestead. Security Capital's success will depend, among other
things, on its ability to retain each of the foregoing individuals. Security
Capital's success also depends upon the ability of Security Capital's operating
companies and any new entities it creates to continue to recruit experienced
management. There is substantial competition for qualified personnel in the
real estate industry. Security Capital believes it has an effective succession
plan in place and that several of its officers could serve as Security
Capital's senior executive officers and continue Security Capital's
performance. Senior executives have significant beneficial ownership in
Security Capital which, combined with Security Capital's incentive compensation
programs, enhances Security Capital's ability to retain these persons. The loss
of any of these key personnel could have an adverse effect on Security Capital.
RELIANCE ON DIVIDENDS AND TRANSFERS FROM OPERATING COMPANIES
Security Capital conducts all of its operations through its operating companies
and service businesses. As such, Security Capital is dependent on dividends and
fees from such entities to meet its operating expense needs and to pay
principal and interest on debt, including borrowings under the revolving line
of credit of SC Realty Incorporated ("SC Realty"), a wholly owned subsidiary of
Security Capital which holds the Company's shares of PTR, SCI, ATLANTIC,
Security Capital USREALTY and Homestead and warrants to purchase shares of
Homestead. This revolving line of credit is secured by such securities and is
guaranteed by Security Capital. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Investing and Financing
Activities--Line of Credit." Although many of the Company's operating companies
are REITs, others are not and the Company's ability to obtain dividends, fees
or other funds from such operating companies depends on the economic
performance of such operating companies, the prior claims of creditors or
holders of preferred
7
<PAGE>
stock of such operating companies and the Company's ability to control or cause
such operating companies to make distributions or such other payments.
LACK OF DIVIDENDS
Security Capital is not a REIT and is not required to make distributions to its
common shareholders. Security Capital does not intend to pay dividends on Class
A Shares or Class B Shares in the foreseeable future.
SUBSTANTIAL LEVERAGE
Security Capital has a substantial amount of leverage and will continue to have
a substantial amount of leverage after the Offering. As of December 31, 1996,
Security Capital had approximately $1.2 billion of consolidated outstanding
long-term indebtedness (of which $257 million represented indebtedness of
Security Capital's consolidated operating companies) and $262 million of
consolidated outstanding short-term indebtedness (of which $228 million
represented indebtedness of Security Capital's consolidated operating
companies). Of such long-term indebtedness, approximately $982 million
consisted of Convertible Debentures (including $42 million of accrued interest
on the Convertible Debentures), which are convertible at the option of the
holders into Class A Shares one year after the Offering or upon redemption of
the Convertible Debentures. The current conversion prices for the Convertible
Debentures are below the Company's estimate of its net asset value per Class A
Share, which is the price at which Class A Shares have been sold in the past.
If the Convertible Debentures were converted, the outstanding long-term
indebtedness would be reduced to approximately $257 million (all of which would
be indebtedness of Security Capital's consolidated operating companies).
Security Capital does not guarantee the debt of any of its consolidated or
unconsolidated operating companies. In addition, Security Capital's operating
companies have a substantial amount of indebtedness and, in certain cases, have
issued preferred stock to third parties.
In 1993, Security Capital, through SC Realty, entered into an $85 million
revolving line of credit with Wells Fargo Realty Advisers, Incorporated ("Wells
Fargo"), as agent for a syndicate of banks. Subsequently, this line of credit
was amended and the size of the facility was increased to $250 million and $300
million in 1994 and 1995, respectively. The facility, which is provided by a
group of 11 banks, is effective through November 15, 1998 and had an
outstanding balance of $22 million as of April 25, 1997. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Investing and Financing Activities--Line of Credit."
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), the proceeds of the Offering and funds currently
available under its $300 million revolving line of credit will be sufficient to
enable Security Capital to satisfy its anticipated requirements for operating
and investing activities for the next twelve months. Security Capital intends
to finance its long-term business activities (including investments in new
business initiatives) through the proceeds of the Offering, borrowings under an
expanded line of credit and the exercise of the Warrants to be issued as
described herein. In addition, the Company 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. The degree to which Security Capital is
leveraged and to which it is able to meet its financial obligations could
affect its ability to obtain additional financing in the future for refinancing
indebtedness, working capital, capital expenditures, acquisitions, investments
in new businesses, general corporate purposes or other purposes.
LIMITATIONS ON ACQUISITION OF SHARES AND CHANGE IN CONTROL
Ownership Limit
Security Capital's 9.8% ownership limit, as well as the ability of Security
Capital to issue additional Class A Shares, Class B Shares or other classes or
series of stock (which may have rights and preferences senior to the Class B
Shares), may have the effect of delaying or preventing a change in control of
Security Capital without the consent of the Board even if a change in control
were in the shareholders' interests and may also (i) deter tender offers for
Class A Shares or Class B Shares, which offers may be advantageous to
shareholders and (ii) limit the opportunity for shareholders to receive a
premium for their Class A Shares or Class B Shares that might otherwise exist
if an investor were attempting to assemble a block of Class A Shares or Class B
Shares in excess of 9.8% or otherwise effect a change in control of Security
Capital. See "Description of Capital Stock--Restriction on Size of Holdings of
Shares."
Shareholder Purchase Rights
On April 21, 1997, the Board declared a dividend of one preferred share
purchase right (a "Purchase Right") for each Share outstanding. Each Purchase
Right entitles the holder, under certain circumstances, to purchase from
8
<PAGE>
Security Capital, in the event the underlying share is a Class A Share, one
one-hundredth of a share of Series A Junior Participating Preferred Stock, par
value $.01 per share (the "Participating Preferred Shares"), at a price of
$6,000 per one one-hundredth of a Participating Preferred Share, subject to
adjustment. In the event the underlying share is a Class B Share, the Purchase
Right entitles the registered holder, under certain circumstances, to purchase
from Security Capital one five-thousandth of a Participating Preferred Share of
Security Capital at a price of $120 per one five-thousandth of a Participating
Preferred Share. Purchase Rights are exercisable when a person or group of
persons (other than Security Capital USREALTY and other affiliates of Security
Capital) acquires 20% or more of the voting power of the voting equity
securities of Security Capital or announces a tender offer for 25% or more of
the voting power of the voting equity securities of Security Capital. Under
certain circumstances, each Purchase Right entitles the holder to purchase, at
the Purchase Right's then current exercise price, a number of Class A Shares or
Class B Shares, as the case may be, having a market value of twice the Purchase
Right's exercise price. The acquisition of Security Capital pursuant to certain
mergers or other business transactions would entitle each holder to purchase,
at the Purchase Right's then current exercise price, a number of the acquiring
company's common shares having a market value at that time equal to twice the
Purchase Right's exercise price. The Purchase Rights held by the triggering 20%
shareholders (other than Security Capital USREALTY or other affiliates of
Security Capital) would not be exercisable.
The Purchase Rights may have the effect of delaying or preventing a change in
control of Security Capital without the consent of the Board even if a change
in control were in the shareholders' interests and may also adversely affect
the voting and other rights of shareholders. See "Description of Capital
Stock--Purchase Rights."
Classified Board; Preferred Stock; Advance Notice Provisions
The Board has been divided into three classes of directors. The terms of the
classes will expire in 1998, 1999 and 2000, respectively. As the term of a
class expires, directors for that class will be elected for a three-year term
and the directors in the other two classes will continue in office. See
"Certain Provisions of Maryland Law and of Security Capital's Charter and
Bylaws--Classification of the Board."
Security Capital's amended and restated articles of incorporation (the
"Charter") authorizes the Board to reclassify any unissued shares of Security
Capital's stock from time to time by setting or changing the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications or terms or conditions of redemption. See
"Description of Capital Stock--General" and "--Preferred Stock."
For nominations or other business to be properly brought before an annual
meeting of shareholders by a shareholder, Security Capital's amended and
restated bylaws (the "Bylaws") require such shareholder to deliver a notice to
the Secretary, absent specified circumstances, not less than 60 days nor more
than 90 days prior to the first anniversary of the preceding year's annual
meeting setting forth: (i) as to each person whom the shareholder proposes to
nominate for election or reelection as a director, all information relating to
such person that is required to be disclosed in solicitations of proxies for
the election of directors pursuant to Regulation 14A of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"); (ii) as to any other business
that the shareholder proposes to bring before the meeting, a brief description
of the business desired to be brought before the meeting, the reasons for
conducting such business at the meeting and any material interest in such
business of such shareholder and of the beneficial owner, if any, on whose
behalf the proposal is made; and (iii) as to the shareholder giving the notice
and the beneficial owner, if any, on whose behalf the nomination or proposal is
made, (x) the name and address of such shareholder as it appears on Security
Capital's books and of such beneficial owner and (y) the number of Shares which
are owned beneficially and of record by such shareholder and such beneficial
owner, if any.
The classified Board, the issuance of preferred stock and the advance notice
provisions discussed in the preceding paragraphs each could have the effect of
delaying or preventing a change in control of Security Capital even if a change
in control were in the shareholders' interests.
POSSIBLE ADVERSE CONSEQUENCE OF LIMITS ON OWNERSHIP OF SHARES
As noted above under "--Limitations on Acquisition of Shares and Change in
Control," the Charter restricts ownership of more than 9.8% of the number or
value of the outstanding Class A Shares or Class B Shares by any single
shareholder except Security Capital USREALTY. The Board, in its sole
discretion, may waive this restriction. Shares acquired in breach of the
limitation may be redeemed by Security Capital at the average daily
9
<PAGE>
closing sales price per Class A Share or Class B Share, as applicable, during
the 30-day period ending on the business day prior to the redemption date. A
transfer of such Shares to a person who, as a result of the transfer, violates
the ownership limit may be void under some circumstances. See "Description of
Capital Stock--Restriction on Size of Holdings of Shares" for additional
information regarding the ownership limit.
CERTAIN RISKS RELATING TO THE INVESTMENT COMPANY ACT
Security Capital is not registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), in reliance on an exemption set forth
in the rules promulgated thereunder. Security Capital is not required to
register as an investment company because it is principally engaged in the real
estate business through companies that it primarily controls. As of April 25,
1997, Security Capital owned approximately 36% of PTR, 44% of SCI, 51% of
ATLANTIC, 37% of Security Capital USREALTY and 62% of Homestead which, together
with certain investor agreements, advisory agreements, board representation or
other control rights, allows Security Capital to exert significant influence
over the operations of each of these entities. Security Capital currently
intends to exert similar influence over any other operating company through
which it makes future investments. However, to the extent Security Capital does
not elect to participate in future equity offerings by its operating companies,
its ownership interest in and control over such companies could diminish, and
the Company could potentially be required to register as an investment company
under the Investment Company Act. Security Capital would be materially
adversely affected if it were required to register as an investment company
under the Investment Company Act.
CERTAIN TAX RISKS RELATING TO STATUS OF SECURITY CAPITAL USREALTY
Security Capital USREALTY was organized in 1995 principally to own significant
strategic positions in leading value-added real estate operating companies
based in the United States. The Company has been advised by Security Capital
USREALTY that Security Capital USREALTY is not currently, and intends to
operate so as not to become, a Passive Foreign Investment Company ("PFIC") or
be subject to the accumulated earnings tax for United States income tax
purposes. Characterization of Security Capital USREALTY as a PFIC could
potentially subject the Company to income tax on its pro rata share of the
undistributed income of Security Capital USREALTY. In addition, application of
the accumulated earnings tax to Security Capital USREALTY could potentially
subject Security Capital USREALTY to a 39.6% tax rate on its "accumulated
taxable income" for United States income tax purposes.
GENERAL REAL ESTATE INVESTMENT RISKS
Although Security Capital owns no real estate, its operating companies, and
companies in which its affiliates may invest, own real estate. Real property
investments are subject to varying degrees of risk. Real estate cash flows and
values are affected by a number of factors, including changes in the general
economic climate, local conditions (such as an oversupply of properties or a
reduction in rental demand in an area), the quality and philosophy of
management, competition from other available properties and the ability of the
owner to provide adequate maintenance and insurance and to control operating
costs. Real estate cash flows and values are also affected by such factors as
government regulations, including zoning and tax laws, interest rate levels,
the availability of financing and potential liability under, and changes in,
environmental and other laws. Since a significant portion of Security Capital's
operating companies' income is derived from rental income from real property,
their respective income and distributable cash flow would be adversely affected
if a significant number of tenants were unable to meet their obligations, or if
such operating companies were unable to lease properties on economically
favorable terms.
Equity real estate investments are relatively illiquid and therefore may tend
to limit the ability of Security Capital's operating companies to react
promptly to changes in economic or other conditions. In addition, certain
significant expenditures associated with equity investments (such as mortgage
payments, real estate taxes and maintenance costs) are generally not reduced
when circumstances cause a reduction in income from the investments.
In addition, the market price of the Class B Shares may be affected by the
market prices of shares of Security Capital's real estate operating companies,
which in turn may be affected by risks generally associated with investments in
real estate, including risks associated with acquisition and disposition of
real estate assets, development or redevelopment of properties and, in certain
cases, risks generally associated with investments in REITs.
10
<PAGE>
COMPETITION
There are numerous commercial developers, real estate companies and other
owners of real estate, including those that operate in the regions in which
Security Capital's operating companies' properties are located, that compete
with Security Capital's operating companies in seeking land for development,
properties for acquisition and disposition and tenants for properties. All of
the operating companies' properties are located in developed areas that include
other similar properties. The number of competitive properties in a particular
area could have a material adverse effect on the operating companies' ability
to lease units and on the rents charged. In addition, other forms of properties
provide alternatives to tenants of the operating companies' properties (for
example, single family residential housing may be an alternative to multifamily
housing).
The global real estate securities management business of Security Capital will
compete for capital and investment opportunities with a large number of
investment management firms as well as certain insurance companies, commercial
banks and other financial institutions, some of which may have greater access
to capital and other resources and which may offer a wider range of services
than Security Capital. Real estate investment management firms can be formed
with relatively small amounts of capital and depend most significantly on the
continued involvement of their professional staff. The Company believes that
competition among real estate investment management firms is affected
principally by investment performance, development and implementation of
investment strategies, information technologies and databases and client
service performance.
NO PRIOR MARKET FOR CLASS B SHARES
Prior to the Offering, there has been no public market for the Class B Shares.
Although application will be made to list the Class B Shares on the NYSE, there
can be no assurance the Class B Shares will be so listed or that an active
trading market will develop. From time to time, the stock market experiences
significant price and volume volatility, which may affect the market price of
the Class B Shares for reasons unrelated to Security Capital's performance. In
addition, the initial public offering price may not accurately reflect the
market price of the Class B Shares.
EFFECT ON CLASS B SHARE PRICE OF SHARES AVAILABLE FOR FUTURE SALE
Sales of a substantial number of Class B Shares, or the perception that such
sales could occur, could adversely affect the prevailing market price for Class
B Shares. Upon completion of the Offering, Security Capital will have Class B
Shares outstanding. All such shares may be sold by non-affiliates in the public
markets without limitation. In addition, upon completion of the Offering,
Security Capital expects to have 1,301,010 Class A Shares outstanding, which
will be convertible beginning January 1, 1998 into a total of 65,050,500 Class
B Shares, and 139,000 shares of Series A Preferred Stock outstanding,
convertible into a maximum of 105,896 Class A Shares. As of March 31, 1997,
Security Capital also had outstanding (i) approximately $714 million principal
amount of its 2014 Convertible Debentures, convertible into an aggregate of
682,293 Class A Shares, (ii) approximately $323 million principal amount of its
2016 Convertible Debentures, convertible into an aggregate of 279,949 Class A
Shares, (iii) warrants to purchase 40,241 Class A Shares and approximately $30
million principal amount of 2014 Convertible Debentures (convertible into
29,142 Class A Shares) and (iv) options to purchase 138,521 Class A Shares and
approximately $56 million principal amount of 2014 Convertible Debentures
(convertible into 53,168 Class A Shares) under Security Capital's employee
benefit plans. All such Class A Shares, and the Class B Shares into which they
may be converted, may be sold in the public markets in the future pursuant to
registration rights or available exemptions from registration. In addition,
after consummation of the Mergers, Security Capital is expected to issue
Warrants to purchase a total of $250 million of Class B Shares (the number of
which shares will be based on the price of the Class B Shares on a date to be
established following completion of the Offering), which underlying Class B
Shares may be sold by non-affiliates in the public markets without limitation.
See "Shares Available for Future Sale." No prediction can be made regarding the
effect of future sales of Class B Shares or Class A Shares, or the conversion
of Class A Shares into Class B Shares, on the market price of Class B Shares.
ENVIRONMENTAL
Security Capital, through certain of its operating companies, is 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.
11
<PAGE>
As part of its due diligence procedures, Security Capital's operating companies
have conducted Phase I environmental assessments on each of their respective
properties prior to their acquisition; however, there can be no assurance that
such assessments have revealed all potential environmental liabilities.
Security Capital is not aware of any environmental condition on any of its
operating companies' properties which is likely to have a material adverse
effect on Security Capital's financial position or results of operations;
however, there can be no assurance that any such condition does not exist or
may not arise in the future.
DILUTION
The pro forma net tangible book value per Class B Share of Security Capital's
assets after the Offering will be lower than the initial public offering price
per Class B Share in the Offering. Accordingly, persons acquiring Class B
Shares in the Offering will experience immediate dilution of $ per Class B
Share (or $ per Class B Share assuming conversion of the outstanding
Convertible Debentures) in the net tangible book value of Class B Shares
acquired in the Offering. See "Dilution."
12
<PAGE>
USE OF PROCEEDS
The net proceeds to Security Capital from the sale of the Class B Shares
offered hereby, after payment of all expenses of the Offering, are expected to
be approximately $ million. The net proceeds will be used for general
corporate purposes, which may include the allocation of capital to new
businesses and the partial repayment of outstanding indebtedness. If the
Underwriters' over-allotment option to purchase Class B Shares is exercised in
full, the additional net proceeds of approximately $ million will be used
for the same purposes. At April 25, 1997, SC Realty, a wholly owned subsidiary
of Security Capital, had $22 million in outstanding borrowings under its $300
million revolving line of credit with Wells Fargo and outstanding borrowings
under such line of credit are expected to be approximately $ million at the
time of the closing of the Offering. Borrowings under 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. The line of
credit is guaranteed by Security Capital and is secured by its shares in PTR,
SCI, ATLANTIC, Security Capital USREALTY and Homestead, as well as its warrants
to acquire shares of Homestead. At March 31, 1997, the aggregate market value
of the securities pledged pursuant to the line of credit was approximately $2.9
billion. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Investing and Financing Activities--Line of Credit."
DIVIDEND POLICY
Security Capital is not a REIT and is not required to make distributions to its
common shareholders. The declaration and payment of dividends by Security
Capital is subject to the discretion of the Board. Any determination as to the
payment of dividends will depend upon the results of operations, capital
requirements and financial condition of Security Capital and such other factors
as the Board deems relevant. The Company believes that there currently are
substantial investment opportunities available to Security Capital and, as a
result, the Board intends to follow a policy of retaining earnings to finance
Security Capital's growth and for general corporate purposes. Therefore,
Security Capital does not anticipate paying any cash dividends on the Class A
Shares or the Class B Shares in the foreseeable future.
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Security Capital as of
December 31, 1996 and as adjusted to give effect to (i) the Offering ($ in
net proceeds based on a Class B Share price equal to the mid-point of the range
set forth on the cover hereof), (ii) the collection subsequent to December 31,
1996 of subscriptions receivable for 2016 Convertible Debentures ($96,522,500)
and Class A Shares ($96,522,500), which subscriptions were received prior to
March 31, 1997 and (iii) the application of the proceeds therefrom. The table
should be read in conjunction with the Company's consolidated financial
statements and notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
---------------------
DECEMBER 31, 1996
AS
HISTORICAL ADJUSTED
---------- ---------
<S> <C> <C>
Dollars in thousands
Long-term debt:
Security Capital
2014 Convertible Debentures (1) $ 713,677 $ 713,677
2016 Convertible Debentures (2) 226,520 323,042
Majority-owned subsidiaries (3)
Mortgage notes payable 257,099 257,099
---------- ---------
Total long-term debt 1,197,296 1,293,818
---------- ---------
Minority interests 394,537
Shareholders' equity:
Class A Shares, par value $.01 per share; 20,000,000
shares
authorized; 1,209,009 shares issued (4); 1,301,010
shares issued as
adjusted (4); Class B Shares, par value $.01 per
share; 229,861,000 shares authorized;
shares issued as adjusted (5) 12
Series A Preferred Stock, par value $.01 per share;
139,000 shares issued and outstanding; stated
liquidation preference of $1,000 per share (6) 139,000 139,000
Additional paid-in capital 985,392
Accumulated deficit (63,102)
---------- ---------
Total shareholders' equity 1,061,302
---------- ---------
Total capitalization $2,653,135 $
========== =========
</TABLE>
- --------
(1) Convertible into 682,293 Class A Shares. Does not include $87,221,762
principal amount of 2014 Convertible Debentures issuable upon exercise of
outstanding options and warrants convertible into 83,422 Class A Shares.
(2) Convertible into 196,308 (historical) and 279,949 (as adjusted) Class A
Shares, respectively.
(3) Security Capital does not guarantee the debt of any of its consolidated or
unconsolidated operating companies.
(4) Does not include an aggregate of 1,248,473 (historical) and 1,329,210 (as
adjusted) Class A Shares, respectively, reserved for issuance upon exercise of
outstanding options or warrants or upon conversion of the 2014 Convertible
Debentures, the 2016 Convertible Debentures or the Series A Preferred Stock.
(5) Does not include an aggregate of 65,050,500 Class B Shares reserved for
issuance upon conversion of Class A Shares or $250 million aggregate amount of
Class B Shares issuable upon exercise of Warrants to be issued in connection
with the Mergers.
(6) Convertible into a maximum of 105,896 Class A Shares.
14
<PAGE>
DILUTION
At December 31, 1996, Security Capital had a net tangible book value of $779.7
million, or $12.90 per Class B Share based on 60,450,450 outstanding Class B
Shares (assuming conversion of all Class A Shares outstanding on such date into
Class B Shares). Net tangible book value per Class B Share is defined as the
book value of the Company's tangible assets, less all liabilities, divided by
the number of Class B Shares outstanding.
After giving effect to the sale by Security Capital of Class B Shares
in the Offering at an assumed initial public offering price of $ per
share (after deducting the underwriting discount and the estimated expenses
associated with the Offering payable by the Company), Security Capital's pro
forma net tangible book value as of December 31, 1996 would have been $
million or $ per Class B Share (assuming conversion of all Class A Shares
outstanding on such date into Class B Shares), representing an immediate
increase in net tangible book value of $ per Class B Share to the existing
shareholders, and an immediate dilution to new investors of $ per Class B
Share.
The following table illustrates this per share dilution:
------------------
<TABLE>
<S> <C> <C>
Assumed initial public offering price per Class B Share $
Net tangible book value per Class B Share at December
31, 1996 (1) $ 12.90
Increase in net tangible book value per Class B Share
attributable to new investors (1) $
Pro forma net tangible book value per Class B Share
after the Offering (1) $
Dilution per Class B Share to new investors $
=========
</TABLE>
- --------
(1) Assumes conversion of all Class A Shares outstanding on December 31, 1996
into Class B Shares.
The following table sets forth, as of December 31, 1996, (i) the number of
Class B Shares purchased from the Company, assuming conversion of all Class A
Shares outstanding on such date into Class B Shares, (ii) the total
consideration paid and (iii) the average price per share paid by the existing
shareholders, as compared with (x) the number of Class B Shares to be purchased
from the Company, (y) the total consideration to be paid and (z) the average
price per share to be paid by new investors:
---------------------------------------------------
<TABLE>
<CAPTION>
CLASS B SHARES
PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
--------------------- ----------------------- PER CLASS B
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- --------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders 60,450,450 % $842,845,000 % $13.94 (1)
New investors % $ % $
---------- --------- ------------ ---------
Total 100.00% $ 100.00%
========== ========= ============ =========
</TABLE>
- --------
(1) All existing shareholders have either purchased the Class A Shares as a
unit including Convertible Debentures or received a $757.50 per share
distribution of the 2014 Convertible Debentures during 1994. On a fully
converted basis, existing shareholders have paid an average price of $17.66 per
share.
The foregoing dilution information assumes no conversion of outstanding Series
A Preferred Stock, 2014 Convertible Debentures or 2016 Convertible Debentures
and no exercise of warrants and options, all of which are convertible into, or
exercisable for, Class A Shares or 2014 Convertible Debentures. If all such
convertible securities were converted into, or exercised for, Class A Shares,
an additional 1,248,473 Class A Shares (convertible into 62,423,650 Class B
Shares) would have been outstanding as of December 31, 1996 and the Company
would have reduced its liabilities by $982.6 million and increased its
shareholders' equity by $1,188.1 million as of such date. As a consequence,
based on a pro forma net tangible book value of $ per Class B Share after
the Offering and an assumed initial public offering price of $ per
Class B Share, dilution to investors would have been $ per Class B Share if
all such convertible securities were issued and converted into, or exercised
for, Class B Shares.
Based on the assumptions set forth in the immediately preceding paragraph, the
comparison of consideration paid by existing shareholders to new investors
would be as follows as of December 31, 1996:
---------------------------------------------------
<TABLE>
<CAPTION>
CLASS B SHARES
PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
---------------------- ------------------------- PER CLASS B
NUMBER PERCENT AMOUNT PERCENT SHARE
----------- --------- -------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders 122,874,100 % $2,169,973,000 % $17.66
New investors % $ % $
----------- --------- -------------- ---------
Total 100.00% $ 100.00%
=========== ========= ============== =========
</TABLE>
15
<PAGE>
BUSINESS
OVERVIEW AND STRATEGY
Security Capital is a real estate research, investment and management company.
Management has assembled a superior team of operating and investment
professionals to implement the firm's strategy. Prior to the Offering, Security
Capital was owned primarily by directors, officers, employees and 65 major
domestic and foreign institutional investors.
Security Capital's strategy is to create the optimal organization to lead and
profit from global real estate securitization. Security Capital will implement
this strategy by:
. Providing leadership in real estate research conducted on a global basis.
Security Capital's proprietary research, which is available to Security
Capital's affiliates, provides a strong foundation for its capital
deployment strategy.
. Continuing to invest its capital in fully integrated, value-added
operating companies that have strong prospects for sustained growth.
Security Capital plans to utilize the results of its research to identify
opportunities in which it can invest its capital in the start-up of
highly focused, private operating companies with the objective of
becoming publicly traded and having the prospect of dominating their
respective niches. In addition, Security Capital will continue to make
investments in public companies in which it can provide strategic and
operating guidance and capital and thereby enable the companies to pursue
an attractive growth strategy.
. Creating a global real estate securities management business.
The global real estate industry is in the early stages of a dramatic transition
from ownership in "passive hands" to becoming a securitized industry with a
more rational approach to capital allocation and operating management. As
public real estate investment enterprises become more prevalent, a greater
percentage of the industry's new capital is moving to publicly traded, fully
integrated, value-added operating companies. Securitized holdings offer
significant benefits to institutional and retail investors, including enhanced
liquidity, real-time pricing and the opportunity for optimal growth and
sustainable competitive rates of return.
Security Capital will deploy its capital (both its corporate and third-party
managed capital) in enterprises that emulate the operating characteristics of
the leading value-added operating companies in other highly competitive global
industries. As the shift toward securitization of real estate ownership leads
to a more rational system for deploying capital, the Company believes leading
real estate companies will commit significant dollars to research and
development to create value-added operating systems for application in
carefully selected, focused target markets. The Company believes leading real
estate companies will devote significant capital and energy to management
development programs, creating a strong corporate culture with succession plans
in place. The Company also believes leading real estate companies will consider
capital as a precious resource to be deployed utilizing evaluation processes
based on Economic Value-Added (EVA) or similar strategies. The shift toward
securitization creates unprecedented opportunities for Security Capital and its
operating companies. By building talented management teams, creating fully
integrated operating systems and implementing highly focused strategies, the
Company believes leading real estate companies can achieve sustainable
annualized rates of return which are very competitive with other growth
industries.
Through March 31, 1997, Security Capital has invested an aggregate of
approximately $2.0 billion in the common shares of PTR, SCI, ATLANTIC, Security
Capital USREALTY and Homestead and in the warrants of Homestead. Those
securities had an aggregate market value of approximately $2.9 billion (based
on the closing price of those securities on the principal exchange on which the
securities are listed on March 31, 1997).
Security Capital is a Maryland corporation. Security Capital's and its
affiliates' principal business activities are carried out in offices located in
Atlanta, Brussels, Chicago, Denver, El Paso, London, Luxembourg, New York and
Santa Fe.
16
<PAGE>
OPERATING STRATEGY
Security Capital executes its strategy through the four functional groups shown
on the following organization chart. The Real Estate Research Group ("RERG")
conducts proprietary real estate research and provides analyses of long-term
market conditions and short-term trends to the companies and funds in which
Security Capital has invested. The Investment Research Group ("IRG") manages or
advises capital invested in real estate securities funds with an intermediate-
term investment focus. The Strategic Group ("SG") provides overall business
strategy and investment oversight to the companies in which Security Capital
has direct and indirect ownership positions, either directly or through
consulting agreements. The Financial Services Group ("FSG") provides
administrative and capital markets services to Security Capital's client
companies.
SECURITY CAPITAL OPERATING ORGANIZATION CHART
AS OF THE SECOND QUARTER 1997
SECURITY CAPITAL GROUP
INCORPORATED
REAL ESTATE RESEARCH,
INVESTMENT AND MANAGEMENT
$3.25 BILLION (1)
-------------------------------------------------------------
REAL ESTATE INVESTMENT STRATEGIC GROUP FINANCIAL
RESEARCH GROUP RESEARCH GROUP (SG) SERVICES GROUP
(RERG) (IRG) (FSG)
BUSINESS STRATEGY
AND
REAL ESTATE REAL ESTATE ADMINISTRATIVE
RESEARCH SECURITIES CAPITAL AND CAPITAL
MANAGEMENT DEPLOYMENT MARKETS SERVICES
OVERSIGHT
Chicago-Santa Fe (Intermediate
Term)
Chicago-El Paso-
London-
Brussels-Chicago-
Brussels-Chicago London- Luxembourg-New
Luxembourg-New York-Santa Fe
York-Santa Fe
CLIENTS CLIENTS CLIENTS CLIENTS
Special
Opportunity
Investments
(Security Capital U.S. Realty) (2)
Security Capital Limited to
Investment Pacific Trust Direct/Indirect
Research Group Affiliates
Security Capital
Strategic Group Atlantic
Incorporated
Security Capital
Employee REIT
Fund (3)
Homestead Village
Incorporated
Security Capital
Preferred Growth Security Capital
Incorporated (3) Industrial Trust
Strategic Hotel
Capital
Incorporated
(3)
Security Capital
U.S. Realty (2)
CarrAmerica
Realty
Corporation
(4)
Storage USA,
Inc. (4)
Regency Realty Corporation (4)
Pacific Retail
Trust (4)
- --------
(1) Pre-Offering, equity market capitalization on a fully converted basis as of
March 31, 1997, which assumes all convertible instruments have been converted
into, and options and warrants have been exercised for, Class A Shares and is
based on the Company's estimate of net asset value per Class A Share of $1,236
on such date.
(2) The European management and Board of Directors of Security Capital USREALTY
receive operating and investment advice from Security Capital (EU) Management
S.A., which subcontracts certain research and advisory activities from its
affiliates IRG and SG.
(3) Italics represents new business initiatives.
(4) This company is an investee of Security Capital USREALTY through its
subsidiary and is not directly advised by SG.
17
<PAGE>
REAL ESTATE SECURITY
RESEARCH GROUP CAPITAL
(RERG)
------------------------------------------
REAL ESTATE
RESEARCH
RERG
Chicago-Santa Fe
Security Capital Real Estate Research Group (RERG)
RERG produces real estate research for both the Investment Research Group and
Strategic Group. Research plays a key role in the process of deploying capital
through the long- and short-term evaluation of supply and demand for each real
estate property type in targeted geographic markets. The evaluations are based
on economic, demographic and market factors as well as proprietary demand and
supply models.
RERG conducts an economic base analysis for every major metropolitan market in
the United States. Economic base analysis identifies the key industry sectors
which drive a market's economy by exporting goods or services outside the area.
By examining the stability and growth potential of these industries, as well as
the diversity of their mix, RERG assesses the risks and long-term growth
prospects for that particular market. The demand models created by RERG for
each property type incorporate demographic factors such as population,
household income, age, education, employment and housing characteristics for an
area as small as one-sixteenth of a square mile in certain markets. The
economic and demographic analyses are translated into an overall evaluation of
the demand prospects for each property type in each market.
On a short-term basis, RERG monitors real estate market conditions such as
occupancy and rent growth to forecast the near-term (one to two years)
demand/supply balance of each property type in the market.
18
<PAGE>
INVESTMENT SECURITY
RESEARCH GROUP CAPITAL
(IRG)
------------------------------------------
REAL ESTATE
SECURITIES
MANAGEMENT
(INTERMEDIATE IRG
TERM)
Brussels-Chicago
Security Capital Investment Research Group (IRG)
IRG manages or advises capital invested in focused funds that seek to maximize
total return over an intermediate time horizon of up to 42 months. IRG's
principal focus is on publicly traded real estate companies that it believes
should outperform the market due to factors such as an emerging new strategy or
opportunity, imminent changes in supply and demand that would affect asset
performance, market inefficiencies that result in mispriced securities or
consolidation opportunities. IRG, through its focused funds, will also commit
capital to private start-up companies that have significant prospects for
sustained growth, that can utilize both strategic and operating consulting and
capital, and that have the prospect of becoming public companies. IRG will
generally take ownership positions ranging from .5% to 4.99% of the equity
securities of its investees, except with respect to Security Capital Preferred
Growth Incorporated ("SC-PG"), in which case IRG may take larger ownership
positions.
IRG currently provides investment research and advice to Security Capital (EU)
Management S.A., the advisor to Security Capital USREALTY, in connection with
certain investments in publicly traded companies. In addition, IRG currently
manages Security Capital Employee REIT Fund ("SC-ERF") and SC-PG.
. Security Capital U.S. Realty: Special Opportunity Investments Portfolio.
Security Capital USREALTY identifies publicly traded companies with solid
growth prospects and invests, through a wholly owned subsidiary, to realize
attractive total returns through dividends and share price appreciation. As of
March 31, 1997, the Security Capital USREALTY Special Opportunity Investments
Portfolio had a fair market value of $264 million. For the period from December
31, 1995 to March 31, 1997, the Security Capital USREALTY Special Opportunity
Investment Portfolio achieved a compound annual return of approximately 57.9%,
as measured in the manner required by the Securities and Exchange Commission
(the "Commission") for U.S. mutual funds, after the deduction of fees and
expenses. Compound annual return has been calculated based on the following
principal assumptions: (i) investments were made on the dates Security Capital
USREALTY Special Opportunity Investments Portfolio made its investments, (ii)
dividends or other distributions, if any, were immediately reinvested and (iii)
the per share value of the investments on March 31, 1997 is represented by the
closing sales price of the shares on such date on the principal stock exchange
on which such shares are listed. There can be no assurance that a comparable
rate of return may be obtained in the future.
. Security Capital Employee REIT Fund (SC-ERF). As a matter of policy, Security
Capital employees are not permitted to invest in non-Security Capital related
real estate securities. Security Capital has committed to invest up to $100
million into a fund known as SC-ERF that will invest in real estate securities.
SC-ERF, which registered with the Commission in January 1997, provides a
vehicle through which employees, directors and trustees of Security Capital and
its affiliates, their families and approved 401(k) plans of Security Capital
and its affiliates can invest in real estate securities. SC-ERF's long-term
objective is to achieve top-quartile returns as compared with other mutual
funds that invest in securities of publicly traded real estate companies in the
United States.
. Security Capital Preferred Growth Incorporated (SC-PG). SC-PG is a private
real estate company formed in January 1997. SC-PG's objective is to make
intermediate-term investments in undervalued, high-potential real estate
operating companies primarily through convertible securities. These companies
would typically be in the second through fourth quartile of performance among
real estate operating companies. SC-PG seeks to provide these companies with an
opportunity for repositioning and growth by furnishing them with operating
guidance and access to capital. The management of SC-PG believes that these
types of investments will offer SC-PG an attractive dividend return and the
opportunity to participate in the value creation that may occur as the
companies in which it invests experience growth in cash flows and increases in
share prices. Security Capital has initially committed to purchase $50 million
of common stock of SC-PG.
19
<PAGE>
STRATEGIC GROUP
(SG) SECURITY
CAPITAL
BUSINESS STRATEGY
AND
------------------------------------------
CAPITAL
DEPLOYMENT
OVERSIGHT
Brussels-Chicago-
London- SG
Luxembourg-New
York- Santa Fe
Security Capital Strategic Group (SG)
SG provides overall business strategy and investment oversight (either directly
or through advisory agreements) to companies in which Security Capital has a
direct or indirect ownership position. Security Capital plans to pursue
investments in private companies that have highly focused business strategies
that management believes have prospects for sustained growth and may become
publicly traded. Security Capital expects to benefit as these companies
experience growth in cash flows and increases in share prices consistent with
similar direct investments that Security Capital has made since 1991 in PTR,
SCI, ATLANTIC, Homestead and Security Capital USREALTY and indirect investments
made by Security Capital USREALTY. No assurance can be given that Security
Capital will achieve similar results on future strategic investments.
<TABLE>
<CAPTION>
DIRECT/INDIRECT EQUITY MARKET
CLIENTS OWNERSHIP (1)(2) CAPITALIZATION (1)
------- ---------------- ------------------
<S> <C> <C>
Security Capital Pacific Trust 32% $2,058 Million
Security Capital Atlantic
Incorporated 57% $ 843 Million
Homestead Village Incorporated (3) 29% $ 949 Million
Security Capital Industrial Trust 38% $2,365 Million
Security Capital U.S. Realty (4) 37% $1,593 Million
CarrAmerica Realty Corporation (5) 37% $1,726 Million
Storage USA, Inc. (5) 35% $1,073 Million
Regency Realty Corporation (5) 39% $ 592 Million
Pacific Retail Trust (5) 67% $ 433 Million
</TABLE>
- --------
(1) Ownership and market capitalization are as of March 31, 1997, and assume
contractual equity commitments by investors have been funded, convertible
instruments have been converted into common shares, and options and warrants
for common shares have been exercised. The resulting number of common shares is
multiplied by the closing price of the common shares on such date for those
companies listed on an exchange or, in the case of PACIFIC RETAIL, the last
private equity offering price. See "--Operating Companies Market Price
Information and Financial Performance."
(2) As of April 25, 1997, Security Capital's percentage ownerships in its
investees, based on common shares outstanding on such date, were 36% of PTR,
51% of ATLANTIC, 62% of Homestead, 44% of SCI and 37% of Security Capital
USREALTY.
(3) Ownership of Homestead assumes that all convertible mortgages have been
funded and converted into shares of Homestead common stock and that all
warrants to purchase shares of Homestead common stock have been exercised.
Ownership of Homestead does not include any ownership Security Capital may
obtain in Homestead upon conversion of convertible mortgages owned by PTR and
ATLANTIC through funding commitment agreements. See "Relationships with
Operating Companies--Homestead--Homestead Transaction."
(4) The European management and Board of Directors of Security Capital USREALTY
receive operating and investment advice from Security Capital (EU) Management
S.A., which subcontracts certain research and advisory activities from its
affiliates IRG and SG.
(5) This company is an investee of Security Capital USREALTY through its
subsidiary and is not directly advised by Security Capital. The ownership
percentage reflected is that of Security Capital USREALTY.
For further information with respect to (i) Security Capital's direct ownership
interests in PTR, ATLANTIC, Homestead, SCI and Security Capital USREALTY, (ii)
the historical high and low sale prices of the common shares for such
companies, as well as the cash dividends declared by such companies, (iii) the
average annual shareholder returns on investments in such companies, and
Security Capital's unrealized appreciation in its investment in the securities
of such companies, see "--Operating Companies Market Price Information and
Financial Performance" and "Relationships with Operating Companies."
20
<PAGE>
For purposes of the following discussion, references to "compound annual
returns" for PTR, ATLANTIC, SCI and Security Capital USREALTY have been
calculated based on the following principal assumptions: (i) the beginning date
of the measurement period is the date on which Security Capital made its first
investment, (ii) the calculation includes only Security Capital's initial
investment, (iii) dividends received, if any, were immediately reinvested in
common shares and (iv) the per share value of the investment on March 31, 1997
is represented by the closing sales price of the shares on such date on the
principal stock exchange on which the shares are listed. There can be no
assurance that comparable rates of return may be obtained in the future by
Security Capital or other investors. In addition, references to "equity market
capitalization" for each of the companies listed below assumes contractual
equity commitments by investors have been funded, convertible instruments have
been converted into common shares and options and warrants for common shares
have been exercised. The resulting number of common shares is multiplied by the
closing price on such date of the common shares on the principal exchange on
which the shares are listed.
. Security Capital Pacific Trust (NYSE: PTR). PTR's objective is to be the
preeminent real estate operating company focused on the development,
acquisition, operation and long-term ownership of multifamily communities in
the growing markets of the western United States. PTR is focused on generating
long-term, sustainable growth in per share cash flow. PTR expects to achieve
long-term cash flow growth by maximizing the operating performance of its core
assets through value-added asset management and by executing a research-based
investment strategy that allows PTR to redeploy capital from existing assets
with limited growth prospects into targeted developments with optimal prospects
for growth. As of February 28, 1997, PTR's portfolio of multifamily communities
included 42,556 operating units, 5,671 units under construction and an
estimated 6,232 units in planning. In addition, PTR owns land for future
development of an expected 4,492 additional units. PTR has committed to fund
certain mortgage loans for Homestead which are convertible into Homestead
common stock. Upon full funding of those mortgages, PTR will have $221.3
million in principal amount of convertible mortgages which will be convertible
into a total of 19,246,402 shares of Homestead common stock, which would
represent approximately 34% of the fully converted common shares of Homestead.
Since February 1991, when Security Capital took its initial position in PTR,
through March 31, 1997, PTR's equity market capitalization has increased from
$33 million to $2,157 million. From February 1991 through March 31, 1997, the
compound annual return for PTR was 33.6%.
. Security Capital Atlantic Incorporated (NYSE: SCA). ATLANTIC's objective is
to be the preeminent real estate operating company for the development,
acquisition, operation and long-term ownership of multifamily communities in
its 12-state southeastern target market. ATLANTIC is focused on generating
long-term, sustainable growth in per share cash flow. ATLANTIC is building its
portfolio by implementing a research-driven investment strategy that includes
opportunistic acquisitions of existing properties and the development of
carefully planned moderate income multifamily communities. As of February 28,
1997, ATLANTIC's portfolio included 19,241 operating multifamily units, 5,095
units under construction and an estimated 3,068 units in planning. ATLANTIC has
committed to fund certain mortgage loans for Homestead which are convertible
into Homestead common stock. Upon full funding of those mortgages, ATLANTIC
will have $98.0 million in principal amount of convertible mortgages which will
be convertible into a total of 8,524,215 shares of Homestead common stock,
which would represent approximately 15% of the fully converted common shares of
Homestead. At March 31, 1997, ATLANTIC had an equity market capitalization of
$843 million. Since its inception in December 1993 through March 31, 1997, the
compound annual return for ATLANTIC was 14.7%.
. Homestead Village Incorporated (American Stock Exchange: HSD). Homestead's
objective is to become the preeminent developer, owner and operator of moderate
priced, extended-stay lodging properties throughout the United States.
Homestead was created in 1992 through extensive research and development and
became a public company in October 1996. Homestead seeks to achieve long-term
growth in cash flow by focusing on infill locations in major employment centers
with strong demographics. As of March 31, 1997, Homestead had developed, owned
and operated 34 properties representing in the aggregate 4,297 units and had 41
properties under construction totaling 5,059 units. At March 31, 1997,
Homestead had an equity market capitalization of $949 million. From its spin-
out in October 1996 through March 31, 1997, Homestead had a simple unannualized
return of 17.9%. The simple unannualized return has been calculated based on
the following principal assumptions: (i) the investment was made on October 17,
1996 (and recorded at the cost of the assets contributed by PTR, ATLANTIC and
Security Capital), and (ii) the per share value of the investment on March 31,
1997 is represented by the closing sales price on such date of the shares on
the American Stock Exchange. There can be no assurance that a comparable rate
of return may be obtained in the future by Security Capital or other investors.
21
<PAGE>
. Security Capital Industrial Trust (NYSE: SCN). SCI, a highly focused Denver-
based real estate operating company, is the largest publicly held owner and
operator of distribution properties in the United States based on equity market
capitalization. SCI's primary objective is to achieve long-term, sustainable
growth in per share cash flow. SCI expects to achieve this objective through
The SCI National Operating System(R) which is committed to creating shareholder
value by targeting the Fortune 1,000 companies and providing exceptional
customer service at the national, regional and local levels. SCI's investment
strategy is to acquire generic distribution facilities and develop full-
service, master-planned distribution parks in metropolitan areas that
demonstrate strong demographic growth and excellent distribution real estate
fundamentals. SCI recently announced transactions in Mexico and the
acquisition, through an entity controlled by SCI, of the refrigerated
warehousing and distribution operations of Christian Salvesen, Inc. in the
United States and Canada. At February 28, 1997, SCI had distribution properties
operating or under development in 36 target markets, totaling 88.99 million
square feet. At March 31, 1997, SCI had an equity market capitalization of
$2,365 million. Since its inception in December 1992 through March 31, 1997,
the compound annual return for SCI was 25.6%.
. Strategic Hotel Capital Incorporated ("SHC"). SHC was recently formed and is
focused on becoming the preeminent owner of upscale hotel properties on a
global basis. SHC was created in March 1997 and, ultimately as a public entity,
will seek to achieve a 15% to 20% compound annual total rate of return over the
long-term. Management of SHC is principally focused on maximizing the value of
its investments by providing active and intensive oversight to its select
operators in targeted growth markets throughout the world. Security Capital and
another major institutional investor have each committed to invest $200 million
of capital on an equal basis in SHC.
. Security Capital U.S. Realty (Amsterdam Stock Exchange: SCUSR). Security
Capital USREALTY's objective is to become Europe's preeminent real estate
operating company owning, through a wholly owned subsidiary, significant
strategic positions in leading value-added real estate operating companies
based in the United States. Through a proactive ownership role, appropriate
board representation and ongoing consultation, Security Capital USREALTY
expects to influence the business strategies of the companies in which it
invests to increase per share cash flow. The European management and Board of
Directors of Security Capital USREALTY receive operating and investment advice
from Security Capital (EU) Management S.A., which subcontracts certain research
and advisory activities from its affiliates IRG and SG. Security Capital has
advised Security Capital USREALTY that it does not intend to make its own
direct strategic investments in equity-oriented REITs in the future, other than
those in which Security Capital currently owns a strategic ownership position.
At March 31, 1997, Security Capital USREALTY had an equity market
capitalization of $1,593 million. Since its inception in October 1995 through
March 31, 1997, the compound annual return for Security Capital USREALTY was
33.9%.
Security Capital USREALTY seeks to have 65% to 85% of its assets deployed in
long-term strategic ownership positions in real estate operating companies
organized as REITs and real estate operating companies which are expected in
due course to become REITs.
Security Capital USREALTY also seeks to acquire up to 10% (but generally less
than 5%) of the shares of publicly traded real estate companies and to hold
such positions for an intermediate term of 12 to 18 months (or sooner if the
targeted returns are realized more quickly) with the objective of obtaining
attractive total returns through dividends and share price appreciation.
Security Capital USREALTY seeks to have 10% to 25% of its assets deployed in
such publicly traded positions and, as of March 31, 1997, Security Capital
USREALTY had $264 million (market value) of publicly traded positions in 24
companies. See "--Security Capital Investment Research Group--Security Capital
USREALTY: Special Opportunity Investments Portfolio."
Security Capital USREALTY also seeks to invest up to 10% of its assets in
securities of the Company to enhance the diversification of its asset base and
to enable European investors in Security Capital USREALTY to participate in the
full activities of Security Capital. As of March 31, 1997, Security Capital
USREALTY owned 52,431 Class A Shares and $55 million principal amount of 2016
Convertible Debentures. Security Capital USREALTY purchases securities of the
Company at arm's-length prices.
22
<PAGE>
Security Capital USREALTY's Strategic Investees:
. CarrAmerica Realty Corporation (NYSE: CRE). CarrAmerica is focused on
becoming the leading owner, operator and developer of value-driven office
properties in key growth markets throughout the United States. Management seeks
to achieve these objectives by offering corporate customers exceptional
customer service on a national basis. At March 31, 1997, CarrAmerica had an
equity market capitalization of $1,726 million.
. Storage USA, Inc. (NYSE: SUS). Storage USA is well positioned to become the
preeminent owner, operator and developer of self-storage facilities in the
United States. Storage USA's strategy is to maximize rents, occupancy and
profitability at each of its facilities by offering outstanding value and
customer service in this highly fragmented industrial real estate niche. At
March 31, 1997, Storage USA had an equity market capitalization of $1,073
million.
. Regency Realty Corporation (NYSE: REG). REGENCY is focused on becoming the
preeminent owner and operator of grocery-and-drug-store-anchored neighborhood
infill shopping centers in selected growth markets of the southeastern United
States. REGENCY is utilizing the equity from Security Capital USREALTY's
investment to take advantage of attractive acquisition and development
opportunities in its target market. At March 31, 1997, REGENCY had an equity
market capitalization of $592 million.
. Pacific Retail Trust (PACIFIC RETAIL). PACIFIC RETAIL is building a portfolio
and implementing a business strategy that is designed to make it the leading
owner, operator and developer of grocery-and-drug-store-anchored neighborhood
infill shopping centers in the western United States. A fully integrated
operating company, PACIFIC RETAIL plans to go public in late 1997 or early
1998, after it reaches critical mass in several key growth markets. At March
31, 1997, PACIFIC RETAIL had a private equity market capitalization of $433
million, based on the per share sales price obtained in PACIFIC RETAIL's most
recent private offering of its common shares.
23
<PAGE>
FINANCIAL SECURITY
SERVICES GROUP CAPITAL
(FSG)
------------------------------------------
ADMININISTRATIVE
AND CAPITAL
MARKET SERVICES
Chicago-El Paso- FSG
London-
Luxembourg-New
York-Santa Fe
Security Capital Financial Services Group (FSG)
. SCGroup Incorporated ("SCGroup"). SCGroup provides operational support,
accounting services, human resources and benefits administration, and technical
support to the companies in which Security Capital has direct investments. As a
result, Security Capital's operating companies realize the benefits of
economies of scale by consolidating several management activities in a
centralized operations center.
. Security Capital Markets Group Incorporated ("Security Capital Markets
Group"). Security Capital Markets Group is focused on efficiently accessing
institutional capital through private placements for certain private and public
companies within the Security Capital organization. This gives institutional
investors the early opportunity to invest in Security Capital's real estate
operating companies that Security Capital believes will ultimately achieve
preeminent positions in their respective market niches. Equally importantly,
the professionals in the Security Capital Markets Group maintain open lines of
communication with institutional investors that have taken ownership positions
in Security Capital's private and public companies.
FUTURE STRATEGY
Since its inception, Security Capital has committed capital to research and
development in order to identify opportunities where it can invest in the
start-up of new businesses or new investment services with the objective that
they will ultimately become publicly traded companies. Once opportunities are
identified and thoroughly researched, Security Capital commits substantial
additional capital to the development of operating systems and human capital.
By pursuing a strategy of making a significant investment in advance of the
start-up company's initial operations, as well as making ongoing investments in
operating and people systems as the company grows, Security Capital seeks to
ensure that the start-up company can successfully implement an attractive
growth strategy.
In 1993, initial research began on an investment strategy which was referred to
as SCG Box X and which was announced in 1995 as Security Capital USREALTY. As
of March 31, 1997, Security Capital USREALTY had an equity market
capitalization of $1,593 million.
After four years of research and development, Security Capital announced the
formation of Homestead (previously known as SCG Box X-1) in 1996. As of March
31, 1997, approximately $368 million of value had been created for the
shareholders of PTR, ATLANTIC and Security Capital as a result of the formation
and spin-off of Homestead as measured by (i) the equity market capitalization
of Homestead securities held by PTR and ATLANTIC (or their respective
shareholders) and Security Capital less (ii) the aggregate cost basis of the
assets contributed by PTR, ATLANTIC and Security Capital to Homestead in the
spin-off transaction on October 17, 1996, the cost basis of the Homestead
convertible mortgages to be funded by PTR and ATLANTIC and the cost basis of
the Homestead warrants to purchase common shares distributed to Security
Capital and the shareholders of PTR and ATLANTIC. As of March 31, 1997,
Homestead had an equity market capitalization of $949 million.
During 1995, Security Capital began the implementation of its research on two
new investments: SCG Box X-3 and Strategic Hotel Capital Incorporated
(previously known as SCG Box X-5). In addition, Security Capital USREALTY has
announced that its board has approved investment levels of $150 million in the
niches of high-density urban retail, urban properties and parking, which are
new businesses expected to be operational in 1997.
In 1996, Security Capital committed to make an initial $50 million investment
in SC-PG (previously known as SCG Box X-4), committed to make a $100 million
investment in SC-ERF (previously known as SCG Box X-2) and continued its
research and development activities with respect to its additional new
investments. The Company's policy is to announce new business initiatives
following extensive research and development and after the Company has
committed to make investments in excess of $25 million in the new business.
An important new component of Security Capital's future growth will come from
new business initiatives which are in varying stages of research and
development. No assurance can be given that these initiatives will be
successful.
24
<PAGE>
SECURITY CAPITAL OPERATING ORGANIZATION CHART
AS OF THE FOURTH QUARTER 1997
SECURITY CAPITAL GROUP
INCORPORATED
REAL ESTATE RESEARCH,
INVESTMENT AND MANAGEMENT
-------------------------------------------------------------
REAL ESTATE INVESTMENT STRATEGIC GROUP FINANCIAL
RESEARCH GROUP RESEARCH GROUP (SG) SERVICES GROUP
(RERG) (IRG) (FSG)
BUSINESS STRATEGY
AND
REAL ESTATE REAL ESTATE ADMINISTRATIVE
RESEARCH SECURITIES CAPITAL AND CAPITAL
MANAGEMENT DEPLOYMENT MARKETS SERVICES
OVERSIGHT
Brussels-Chicago- (Intermediate
Santa Fe Term)
Chicago-El Paso-
London-
Brussels-Chicago-
Brussels-Chicago London- Luxembourg-New
York-Santa Fe
Luxembourg-New
York-Santa Fe
CLIENTS CLIENTS CLIENTS CLIENTS
Investment Special Security Capital Limited to
Research Group Opportunity Pacific Trust Direct/Indirect
Investments Affiliates
(Security
Capital U.S.
Realty) (1)
Strategic Group Security Capital
Atlantic
Incorporated
Security Capital Homestead Village
Employee REIT Incorporated
Fund
Security Capital
Security Capital Industrial Trust
Preferred Growth
Incorporated
Strategic Hotel
Capital
Incorporated
SCG Box X-3
(2)(3)
Security Capital
U.S. Realty (1)
CarrAmerica
Realty
Corporation
(4)
Storage USA,
Inc. (4)
Regency Realty
Corporation (4)
Pacific Retail
Trust (4)
National
Parking
Corporation--
national
parking
operator
(2)(4)(5)
Urban Growth
Property Trust
--national
urban property
(2)(4)(5)
City Center
Retail Trust
--urban
- -------- retail (2)(4)(5)
(1) The European management and Board of Directors of Security Capital USREALTY
receive operating and investment advice from Security Capital (EU) Management
S.A., which subcontracts certain research and advisory activities from its
affiliates IRG and SG.
(2) Italics represents new business initiatives.
(3) SCG Box X-3 is in the early stages of research and development. Security
Capital's policy is to announce new business initiatives following extensive
research and development and after the Company has committed to make
investments in excess of $25 million in the new business.
(4) This company is an investee of Security Capital USREALTY through its
subsidiary and is not directly advised by SG.
(5) New private businesses in formation and in which capital investment and
strategy have been approved by the Board of Directors of Security Capital
USREALTY.
25
<PAGE>
FINANCIAL STRUCTURE AND STRATEGY
Security Capital's objectives are to maximize its return on investment and its
operating cash flows after tax. As a consequence, Security Capital views its
structure as consisting of two divisions: the Capital Division, which generates
dividends and capital gains, and the Services Division, which generates service
and management fees. In order to achieve its financial objectives, Security
Capital plans to balance its investments between growth-oriented companies that
do not pay a dividend and dividend-paying real estate entities. Security
Capital plans to prudently utilize leverage which will be serviced by the
dividends received from the Capital Division and service and management fees
received from the Services Division. Borrowings will be deployed into the
highest return opportunities in either the Capital Division or Services
Division. Security Capital expects to achieve its financial objectives by
continuing to be one of the leading creators of fully integrated, value-added
public real estate companies and by becoming the leading global investment
research/investment manager in superior public real estate companies not
affiliated with Security Capital.
The financial structure and strategy of Security Capital is illustrated in the
following diagram:
SECURITY CAPITAL'S OBJECTIVE IS TO ALLOCATE CAPITAL TO THE
HIGHEST LONG-TERM RETURN INVESTMENTS
LOGO
Security Capital SCGroup
Pacific Trust Incorporated (1)
Security Capital Security Capital
Atlantic Incorporated Markets Group
Incorporated (1)
Homestead Village
Incorporated Security Capital
Real Estate
Research Group
Incorporated (1)
Security Capital
Industrial Trust
Security Capital U.S. Security Capital
Realty (2) (EU) Investment
Research Group
S.A. (1)
Security Capital
Employee REIT
Fund (3)
Security Capital
(US) Investment
Research
Incorporated (1)(3)
Security Capital
Preferred Growth
Incorporated (3)
Strategic Hotel
Capital
Incorporated (3)
SCG Box X-3 (3)
- -------
(1) The activities of the entities that comprise the Services Division are
carried out in the following operating groups: Security Capital Real Estate
Research Group, Security Capital Investment Research Group and Security Capital
Financial Services Group and, prior to the Mergers, the REIT management and
property management companies.
(2) The European management and Board of Directors of Security Capital USREALTY
receive operating and investment advice from Security Capital (EU) Management
S.A., which subcontracts certain research and advisory activities from its
affiliates IRG and SG.
(3) Italics represent new business initiatives.
26
<PAGE>
OPERATING COMPANIES MARKET PRICE INFORMATION AND FINANCIAL PERFORMANCE
The following table sets forth, for the periods indicated, the high and low
closing sales prices of the common shares of SCI, ATLANTIC, PTR, Homestead and
Security Capital USREALTY on the NYSE (in respect of SCI, ATLANTIC and PTR),
the American Stock Exchange (in respect of Homestead) and the Amsterdam Stock
Exchange (in respect of Security Capital USREALTY) and the cash dividends
declared by such companies per outstanding common share:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
SCI ATLANTIC PTR
--- ------------------------ ---------------------
CASH CASH CASH
DIVIDEND DIVIDEND DIVIDEND
HIGH LOW DECLARED HIGH LOW DECLARED HIGH LOW DECLARED
---- ----- -------- ---- ------- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995
$15 $ 16
First Quarter $17 3/4 1/4 $0.23375 - - $0.40 $18 3/8 3/8 $0.2875
14 16
Second Quarter 17 1/2 1/2 0.23375 - - 0.40 18 1/8 5/8 0.2875
Third Quarter 16 1/2 15 0.23375 - - 0.40 19 1/4 17 0.2875
17
Fourth Quarter 17 5/8 16 0.23375 - - 0.40 20 1/2 1/4 0.2875
1996
16 19
First Quarter 18 7/8 1/2 0.2525 - - 0.42 22 1/4 1/4 0.31
16 20
Second Quarter 18 7/8 0.2525 - - 0.42 22 3/8 1/2 0.31
16 20
Third Quarter 18 1/4 7/8 0.2525 - - 0.42 22 5/8 1/4 0.31
17
Fourth Quarter 22 1/2 7/8 0.2525 $24 5/8 $20 7/8 0.39 23 5/8 19 0.31
1997
19
First Quarter 22 1/2 7/8 0.2675 26 1/2 22 0.39 25 1/8 21 0.325
18 22
Second Quarter (through April 25) 20 3/4 7/8 - 22 3/8 20 3/4 - 24 1/4 3/8 -
<CAPTION>
------------------------------------------------
SECURITY CAPITAL
HOMESTEAD USREALTY
--------- ------------------------
CASH CASH
DIVIDEND DIVIDEND
HIGH LOW DECLARED HIGH LOW DECLARED
---- ----- -------- ---- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996
First Quarter - - - - - -
Second Quarter - - - - - -
Third Quarter - - - $11.50 $10.40 -
Fourth Quarter $19 $15 - 12.60 10.80 -
1997
16
First Quarter 20 7/8 5/8 - 14.50 12.50 -
15
Second Quarter (through April 25) 17 5/8 7/8 - 16.00 13.40 -
</TABLE>
On April 25, 1997, the last reported sale price of a common share of (i) SCI
was $20 1/8, (ii) ATLANTIC was $21 1/2, (iii) PTR was $22 3/4, (iv) Homestead
was $16 1/4 and (v) Security Capital USREALTY was $15.20. On April 25, 1997,
the Company owned (i) 43,086,724 common shares of SCI, (ii) 21,545,670 shares
of common stock of ATLANTIC, (iii) 27,389,833 common shares of PTR, (iv)
13,144,401 shares of common stock of Homestead and (v) 42,015,299 shares of
common stock of Security Capital USREALTY. For a description of certain
transactions which may affect the number of shares of common stock of such
companies owned by the Company, see "Business--The Proposed Mergers" and
"Relationships with Operating Companies--Homestead--Homestead Transaction."
Security Capital has announced that it may over time reduce its beneficial
ownership in ATLANTIC and Homestead to below 50%.
The following table presents the average annual return for all common share
investors in PTR, ATLANTIC, SCI and Security Capital USREALTY for the periods
indicated through March 31, 1997, based on the following principal assumptions:
(i) the beginning date of the measurement period is the date on which Security
Capital made its first investment in the applicable company, (ii) the
calculation includes all common share offerings at the time proceeds were
received by the applicable company since the beginning date of the measurement
period, (iii) dividends received, if any, were immediately reinvested in common
shares and (iv) the per share value of the investment on March 31, 1997 is
represented by the closing sales price of the common shares on such date on the
principal exchange on which the shares are listed. There can be no assurance
that comparable rates of return on investments will be obtained by Security
Capital or other investors in these companies in the future.
27
<PAGE>
<TABLE>
<CAPTION>
-------------------
BEGINNING
DATE OF AVERAGE
MEASUREMENT ANNUAL
PERIOD RETURN
----------- -------
<S> <C> <C>
PTR 02/28/91 26.4%
ATLANTIC 12/31/93 15.0%
SCI 12/31/92 24.9%
Security Capital USREALTY 10/31/95 40.8%
</TABLE>
The following table presents Security Capital's total cost for its investments
in the following companies' securities, the closing price of those securities
on March 31, 1997 on the principal exchange on which the securities are listed,
the aggregate market valuation of those securities based on such closing prices
and the unrealized appreciation on those investments at March 31, 1997:
<TABLE>
-----------------------------------------------------------------------------------------
<CAPTION>
SECURITY
MARKET VALUE TOTAL CAPITAL'S
TOTAL PER SHARE OR MARKET VALUE UNREALIZED
OPERATING COMPANY AND SECURITY COST BASIS WARRANT (1) (2) APPRECIATION
------------------------------ -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
SCI Common Shares $ 582,798,700 $20.875 $ 899,435,369 $316,636,668
PTR Common Shares 381,382,878 24.375 667,627,179 286,244,301
ATLANTIC Common Shares 417,712,317 22.250 479,391,158 61,678,841
Security Capital
USREALTY Common Shares 468,037,299 14.000 588,214,189 120,176,890
Homestead Common Shares 108,300,413 16.875 221,811,767 113,511,354
Homestead Warrants 15,976,286 7.250 21,030,235 5,053,949
-------------- -------------- ------------
Total at March 31, 1997 $1,974,207,893 $2,877,509,896 $903,302,003
============== ============== ============
</TABLE>
- --------
(1) Represents the closing price of the common shares and warrants on March 31,
1997 on the principal exchange on which the shares and warrants are listed.
(2) Represents the number of common shares and warrants owned by Security
Capital multiplied by the closing price for the common shares and warrants
on the principal exchange on which the shares and warrants are listed.
EMPLOYEES
After giving effect to the Mergers, it is expected that Security Capital will
have approximately 250 employees. Security Capital believes its relations with
its employees to be good.
COMPETITION
There are numerous developers, operators, real estate companies and other
owners of real estate that compete with Security Capital's operating companies
in seeking land for development on which to operate their respective
businesses. All of the properties of Security Capital's operating companies are
located in developed areas that include various competitors. The number of
competitive properties could have a material adverse effect on Security
Capital's operating companies and on the rents charged by them. Security
Capital's operating companies may be competing with others that have greater
resources and whose officers and directors have more experience than the
officers, directors and trustees of the Company's operating companies.
The global real estate securities management business of Security Capital will
compete for capital and investment opportunities with a large number of
investment management firms as well as certain insurance companies, commercial
banks and other financial institutions, some of which may have greater access
to capital and other resources and which may offer a wider range of services
than Security Capital. Real estate investment management firms can be formed
with relatively small amounts of capital and depend most significantly on the
continued
28
<PAGE>
involvement of their professional staff. The Company believes that competition
among real estate investment management firms is affected principally by
investment performance, development and implementation of investment
strategies, information technologies and databases and client service
performance.
TRADEMARKS AND SERVICE MARKS
The Company uses a number of trademarks, including "Security Capital" and
variants thereof. All trademarks, service marks and copyright registrations
associated with the business of the Company are registered in the name of the
Company and expire over various periods of time. Certain variants of the name
Security Capital will be licensed to ATLANTIC, PTR and SCI upon completion of
the Mergers. See "Relationships with Operating Companies" for a description of
the license agreements. The Company intends to defend vigorously against
infringement of its trademarks, service marks and copyrights.
PROPERTIES
The principal offices of Security Capital are located at 125 Lincoln Avenue in
Santa Fe, New Mexico and its telephone number is (505) 982-9292. Security
Capital's affiliate also has an administrative office at 7777 Market Center
Avenue in El Paso, Texas. The Santa Fe office is leased from an unaffiliated
third party and the El Paso office is leased from SCI at an annual rental of
$235,438. Security Capital and its affiliates operate out of other offices in
the United States (Atlanta, Chicago, Denver and New York) and Europe (Brussels,
London and Luxembourg). Although SCI, PTR, ATLANTIC and Homestead own an
extensive number of properties, no single property is materially important to
Security Capital and its subsidiaries.
LEGAL PROCEEDINGS
Security Capital and its subsidiaries are parties to certain legal proceedings
arising in the ordinary course of their business, none of which are expected to
have a material adverse impact on Security Capital.
THE PROPOSED MERGERS
In December 1996, management of Security Capital proposed to its Board that
Security Capital exchange its REIT management companies and property management
companies for common shares of ATLANTIC, PTR and SCI, respectively. In January
1997, based on the direction of its Board, Security Capital proposed to the
Board of Directors of ATLANTIC and the Board of Trustees of each of PTR and
SCI, that each of ATLANTIC, PTR and SCI become internally managed. On March 24,
1997, Security Capital and each of ATLANTIC, PTR and SCI entered into the
Merger Agreements. Pursuant to the Merger Agreements, Security Capital will
cause its affiliates providing REIT management and property management services
to each of ATLANTIC, PTR and SCI, respectively, to be merged into a newly
formed subsidiary of each such entity with the result that all personnel
employed in the REIT management and property management businesses would become
officers and employees of the REITs, respectively, as follows:
. Security Capital will transfer its interests in its wholly owned
subsidiaries, Security Capital (Atlantic) Incorporated and SCG Realty
Services Atlantic Incorporated (which provide Security Capital's REIT
management and property management services to ATLANTIC), to a newly
formed subsidiary of ATLANTIC in exchange for shares of ATLANTIC's
common stock valued at $54,608,549.
. Security Capital will transfer its interests in its wholly owned
subsidiaries, Security Capital Pacific Incorporated and SCG Realty
Services Incorporated (which provide Security Capital's REIT management
and property management services to PTR), to a newly formed subsidiary
of PTR in exchange for common shares of PTR valued at $75,838,457.
. Security Capital will transfer its interests in its wholly owned
subsidiaries, Security Capital Industrial Incorporated and SCI Client
Services Incorporated (which provide Security Capital's REIT management
and property management services to SCI), to a newly formed subsidiary
of SCI in exchange for common shares of SCI valued at $81,870,626.
. Security Capital will license to each of ATLANTIC, PTR and SCI the
trademarks and tradenames used in their respective businesses.
29
<PAGE>
. The shareholders of each of Security Capital, ATLANTIC, PTR and SCI must
approve the respective Merger Agreements. The shareholders of Security
Capital approved each Merger Agreement on April 17, 1997. It is
currently expected that the shareholder votes of ATLANTIC, PTR and SCI
will occur in the third quarter of 1997 and, if approved, the Mergers
are expected to close in that same quarter. The Mergers are also subject
to customary closing conditions.
. The number of shares of ATLANTIC common stock and common shares of PTR
and SCI to be issued to Security Capital will be based on the public
market value of the shares on the five-day period prior to the record
date for mailing proxy statements seeking shareholder approval for the
transactions, subject to the price being within an 11.24% range of the
closing price of the shares on March 14, 1997 ($23 1/4, $24 3/8 and $22
1/4 for ATLANTIC, PTR and SCI, respectively). If the price of the shares
falls outside of the range, then the number of shares issuable to
Security Capital will be based on the high or low end of the range, as
the case may be.
. In order to allow the common shareholders to maintain their relative
percentage ownership in ATLANTIC, PTR and SCI, respectively,
concurrently with the proxy solicitation seeking approval of the
Mergers, each of ATLANTIC, PTR and SCI will conduct a rights offering
entitling its common shareholders, other than Security Capital, to
purchase additional common shares. The rights offering price will be the
same price at which shares will be issued to Security Capital under the
respective Merger Agreements if the price of the shares falls within the
range described above. If the market price of the shares at the record
date for the rights offering is below the minimum price of the range,
the rights offering will be conducted at such market price, and if the
market price of the shares is above the maximum price of the range, the
rights offering will be conducted at the maximum price at which shares
will be issued to Security Capital pursuant to the transaction.
. As part of the transactions contemplated by the Merger Agreements, and
to permit the REIT shareholders to benefit from the Mergers on the same
basis as Security Capital equity holders, Security Capital will issue,
pro rata, Warrants to the common equity holders (e.g., holders of common
shares, convertible preferred shares and, in the case of SCI, units) of
each of ATLANTIC, PTR and SCI, other than Security Capital, after the
closing of the Mergers. If all the Mergers are approved by their
respective shareholders, Security Capital will issue, pro rata, Warrants
to acquire an aggregate of $250 million of its Class B Shares. The
number of Class B Shares subject to the Warrants will be based on the
market price of the Class B Shares on a date within approximately 60
days following the closing of the Mergers. The Warrants will each be
exercisable at an exercise price based on the price of the Class B
Shares on a date to be established following the completion of the
Offering. It is expected that application will be made to list the
Warrants on the NYSE, although there can be no assurance that the
Warrants will be listed. The Warrants will expire one year after
issuance and will contain customary anti-dilution provisions.
30
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following are Security Capital's directors and executive officers of
Security Capital or certain affiliates:
<TABLE>
<CAPTION>
YEAR OF
EXPIRATION OF
NAME AGE POSITION TERM AS DIRECTOR
- -------------------------------------------------------------------------------
<C> <C> <S> <C>
Samuel W. Bodman 58 Director 2000
Hermann Buerger 53 Director 2000
John P. Frazee, Jr. 52 Director 2000
Cyrus F. Freidheim, Jr. 61 Director 1998
H. Laurance Fuller 58 Director 1998
Ray L. Hunt 54 Director 1998
John T. Kelley III 56 Director 1999
William D. Sanders* 55 Chairman, Chief Executive 1999
Officer and Director
Peter S. Willmott 59 Director 1999
C. Ronald Blankenship* 47 Managing Director, Security -
Capital
Jeffrey A. Cozad 32 Managing Director, Security -
Capital USREALTY
C. Robert Heaton 51 Senior Vice President, Security -
Capital
W. Joseph Houlihan 46 Managing Director, Security -
Capital (EU) Investment
Research Group
Jeffrey A. Klopf 48 Senior Vice President and -
Secretary, Security Capital
Anthony R. Manno, Jr. 45 Managing Director, Security -
Capital Investment Research
Group
Caroline S. McBride 43 Managing Director, Security -
Capital Strategic Group
Daniel F. Miranda 43 Managing Director, Security -
Capital Investment Research
Group
Mary Lou Rogers 45 Managing Director, Security -
Capital Strategic Group
Paul E. Szurek 36 Managing Director, Security -
Capital USREALTY
Thomas G. Wattles* 45 Managing Director, Security -
Capital
</TABLE>
- --------
*Member of the Operating Committee
SAMUEL W. BODMAN. Chairman and Chief Executive Officer of Cabot Corporation
since 1988, a company with business in energy and specialty chemicals and
materials. Prior thereto, Mr. Bodman was President and Chief Operating Officer
of FMR Corporation, the holding company overseeing all activities of Fidelity
Investments. Prior thereto, Mr. Bodman was an Associate Professor at the
Massachusetts Institute of Technology ("M.I.T.") and Technical Director of
American Research and Development Corporation. Mr. Bodman is a director of
Cabot Corporation, Cabot Oil & Gas Corporation, John Hancock Mutual Life
Insurance Company and Westvaco, Inc. He is also a member of the Executive
Committee of the Board of Trustees of M.I.T., a member of the American Academy
of Arts and Sciences, a trustee of Isabella Stewart Gardner Museum, a trustee
of the New England Aquarium and a trustee of The French Library and Cultural
Center.
HERMANN BUERGER. Executive Vice President of Commerzbank AG in New York, a
position he has held since 1989. Mr. Buerger is also Co-Chairman of the
Business Advisory Committee of the American Council on Germany, a trustee of
the Virginia Tech Foundation and is a director of United Dominion Industries.
Mr. Buerger was previously Vice Chairman of the Institute of International
Bankers.
JOHN P. FRAZEE, JR. Formerly President and Chief Operating Officer of Sprint
Corporation and, prior to the March 1993 merger with Sprint, the Chairman and
Chief Executive Officer of Centel Corporation, a major telecommunications
company he joined in 1972. Mr. Frazee is a director of Cable Satellite Public
Affairs Network ("C-SPAN"), Nalco Chemical Company, Dean Foods Company,
Homestead and Paging Network, Inc. Mr. Frazee is also a member of the board of
trustees of the Foundation for Independent Higher Education and a trustee of
Rush-Presbyterian-St. Luke's Medical Center, The Newberry Library and Florida
State University.
CYRUS F. FREIDHEIM, JR. Vice Chairman of Booz . Allen & Hamilton, Inc., an
international management consulting firm, which he joined in 1966. Previously,
he was with Ford Motor Company and Price Waterhouse. Mr. Freidheim is a
director of Household International Inc. and LaSalle Street Fund. He is also a
trustee of Rush-Presbyterian-St. Luke's Medical Center and The Orchestral
Association (the Chicago Symphony Orchestra). He is also a member of the
America-China Society, the Council on Foreign Relations and the U.S. Japan
Business Council.
31
<PAGE>
H. LAURANCE FULLER. Chairman and Chief Executive Officer of Amoco Corporation,
a company he joined in 1961. Mr. Fuller is a director of Abbott Laboratories,
the Chase Manhattan Corporation, the Chase Manhattan Bank, N.A., Motorola
Corporation, the American Petroleum Institute and the Rehabilitation Institute
of Chicago. Mr. Fuller is also a trustee of The Orchestral Association (the
Chicago Symphony Orchestra) and a member of the University Council of Cornell
University.
RAY L. HUNT. President of Hunt Consolidated, Inc. since April 1981, where he
has also been Chief Executive Officer since November 1984 and Chairman since
June 1986. Chief Executive Officer of Hunt Oil Company since April 1985 and
Chairman since June 1986. Mr. Hunt is a director of Electronic Data Systems
Corporation, Dresser Industries, Inc., Pepsico, Inc. and Ergo Science
Corporation and is a member of the advisory board of Texas Commerce Bank, N.A.
Mr. Hunt serves as a member of the board of trustees of Southern Methodist
University, is a trustee of the Center for Strategic and International Studies,
serves on the board of directors of the Texas Research League and the
Southwestern Legal Foundation, is the chairman of Texas Medical Resource and a
member of the executive committee of the Southwestern Medical Foundation in
Dallas.
JOHN T. KELLEY III. Founding officer of SCI, trustee of PTR since January 1988,
an advisory trustee of SCI since December 1993 and Chairman of PACIFIC RETAIL.
From 1987 to 1991, Mr. Kelley was Chairman of the Board of Kelley-Harris
Company, Inc., El Paso, a real estate investment company and from 1968 to 1987,
Managing Director of LaSalle Partners Limited, specializing in corporate real
estate services. Mr. Kelley is a director of Tri State Media.
WILLIAM D. SANDERS. Founder, Chairman and Chief Executive Officer of Security
Capital. Previously, Mr. Sanders was Chairman and Chief Executive Officer of
LaSalle Partners Limited from 1968 through 1989. Mr. Sanders currently serves
as a director of CarrAmerica, R.R. Donnelley & Sons Company, Security Capital
USREALTY and Storage USA. He is also an advisory director of REGENCY. He is a
member of the Board of Governors of the National Association of Real Estate
Investment Trusts ("NAREIT"). He was previously a director of Continental Bank
Corporation, King Ranch, Inc., and Lone Star Technologies. He has also served
as a trustee of the University of Chicago and a trustee fellow of Cornell
University.
PETER S. WILLMOTT. President and Chief Executive Officer of Zenith Electronics
Corporation since July 1996, and Chairman and Chief Executive Officer of
Willmott Services, Inc. since 1989. Prior to that, Mr. Willmott was Chairman,
President and Chief Executive Officer of Carson Pirie Scott & Co. and, prior
thereto, President and Chief Operating Officer of Federal Express Corporation.
Mr. Willmott is a director of Federal Express Corporation and Zenith
Electronics Corporation. He is also Chairman of the Executive Committee of
Williams College.
C. RONALD BLANKENSHIP. Managing Director of Security Capital since March 1991
and Chairman of PTR since June 1991. After PTR's 1997 annual meeting of
shareholders, Mr. Blankenship will become the Non-Executive Chairman of PTR.
Mr. Blankenship is a director of Strategic Hotel Capital Incorporated and an
advisory director of ATLANTIC and Homestead. From July 1988 until June 1991,
Mr. Blankenship was a regional partner with Trammell Crow Residential in
Chicago, a multifamily real estate development and property management firm.
Prior thereto, Mr. Blankenship was Executive Vice-President and Chief Financial
Officer of the Mischer Corporation in Houston, a multi-business holding company
with investments primarily in real estate.
JEFFREY A. COZAD. Managing Director of Security Capital USREALTY, Security
Capital (EU) Management Group S.A. and Security Capital (UK) Management Limited
since June 1996 and located in London, where he is responsible for investment
oversight, capital markets and investor relations. Previously, he was a Senior
Vice President of Security Capital Markets Group in its New York office where
he was a co-head of capital markets activities and where he provided capital
markets services for affiliates of Security Capital since 1991. Mr. Cozad is a
general securities principal registered with the National Association of
Securities Dealers, Inc. (the "NASD").
C. ROBERT HEATON. Senior Vice President for Human Capital for Security Capital
since March 1996 where he is responsible for the recruitment, performance
measurement, compensation and development of the firm's employees. Prior
thereto, Senior Vice President with Right Management Consultants, Inc., a
worldwide career management and human resources consulting firm from March 1994
to February 1996. Prior thereto, Managing Director and Member of the Executive
Committee, LaSalle Partners Limited, from June 1976 to February 1994.
W. JOSEPH HOULIHAN. Managing Director of Security Capital (EU) Investment
Research Group S.A. since April 1997 and located in Brussels, where he is
responsible for global investment research and strategic investments;
32
<PAGE>
former Director of Security Capital USREALTY from July 1995 to April 1997.
Prior thereto, he was Executive Vice President and Director of Institutional
Management Group at GIM Algemeen Vermogensbeheer ("GIM"), a Netherlands-based
investment management company where he specialized in publicly traded real
estate investments since joining GIM in 1977.
JEFFREY A. KLOPF. Senior Vice President and Secretary of Security Capital since
January 1996; from January 1988 to December 1995, Partner with Mayer, Brown &
Platt, where he practiced corporate and securities law. Mr. Klopf provides
securities offering and corporate acquisitions services and legal services to
Security Capital and its operating companies.
ANTHONY R. MANNO, JR. Managing Director of the Investment Research Group since
March 1997, where he is responsible for overseeing all investment and capital
allocation matters for Investment Research Group's public market securities
activities and also responsible for company and industry analysis, market
strategy and trading and reporting; from January 1995 to March 1997, he was
Managing Director of Security Capital Investment Research Group Incorporated,
where he performed the same functions. Mr. Manno was a member of Security
Capital's Investment Committee from March 1994 to June 1996. Prior to joining
Security Capital, Mr. Manno was a Managing Director of LaSalle Partners Limited
from March 1980 to March 1994.
CAROLINE S. MCBRIDE. Managing Director of the Strategic Group since March 1997;
Managing Director of Security Capital Investment Research Incorporated where
she is responsible for investment oversight of strategic investments in public
and private U.S. real estate operating companies. Prior to joining Security
Capital Investment Research Incorporated in June 1996, Mrs. McBride was with
IBM from July 1978 to May 1996. From 1994 to 1996 she was director of private
market investments for the IBM Retirement Fund where she was responsible for a
$3.7 billion real estate portfolio. Prior thereto, Mrs. McBride was director of
Finance, Investments and Asset Management for IBM's corporate real estate
division. Mrs. McBride is on the Board of Directors of the Pension Real Estate
Association (PREA), the Real Estate Research Institute and CarrAmerica.
DANIEL F. MIRANDA. Managing Director of the Investment Research Group since
March 1997; from September 1996 to March 1997 Managing Director of Security
Capital Investment Research Group Incorporated where he is responsible for
operating oversight of various investments relating to public and private U.S.
real estate operating companies. Prior thereto, Mr. Miranda was regional vice
president and later a managing director of General Electric Capital Real Estate
Finance and Services from September 1991 to September 1996, where he was
responsible for a real estate portfolio in the fourteen-state Midwest region.
MARY LOU ROGERS. Managing Director of the Strategic Group since March 31, 1997,
where she is responsible for the development of retail operating systems for
all of Security Capital's retailing-related initiatives. Prior thereto, she was
Senior Vice President and Director of Stores - New England for Macy's
East/Federated Department Stores, where she was responsible for 19 Macy's
stores in five states from November 1995 to March 1997; Senior Vice President
and Director of Stores--Atlanta for Macy's East/Federated Department Stores
from October 1994 to November 1995; Senior Vice President and Director of
Stores for Henri Bendel from November 1993 to October 1994 and Senior Vice
President and Regional Director of stores for Burdines Division/Federated
Department Stores from January 1986 to November 1993.
PAUL E. SZUREK. Managing Director of Security Capital USREALTY, Security
Capital (EU) Management Group S.A. and Security Capital (UK) Management Limited
since January 1996 and located in London, where he is responsible for
operations, corporate finance and mergers and acquisitions. Prior thereto, Mr.
Szurek was Senior Vice President of Security Capital from June 1993 to January
1996 where he supervised corporate finance and corporate acquisitions and
oversaw legal services for affiliates of the Company. Mr. Szurek was Vice
President of Security Capital from April 1991 to June 1993.
THOMAS G. WATTLES. Managing Director of Security Capital since March 1991 and a
trustee of SCI since January 1993; he was a director of SCI's predecessor since
its formation in June 1991 and has been Non-Executive Chairman of SCI since
March 1997; prior thereto, a Co-Chairman and Chief Investment Officer of SCI
and the SCI REIT Manager (as defined below) since November 1993; Managing
Director of SCI and the SCI REIT Manager from January 1993 to November 1993,
and Director of the SCI REIT Manager since June 1991. From January 1991 to
December 1992, Mr. Wattles served as Managing Director of the PTR REIT Manager
(as defined below); from July 1989 to December 1990, Managing Partner of
Stanwich Advisors Incorporated, a real estate advisory and development services
company; from July 1985 to June 1989, Senior Vice President--Property Finance
Group of LaSalle Partners Limited, a corporate real estate services entity.
33
<PAGE>
SENIOR OFFICERS OF SECURITY CAPITAL AND CERTAIN AFFILIATES AFTER THE MERGERS
ARIEL AMIR--37--Vice President of Security Capital since June 1994 where he
provides securities offering and corporate acquisition services for affiliates
of the Company. Prior to joining Security Capital, Mr. Amir was an associate
attorney with the law firm of Weil, Gotshal & Manges in New York from September
1985 to April 1994 where he practiced securities and corporate law.
DARCY B. BORIS--34--Vice President of the Real Estate Research Group where she
conducts strategic market analyses for affiliates of Security Capital. Prior
thereto, Vice President of Security Capital Investment Research Incorporated
from June 1995 until March 1997, and an associate from December 1994 to June
1995. Prior thereto, Ms. Boris was with Security Capital Markets Group from
August 1993 to November 1994, where she provided capital markets services for
affiliates of the Company. Prior to joining Security Capital Markets Group, Ms.
Boris was associated with Summerhill Development Company, the multifamily
development subsidiary of Marcus & Millichap, Incorporated, from January 1987
to September 1991 where she managed the development of multifamily housing.
K. SCOTT CANON--35--Vice President of Security Capital Markets Group since
March 1997 and from August 1993 to January 1996, President of Security Capital
Markets Group from January 1996 to March 1997 and a member of Security Capital
Markets Group since March 1992, where he participates in capital markets and
institutional investor relations. Mr. Canon is a general securities principal
registered with the NASD.
MARK J. CHAPMAN--39--President of the Real Estate Research Group where he is
director of the group and conducts strategic market analyses for affiliates of
Security Capital. Prior thereto, Vice President of Security Capital Investment
Research Incorporated from November 1995 until March 1997. From November 1994
to November 1995, Mr. Chapman was a Vice President of PTR with asset management
responsibilities in five major markets. From July 1989 to November 1994, Mr.
Chapman was a Vice President at Copley Real Estate Advisors, Inc. where he
directed asset management for Copley assets located from Connecticut to
Virginia.
JAYSON C. CYR--48--Vice President of SCGroup since October 1994, where he
supervises accounting and financial reporting. Prior to joining Security
Capital, Mr. Cyr was controller for Lincoln Property Company from June 1990 to
June 1994.
ROBERT H. FIPPINGER--53--Vice President of Security Capital Markets Group since
June 1995, where he directs corporate communications services for affiliates of
Security Capital. Prior thereto, Mr. Fippinger headed corporate communication
services for affiliates of Security Capital from October 1994 to June 1995.
Prior to joining Security Capital, Mr. Fippinger was with Grubb & Ellis, in San
Francisco, California from November 1991 to October 1994, where he represented
corporate clients and provided tenant advisory services.
JEFFREY S. GOTTLIEB--38--Vice President of SCGroup since October 1994 where he
directs tax consulting and compliance services for affiliates of Security
Capital. Prior thereto, Mr. Gottlieb was Vice President of Security Capital
from October 1993 to October 1994. Prior to joining Security Capital, Mr.
Gottlieb was a senior tax manager with Coopers & Lybrand in Orlando, from
January 1991 to October 1993, where he was responsible for its central Florida
real estate practice.
GERARD DE GUNZBURG--49--Senior Vice President of Security Capital Markets Group
in its New York office since January 1997 where he provides capital markets
services for affiliates of Security Capital. Prior thereto, Mr. de Gunzburg was
Vice President of Security Capital Markets Group from January 1993 to January
1997. From June 1988 to December 1992, Mr. de Gunzburg was a consultant for
American and European companies. Mr. de Gunzburg is a general securities
principal registered with the NASD.
ALISON C. HEFELE--37--Vice President of Security Capital Markets Group in its
New York office since February 1994 where she provides capital markets services
for affiliates of Security Capital. Ms. Hefele is registered with the NASD.
Prior to joining Security Capital Markets Group, Ms. Hefele was a vice
president of Prudential Real Estate Investors from January 1990 to February
1994. She is a general securities representative registered with the NASD.
GARRET C. HOUSE--32--Vice President of Security Capital Markets Group since
September 1996 where he assists with financing activities for affiliates of the
Company. From May 1994 to August 1996, he assisted with financing activities
for affiliates of Security Capital and prior thereto, Mr. House was a member of
Security Capital's
34
<PAGE>
Management Development Program from May 1993 to May 1994. He is a general
securities representative registered with the NASD.
G. RONALD LESTER--39--Vice President of SCGroup since December 1993 where he
directs internal audit activities for affiliates of the Company. Prior to
joining Security Capital, Mr. Lester was a corporate audit manager for El Paso
Natural Gas Co. from April 1989 to December 1993 where he was responsible for
conducting financial, operational and electronic data processing audits for all
functions and subsidiaries of the corporation.
ROBERT I.S. MEYER--37--Vice President of Security Capital USREALTY, Security
Capital (EU) Management Group S.A. and Security Capital (UK) Management Limited
since April 1997 and located in London, where he is a member of the corporate
finance team. Prior thereto, he was Vice President of J.P. Morgan Securities
Limited from June 1993 to March 1997, where he was responsible for capital
markets origination among German financial institutions and corporations; from
June 1992 to May 1993, Mr. Meyer was with J.P. Morgan's venture/private equity
investment division.
GERALD R. MORGAN, JR.--34--Vice President of Security Capital since March 1995
where he is involved in treasury and corporate finance for affiliates of the
Company. Prior thereto, Mr. Morgan was in Security Capital's management
development program since July 1993.
JAMES H. POLK III--54--President of Security Capital Markets Group since March
1997 where he provides capital markets services for affiliates of the Company;
prior thereto, Managing Director of Security Capital Markets Group from August
1992 to March 1997. Mr. Polk is also a Trustee of PTR. Prior to joining
Security Capital Markets Group, Mr. Polk was President of PTR for 16 years and
past president and member of the Board of Governors of NAREIT. Mr. Polk is a
general securities principal registered with the NASD.
DAVID A. ROTH--30--Vice President of Security Capital USREALTY, Security
Capital (EU) Management Group S.A. and Security Capital (UK) Management Limited
since April 1997 and located in London, where he is responsible for mergers and
acquisitions. From October 1995 to March 1997, Mr. Roth was Vice President of
Investment Research Group, where he was responsible for researching corporate
and portfolio acquisitions. Prior thereto, he was an associate attorney with
the law firm of Wachtell, Lipton, Rosen and Katz in New York from December 1993
to October 1995, where he practiced securities and corporate law.
GERIOS ROVERS--34--Vice President of Security Capital (EU) Investment Research
Group S.A. since April 1997 and located in Brussels, where he participates in
global investment research; prior thereto, from July 1988 to March 1997, he was
an associate director of GIM Algemeen Vermogensbeheer responsible for client
servicing, client acquisition, portfolio management and research of publicly
traded real estate securities worldwide.
KENNETH D. STATZ--38--Senior Vice President of the Investment Research Group
since March 1997; Senior Vice President of Security Capital Investment Research
Incorporated since July 1996 where he is responsible for the development and
implementation of portfolio investment strategy. Prior thereto, Vice President
from May 1995 to June 1996. Prior to joining Security Capital, Mr. Statz was a
Vice President in the investment research department of Goldman, Sachs & Co.,
from February 1993 to January 1995, concentrating on research and underwriting
for the REIT industry. Prior thereto, Mr. Statz was a real estate stock
portfolio manager and a managing director of Chancellor Capital Management from
August 1982 to February 1992.
DONALD E. SUTER--40--Senior Vice President of Security Capital Markets Group
since May 1996 where he provides capital markets services for affiliates of
Security Capital; from October 1995 to April 1996, Mr. Suter was President and
Chief Operating Officer for Cullinan Properties Limited in Peoria, Illinois;
from July 1984 to October 1995, Mr. Suter was with LaSalle Partners Limited in
Chicago, Illinois where his last position held was Senior Vice President,
Corporate Finance Group. Mr. Suter is a general securities principal registered
with the NASD.
ROBERT S. UNDERHILL--41--Senior Vice President of the Strategic Group since
March 1997 and Senior Vice President of Security Capital Investment Research
Incorporated where he is responsible for researching corporate and portfolio
acquisitions. Mr. Underhill was a consultant for affiliates of Security Capital
from November 1994 to February 1995. Prior to joining Security Capital, Mr.
Underhill was a Senior Vice President of LaSalle Partners Limited from
September 1984 to October 1994 where he was responsible for the investment
management of a portfolio of office and retail properties.
35
<PAGE>
ANDREW N. WALKER--34--Vice President of Security Capital USREALTY, Security
Capital (EU) Management Group S.A. and Security Capital (UK) Management Limited
since March 1997 and located in London, where he is a member of the corporate
finance team. Prior thereto, from February 1995 to February 1997, he was a
European property analyst for Paribas Capital Markets; from May 1991 to January
1995, he was a managing director of Institutional Property Forecasting Services
in the U.K., a privately-held real estate research firm in England; and from
February 1991 to May 1991, he was a property analyst with S.G. Warburg
Securities (Japan) Ltd.
CLASSIFICATION OF DIRECTORS
Pursuant to the terms of the Charter, the directors are divided into three
classes. One class will hold office for a term expiring at the annual meeting
of shareholders to be held in 1998 (consisting of Messrs. Freidheim, Fuller and
Hunt), a second class will hold office for a term expiring at the annual
meeting of shareholders to be held in 1999 (consisting of Messrs. Kelley,
Sanders and Willmott), and a third class will hold office for a term expiring
at the annual meeting of shareholders to be held in 2000 (consisting of Messrs.
Bodman, Buerger and Frazee). Each director will hold office for the term to
which he or she is elected and until his or her successor is duly elected and
qualified. At each annual meeting of shareholders of Security Capital, the
successors to the class of directors whose terms expire at such meeting will be
elected to hold office for a term expiring at the annual meeting of
shareholders held in the third year following the year of their election. See
"Certain Provisions of Maryland Law and of Security Capital's Charter and
Bylaws."
COMMITTEES OF THE BOARD
The Board has established an Audit Committee consisting of Messrs. Fuller
(Chairman), Buerger, Freidheim and Willmott, each an independent director. The
Audit Committee makes recommendations concerning the engagement of independent
public accountants, reviews the plans and results of the audit engagement with
the independent public accountants, approves professional services provided by
the independent public accountants, reviews the independence of the independent
public accountants, considers the range of audit and non-audit fees and reviews
the adequacy of Security Capital's internal accounting controls.
The Board has established a Management Development and Compensation Committee
(the "Compensation Committee") consisting of Messrs. Bodman (Chairman), Kelley
and Frazee, each an independent director. The Compensation Committee reviews
and approves compensation arrangements and plans of Security Capital and it
administers the various option plans of Security Capital described below.
The Board has established an Executive Committee consisting of Messrs. Sanders
(Chairman), Hunt and Frazee. The Executive Committee has full authority to act
on behalf of the Board between regular meetings of the Board, except with
respect to securities offerings.
COMPENSATION OF DIRECTORS
Security Capital pays an annual retainer of $35,000 to directors who are not
officers or employees of Security Capital or its affiliates; such amount is
paid quarterly to the directors in cash or, at the election of the director,
Class A Shares based on the then current fair market value of the Class A
Shares. Non-employee chairpersons of Board committees receive an additional
annual retainer of $3,000 payable in cash. Officers of Security Capital or its
affiliates who are directors are not paid any director fees.
In addition, pursuant to the Outside Directors Plan (as defined below), each
director who is not an employee of Security Capital or its affiliates is
entitled to receive, on January 1 of each year, an option to purchase 150 Class
A Shares at a price per Class A Share equal to the fair market value (as
defined) of one Class A Share on such date. See "--Outside Directors Plan."
Directors are reimbursed for any out-of-town travel expenses incurred in
connection with attendance at Board meetings.
INDEMNIFICATION
See "Certain Provisions of Maryland Law and of Security Capital's Charter and
Bylaws--Director Liability Limitation and Indemnification" for a description of
the applicable indemnification provisions.
36
<PAGE>
EXECUTIVE COMPENSATION
The following table presents the compensation for 1996 paid to the Chief
Executive Officer and the four other most highly compensated executive officers
of Security Capital and certain affiliates (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
----------------------------------------------------------
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------ ------------------------
SECURITIES
UNDERLYING
RESTRICTED STOCK
OTHER ANNUAL STOCK OPTIONS ALL OTHER
NAME AND POSITION SALARY BONUS COMPENSATION AWARDS (#) COMPENSATION
- ----------------- -------- -------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
William D. Sanders--
Chairman and Chief
Executive Officer $210,000 $404,000 - - - -
C. Ronald Blankenship--
Managing Director of
Security Capital and
Chairman of PTR 203,000 397,000 - - - -
Thomas G. Wattles--
Managing Director of
Security Capital and
Co-Chairman of SCI 197,000 353,000 - - - -
K. Dane Brooksher--
Co-Chairman and Chief
Operating Officer of
SCI 207,000 268,000 - - - -
David C. Dressler, Jr.--
Co-Chairman, President
and Chief Investment
Officer of Homestead 195,000 285,000 - - (1) - -
</TABLE>
- --------
(1) Does not include 25,000 restricted shares of Homestead common stock
purchased, and options to purchase 60,000 shares of Homestead common stock
granted, in October 1996.
37
<PAGE>
Option Grants
During 1996, options for 47,982 Class A Shares were granted by the Compensation
Committee to 224 key employees and officers of Security Capital and its
subsidiaries at exercise prices equal to $1,139 per Class A Share for 43,314
shares and from between $985 and $1,126 per Class A Share for 4,668 shares. The
following table sets forth certain information with respect to individual
grants of options to each of the Named Executive Officers.
---------------------------------------------
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------
PERCENT OF
CLASS A SHARES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE OR GRANT
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION DATE PRESENT
NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE VALUE (1)
- ---- -------------- ------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
William D. Sanders 1,097.5 2.29% $1,139 12/3/06 $497,705
C. Ronald Blankenship 1,031.6 2.15 1,139 12/3/06 467,843
Thomas G. Wattles 921.9 1.92 1,139 12/3/06 418,072
K. Dane Brooksher 658.5 1.37 1,139 12/3/06 298,623
David C. Dressler,
Jr.(2) 439.0 .91 1,139 12/3/06 199,082
</TABLE>
- --------
(1) The amounts shown are based on the Black-Scholes option pricing model. The
material assumptions incorporated in the Black-Scholes model for estimating the
value of the options include the following: exercise prices of $1,139 equal to
the estimated fair market value of the Class A Shares on the date of grant;
average expected option term of seven years; interest rate of 6.32% which
represents the interest rate on the date of grant on a U.S. Treasury security
with a maturity date corresponding to the option term; expected volatility of
20% calculated based on (i) the annualized weekly volatility of Berkshire
Hathaway Class B shares over the period of May 1996 to February 1997, (ii)
monthly Class A Shares estimated fair market values for 1995 and 1996, (iii)
consideration of the volatility of various publicly traded REITs and (iv) an
estimate of Security Capital's weighted-average volatility; and dividends at
the rate of $0 per Class A Share. The actual value, if any, an option holder
will realize upon exercise of an option will depend on the excess of the market
value of the Company's Class A Shares over the exercise price on the date the
option is exercised. There is no assurance the value realized by an option
holder will be at or near the value estimated by the Black-Scholes model.
(2) Does not include options to purchase 60,000 shares of Homestead common
stock at $10 per share which were granted on October 15, 1996, and which expire
on October 15, 2006.
Aggregated Option Exercises in 1996 and Year-End Option Values
The following table sets forth certain information concerning the year-end
value on a fully converted basis of unexercised options owned by such executive
officers.
--------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER/AMOUNT OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS AT YEAR-END
--------------------------------------------------- VALUE OF UNEXERCISED
CLASS A CLASS A 2014 CONVERTIBLE IN-THE-MONEY OPTIONS AT
SHARES SHARE OPTIONS (#) DEBENTURE OPTIONS DECEMBER 31, 1996 (1)
ACQUIRED ON VALUE ------------------------- ------------------------- -------------------------
NAME EXERCISE (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ -------- ----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William D.
Sanders(2) - - 3,816.8 1,694.0 $2,160,243 $ 409,500 $4,300,573 $ 356,110
C. Ronald
Blankenship - - 3,558.8 2,955.4 2,014,341 1,071,792 4,010,002 1,868,414
Thomas G. Wattles - - 2,918.5 1,564.1 1,651,728 874,547 3,288,369 1,491,834
K. Dane Brooksher - - 854.6 2,583.3 426,000 1,362,449 960,971 2,687,823
David C. Dressler, Jr.(3) - - 1,330.3 2,101.2 752,979 998,776 2,536,038 3,239,374
</TABLE>
- --------
(1) Based on a December 31, 1996 estimate of net asset value of $1,237 per
Class A Share.
(2) Mr. Sanders also had exercisable warrants for 17,993 Class A Shares and
$10,179,812 of 2014 Convertible Debentures on December 31, 1996. See "Certain
Relationships and Transactions."
(3) Does not include options to purchase 60,000 shares of Homestead common
stock at $10 per share. The closing price of Homestead common stock on December
31, 1996 was $18 per share. None of these options were exercisable at December
31, 1996.
38
<PAGE>
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Security Capital has no employment contracts with any executive officer and no
plans or arrangements by which any such executive officer will be compensated
as a result of his resignation or retirement or any other termination of his
employment with Security Capital and its subsidiaries or, except as described
below under "--1995 Option Plan," in connection with a change in control of
Security Capital.
OUTSIDE DIRECTORS PLAN
On September 17, 1996, the Board approved the Security Capital Group
Incorporated Outside Directors Plan (the "Outside Directors Plan"). The Outside
Directors Plan has been filed as an exhibit to the registration statement of
which this Prospectus forms a part and the following summary of the material
terms of the Outside Directors Plan is qualified in its entirety by reference
to the actual terms thereof.
The purpose of the Outside Directors Plan is to enable the directors of
Security Capital who are not employees or officers of Security Capital or any
of its affiliates ("Outside Directors") to increase their ownership of Security
Capital and thereby further the identity of their interests with those of
Security Capital's other shareholders. To achieve the foregoing objective, the
Outside Directors Plan provides for grants of options ("Options") to purchase
Class A Shares. The Secretary of Security Capital (the "Administrator")
administers the Outside Directors Plan with a view to Security Capital's best
interests and the Outside Directors Plan's objectives. The Administrator has
authority to adopt administrative guidelines, rules and regulations relating to
the Outside Directors Plan and to make all determinations necessary or
advisable for the implementation and administration of the Outside Directors
Plan.
The number of Class A Shares reserved for issuance upon exercise of Options
granted under the Outside Directors Plan is 7,000. The Class A Shares subject
to the Outside Directors Plan may be currently authorized but unissued Class A
Shares or treasury Class A Shares held or subsequently purchased by Security
Capital, including Class A Shares purchased in the open market or in private
transactions. If Security Capital shall effect any subdivision or consolidation
of Class A Shares, payment of a stock dividend, stock split, combination of
Class A Shares or recapitalization or other increase or reduction of the number
of Class A Shares outstanding without receiving compensation therefor in money,
services or property, then the Administrator shall adjust: (i) the number of
Class A Shares available under the Outside Directors Plan; (ii) the number of
Class A Shares available under any Outside Directors Plan limits; (iii) the
number of Class A Shares subject to any outstanding Options; (iv) the number of
Class A Shares subject to future grant; and (v) the per share exercise price
under any outstanding Option.
On September 17, 1996, each Outside Director was granted an option to purchase
150 Class A Shares at an exercise price of $1,066 per share, except a recently
appointed Outside Director who was granted options to purchase 75 Class A
Shares at an exercise price of $1,066 per share, the fair market value of the
Class A Shares on the date of the grant. On January 1, 1997, each Outside
Director was granted an Option to purchase 150 Class A Shares at an exercise
price of $1,237 per share, the fair market value of the Class A Shares on such
date. On January 1 of each year, an Outside Director serving on such date will
be granted an Option to purchase 150 Class A Shares at an exercise price equal
to the fair market value of the Class A Shares on such date. In the event an
Outside Director is appointed during the year, such person will receive an
award reduced to reflect the portion of the year such person will serve as an
Outside Director.
Each Option becomes exercisable one year from the date of grant, or earlier in
the event of death or disability of the director. Each Option shall expire on
the earlier of: (i) the ten-year anniversary of the date of grant; (ii) the
three-month anniversary of the director's termination for any reason other than
death, disability or retirement; or (iii) the one-year anniversary of the
director's termination by death, disability or retirement. Options are not
transferable prior to exercise, except as designated by the director by will or
by the laws of descent and distribution. Notwithstanding the previous sentence,
the Administrator may permit Options under the Outside Directors Plan to be
transferred to or for the benefit of the director's family.
If Security Capital is reorganized, merged or consolidated or is party to a
plan or exchange with another corporation, pursuant to which reorganization,
merger, consolidation or plan of exchange the shareholders of Security Capital
receive any shares of stock or other securities or property, or Security
Capital shall distribute securities of another corporation to its shareholders,
there shall be substituted for the Class A Shares subject to outstanding
Options an appropriate number of shares of each class of stock or amount of
other securities or property which were distributed to the shareholders of
Security Capital in respect of such Class A Shares; provided that, upon the
occurrence of a reorganization of Security Capital or any other event described
in this paragraph, any successor to Security Capital shall be substituted for
Security Capital.
39
<PAGE>
The Outside Directors Plan was approved by the shareholders of Security Capital
at a special meeting of shareholders in April 1997 and may be amended or
terminated at any time by the Board.
1995 OPTION PLAN
The following description of certain provisions of the Security Capital Group
Incorporated 1995 Option Plan (the "1995 Option Plan") is qualified in its
entirety by reference to the 1995 Option Plan, a copy of which is filed as an
exhibit to this registration statement.
General
With respect to Options granted prior to December 3, 1996, the 1995 Option Plan
provided for the granting of Options to purchase Class A Shares in tandem with
Options to purchase 2014 Convertible Debentures. The Options must be exercised
in tandem and must be in a unit. With respect to Options granted on or after
December 3, 1996, the 1995 Option Plan provides for the granting of Options to
purchase only Class A Shares. The Compensation Committee administers the 1995
Option Plan. The Compensation Committee determines the key and emerging key
employees of Security Capital or its subsidiaries or affiliates to whom awards
under the 1995 Option Plan will be granted ("Participants") and the terms and
conditions of such awards. Each member of the Compensation Committee must be a
"non-employee" as such term is defined in Rule 16b-3 promulgated under Section
16 of the Exchange Act.
Options
An Option may be granted so as to qualify for treatment as an incentive stock
option (an "Incentive Option") pursuant to Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), or so as not to so qualify (a "Non-
Qualified Option"). The exercise price (the "Option Price") for each Option
shall be determined by the Compensation Committee and shall not be less than
the greater of the fair market value of the underlying Class A Shares on the
date of the grant of the Option or the par value of the underlying shares. The
full purchase price of each Class A Share and 2014 Convertible Debentures
purchased upon the exercise of any Option shall be paid at the time of
exercise. The Option Price shall be payable in cash. In addition, Participants
who own Class A Shares and 2014 Convertible Debentures for at least six months
may surrender such shares or debentures (valued at fair market value as of the
day such shares or debentures are tendered) for all or a portion of the Option
Price. No Option may be exercised unless cash or previously purchased Security
Capital securities are paid for the Option Price.
Subject to certain adjustments described below, Options for up to 139,716
shares of Class A Shares (representing 5.4% of the outstanding Class A Shares
on a fully diluted basis) may be granted. Class A Shares issuable on conversion
of the 2014 Convertible Debentures are included in such maximum number of
shares for which Options may be granted. Class A Shares issued upon exercise of
Options granted under the 1995 Option Plan may be either authorized and
unissued shares or shares issued and thereafter acquired by Security Capital.
Class A Shares allocated to an Option which expires or terminates without the
issuance of Class A Shares may be allocated to new Options granted under the
1995 Option Plan.
If Security Capital shall effect any subdivision or consolidation of Class A
Shares or other capital readjustment, payment of stock dividend, stock split,
combination of Class A Shares or recapitalization or other increase or
reduction of the number of Class A Shares outstanding without receiving
compensation therefor, then the Compensation Committee shall adjust (i) the
number of Class A Shares available under the 1995 Option Plan, (ii) the number
of Class A Shares subject to outstanding Options, and (iii) the per share price
under any outstanding Option. If Security Capital is reorganized, merged or
consolidated or is party to a plan of exchange with another corporation,
pursuant to which reorganization, merger, consolidation or plan of exchange,
the shareholders of Security Capital receive any shares of stock or other
securities or property, or Security Capital shall distribute securities of
another corporation to its shareholders, there shall be substituted for the
Class A Shares subject to outstanding Options an appropriate number of shares
of each class of stock or amount of other securities or property which were
distributed to the shareholders of Security Capital in respect of such Class A
Shares, subject to the following: (i) if the Compensation Committee determines
that the substitution described in this sentence would not be fully consistent
with the purposes of the 1995 Option Plan or the purposes of the outstanding
Options under the 1995 Option Plan, the Compensation Committee may make such
other adjustments to the Options to the extent that the Compensation Committee
determines such adjustments are consistent with the purposes of the 1995 Option
Plan and of the affected Options, (ii) all or any of the Options may be
cancelled by the Compensation Committee on or
40
<PAGE>
immediately prior to the effective date of the applicable transaction, but only
if the Compensation Committee gives reasonable advance notice of the
cancellation to each affected Participant, and only if either (A) the
Participant is permitted to exercise the Option in full for a reasonable period
prior to the effective date of the cancellation or (B) the Participant receives
payment or other benefits that the Compensation Committee determines to be
reasonable compensation for the value of the cancelled Options, and (iii) upon
the occurrence of a reorganization of Security Capital or any other event
described in this sentence, any successor to Security Capital shall be
substituted for Security Capital to the extent that Security Capital and the
successor agree to such substitution. Finally, upon the sale to, or exchange
with, a third party unrelated to Security Capital of all or substantially all
of the assets of Security Capital, all Options shall be cancelled. If Options
are cancelled, then, with respect to any affected Participant, either (i) the
Participant shall be provided with reasonable advance notice of the
cancellation, and the Participant shall be permitted to exercise the Option in
full for a reasonable period prior to the effective date of the cancellation,
or (ii) the Participant shall receive payment or other benefits that the
Compensation Committee determines to be reasonable compensation for the value
of the cancelled Options.
Subject to earlier termination as described below, the expiration date for each
Option shall be determined by the Compensation Committee, but the expiration
date with respect to any Option shall be no later than the earliest to occur
of: (i) the ten-year anniversary of the date on which the Option is granted;
(ii) if the Participant's termination occurs by reason of death, disability or
retirement, the one-year anniversary of the date of termination, except in the
event of termination due to death or disability, all Options become immediately
exercisable; (iii) if the Participant's termination occurs for reasons other
than death, disability, retirement or cause, the three-month anniversary of
such date of termination; and (iv) if the Participant's termination occurs for
cause, the date of termination.
In the event that (i) a Participant's employment is terminated by Security
Capital or a successor to Security Capital or an affiliated entity which is his
or her employer for reasons other than cause following a Change in Control (as
defined in the 1995 Option Plan) of Security Capital or (ii) the 1995 Option
Plan is terminated by the Company or its successor following a Change in
Control without provision for the continuation of outstanding Options, all
Options which have not otherwise expired shall become immediately exercisable.
Options granted under the 1995 Option Plan are not transferable other than by
will, by the laws of descent and distribution or, to the extent provided by the
Compensation Committee, pursuant to a qualified domestic relations order. To
the extent that the Participant who receives an Option under the 1995 Option
Plan has the right to exercise such Option, the Option may be exercised during
the lifetime of the Participant only by the Participant. Notwithstanding the
foregoing, the Compensation Committee may permit Options under the 1995 Option
Plan to be transferred to or for the benefit of the Participant's family,
subject to such limits as the Compensation Committee may establish. However, in
no event shall an Incentive Option be transferable to the extent that such
transferability would violate the requirements applicable to such Option under
Section 422 of the Code.
The Compensation Committee may provide the Participant with the right to
receive a replacement Option, in Class A Shares only, for the number of Class A
Shares and 2014 Convertible Debentures used to satisfy the Participant's
minimum tax obligations upon exercise of the original Option. In order to
receive the replacement Option, the original Option must be exercised prior to
termination of the Participant's employment. A replacement Option shall be
granted on the date of exercise of the original Option to which it relates with
an Option Price equal to the fair market value on the date of the grant of the
replacement Option. Additionally, a replacement Option shall have the same
expiration date as the original Option to which it relates and shall be
exercisable no earlier than six months after its grant date.
Amendment and Termination
The 1995 Option Plan may, at any time, be amended or terminated by the Board,
provided that, subject to the provision relating the adjustment of Class A
Shares, no amendment or termination may materially adversely affect the rights
of any Participant or beneficiary under any Option granted under the 1995
Option Plan prior to the date such amendment is adopted by the Board.
OTHER OPTION PLANS
Security Capital's predecessors also adopted the Security Capital Realty
Investors Incorporated Option Plans A and B (each a "Realty Option Plan") and
the Security Capital Group Incorporated 1991 and 1992 Option Plans A and the
1991 and 1992 Option Plans B (each a "Group Option Plan"). The Realty Option
Plans provide for the grant of
41
<PAGE>
options to purchase Class A Shares. In 1994, to reflect a distribution of debt
securities to shareholders, all of the outstanding options under the Realty
Option Plans were adjusted to add a tandem right to purchase 2014 Convertible
Debentures. Each of the Group Option Plans provides for the grant of tandem
options to purchase Class A Shares and 2014 Convertible Debentures. Generally,
all of the plans contain terms substantially similar to the 1995 Option Plan
except that the Group 1991 and 1992 Option Plans A and B provide for the
automatic grant of options to purchase Class A Shares in tandem with 2014
Convertible Debentures. Each Class A Share under an option must be exercised in
tandem with a specified face amount of 2014 Convertible Debentures (referred to
as a "Unit"). The number of Class A Shares reserved for issuance pursuant to
options under the Realty Option Plans A and B and the Group 1991 and 1992
Option Plans A and the 1991 and 1992 Option Plans B (including Class A Shares
issuable upon the conversion of the 2014 Convertible Debentures) are 16,366,
3,845, 9,982, 29,946, 7,010 and 21,031, respectively. Of such shares, 313, 0,
0, 0, 0 and 0, respectively, remain available for the granting of Options
thereunder.
42
<PAGE>
SELECTED FINANCIAL INFORMATION
The following table sets forth selected financial information for Security
Capital as of and for the years ended December 31, 1996, 1995, 1994, 1993, 1992
and 1991. The Company's consolidated financial information included below has
been derived from the Company's consolidated financial statements, which have
been audited by Arthur Andersen LLP, independent accountants. Their report on
the consolidated financial statements for the years ended December 31, 1996,
1995 and 1994, and the audited financial statements for those years, are
included in this Prospectus beginning on Page F-2. The following selected
financial information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
with the consolidated financial statements and notes thereto included in this
Prospectus.
<TABLE>
----------------------------------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31,
Dollars in thousands, 1996 1995 (1) 1994 1993 1992 1991
except per share data ---------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Equity in earnings $ 168,473 $ 45,685 $ 8,812 $ 6,032 $ 1,722 $ 242
Rental revenues 145,907 103,634 146,545 10,916 1,592 -
Services Division
revenues (2) 77,512 49,404 - - - -
Total revenues 398,122 200,534 156,855 17,503 3,534 467
Rental expenses 54,050 37,948 23,052 1,428 292 -
General and
administrative (2) 116,122 79,100 18,755 2,555 679 205
Interest expense:
Security Capital:
Convertible Debentures/
notes (3) 93,912 78,785 29,647 1,228 180 -
Line of credit 6,256 5,977 6,424 2,196 960 88
Majority-owned
subsidiaries (4) 17,056 19,042 17,718 362 - -
---------- ---------- ---------- --------- --------- ---------
Total interest expense 117,224 103,804 53,789 3,786 1,140 88
Net earnings (loss)
attributable to Class A
Shares $ 24,145 $ (51,112) $ (7,685) $ 5,155 $ 1,014 $ 141
----------------------------------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1995 (1) 1994 1993 1992 1991
---------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Series A Preferred Stock
dividends $ 56.25 - - - - -
Net earnings (loss)
attributable to Class A
Shares $ 21.30 $ (57.00) $ (16.74) $ 39.12 $ 21.61 $ 3.96
Class A Shares
distributions paid (5) - - $ 33.50 $ 60.00 $ 55.00 $ 24.95
Weighted average Class A
Shares outstanding 1,133,711 896,681 458,945 131,776 46,913 35,565
----------------------------------------------------------------------
<CAPTION>
AS OF DECEMBER 31,
1996 1995 (1) 1994 1993 1992 1991
Dollars in thousands ---------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Investments, at equity $1,438,937 $ 930,043 $ 230,756 $ 161,270 $ 68,160 $ 24,911
Real estate, net of
accumulated
depreciation (1) 1,365,373 865,367 2,005,937 478,630 41,577 -
Total assets 3,071,884 2,005,578 2,300,613 673,019 110,765 25,003
Long-term debt:
Security Capital (3) 940,197 718,611 514,383 48,970 6,532 -
Majority-owned
subsidiaries (4) 257,099 118,524 301,787 47,988 - -
Minority interests 394,537 159,339 554,752 157,545 4,884 -
Total shareholders' equity $1,061,302 $ 679,061 $ 359,859 $ 293,821 $ 57,847 $ 16,314
</TABLE>
- -------
(1) Prior to 1995, Security Capital consolidated the accounts of SCI and
PACIFIC. During 1995, Security Capital's ownership of SCI decreased to less
than 50% and PACIFIC was merged into PTR. Accordingly, these entities were
deconsolidated effective January 1, 1995.
(2) Security Capital resulted from the 1995 Merger. See Note 1 to the Company's
consolidated financial statements included in this Prospectus for more
information concerning the 1995 Merger and the predecessor entity.
(3) During 1994, Security Capital made a $757.50 per share distribution of the
2014 Convertible Debentures resulting in a total increase of $417.2 million in
outstanding 2014 Convertible Debentures.
(4) Security Capital does not guarantee the debt of any of its consolidated or
unconsolidated operating companies.
(5) For the years ended December 31, 1994, 1993 and 1992, Security Capital
elected to be taxed as a REIT and made cash distributions to its shareholders.
43
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Financial Information" and the financial statements included elsewhere in this
Prospectus. Historical results and percentage relationships set forth in
"Selected Financial Information" and the consolidated financial statements of
Security Capital are not indicative of the future operations of Security
Capital.
OVERVIEW
Security Capital has obtained its income historically from two sources: (1)
Security Capital's share of earnings in ATLANTIC, PTR, SCI, Security Capital
USREALTY and Homestead, some of which Security Capital accounts for by the
equity method where it owns less than a 50% controlling interest (PTR, SCI and
Security Capital USREALTY) and others of which are consolidated in Security
Capital's consolidated financial statements (ATLANTIC and Homestead) and (2)
financial services revenues earned by the Real Estate Research Group, the
Investment Research Group and the Financial Services Group and, prior to the
Mergers, 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 the Company's consolidated financial statements. Services
Division revenues earned from PTR and SCI have historically been based upon a
percentage of the cash flow from operations or a percentage of revenues, as
defined in the applicable REIT management and property management agreements,
respectively. See "Relationships with Operating Companies--PTR--PTR REIT
Management Agreement," "--PTR Property Management," "--SCI--SCI REIT Management
Agreement" and "--SCI Property Management."
Security Capital 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. The Company accounts for its investment in Security
Capital USREALTY using the equity method and, as a consequence, the Company's
results of operations are affected by changes in the fair value of Security
Capital USREALTY's investments. Security Capital USREALTY values its
investments in publicly traded companies at market determined by using closing
market prices as of the relevant balance sheet date. Security Capital 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, Security Capital 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 Security Capital USREALTY, the Services
Division also earns advisory fee revenues based on a percentage of the fair
value of Security Capital USREALTY's investments (not including short-term
investments and investments in Security Capital). See "Relationships with
Operating Companies--Security Capital USREALTY--Advisory Agreement" and "--Sub-
Advisory Agreement."
Effective January 1, 1995, the predecessor of Security Capital, Security
Capital Realty Incorporated, acquired Security Capital Group Incorporated.
Subsequently, the merged entity was renamed Security Capital Group
Incorporated. As part of the 1995 Merger, Security Capital acquired the
Services Division. See Note 1 to the Company's consolidated financial
statements included herein. From 1992 until the 1995 Merger, Security Capital
Realty Incorporated elected to be taxed as a REIT and, accordingly, made cash
distributions to its shareholders. On March 23, 1995, the merger of PACIFIC
with and into PTR (the "PTR Merger") was completed. See "Relationships with
Operating Companies--PTR--Merger and Public Offerings" and Note 3 to the
Company's consolidated financial statements included herein. On October 17,
1996, Security Capital, ATLANTIC and PTR spun-off their respective extended-
stay lodging assets to Homestead. See "Relationship with Operating Companies--
Homestead--Homestead Transaction" and Note 3 to the Company's consolidated
financial statements included herein.
If the proposed Mergers involving ATLANTIC, PTR and SCI are consummated,
Security Capital will exchange 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 completion of the proposed
Mergers on the
44
<PAGE>
Company's future consolidated results of operations are complex, the Company
expects reductions in Services Division revenues relating to the sale of the
REIT management and property management companies for PTR and SCI to be
substantially offset by decreases in Company-level personnel and other costs
attributable to the operation of such companies and increases in capital
investments revenues attributable to its ownership of additional common shares
of PTR and SCI.
Please refer to the Index to Financial Statements for the audited financial
statements of PTR, SCI and Security Capital USREALTY, Security Capital's
unconsolidated affiliates that are accounted for by the equity method.
1996 COMPARED TO 1995
CAPITAL DIVISION INVESTMENTS
Dividends Received
Security Capital's dividends received increased $19.0 million, or 21%, from
$89.6 million in 1995 to $108.6 million in 1996.
Equity in earnings of less than 50% owned investees
Security Capital's share of SCI's earnings increased 21% from $21.0 million in
1995 to $25.4 million in 1996. This increase was primarily attributable to an
increase in the amount of distribution space owned and leased by SCI (80.6
million square feet at December 31, 1996 compared to 58.5 million square feet
at December 31, 1995) and increased rental rates on renewal leases for
previously occupied space, and was partly offset by a small decrease in SCI's
average occupancy levels (93.4% in 1996 compared to 95.4% in 1995). At December
31, 1996 and 1995, Security Capital's ownership interest in the outstanding
common shares of SCI was 46% and 48%, respectively.
Security Capital's share of PTR's earnings increased 62% from $24.6 million in
1995 to $39.8 million in 1996. This increase was primarily attributable to a
substantial increase in the number of multifamily properties owned by PTR
(42,702 operating units at December 31, 1996 compared to 38,737 operating units
at December 31, 1995), and significant gains ($37.5 million) on sales of
properties in 1996. At December 31, 1996 and 1995, Security Capital's ownership
interest in the outstanding common shares of PTR was 36% and 38%, respectively.
Security Capital's share of Security Capital USREALTY's earnings increased
substantially from $0.1 million in 1995 to $103.2 million in 1996. Security
Capital USREALTY effectively commenced its investment activities in 1996, and
at December 31, 1996, Security Capital USREALTY had investments at cost of
$1.18 billion with a fair market value of $1.43 billion, resulting in
unrealized appreciation of $250 million which is accounted for by Security
Capital USREALTY pursuant to fair value accounting principles. In addition,
Security Capital USREALTY recorded net investment income (defined as dividends
and other investment income net of administration expenses, advisor fees, taxes
and interest) of $16.4 million in 1996. At December 31, 1996 and 1995, Security
Capital's ownership interest in the outstanding common stock of Security
Capital USREALTY was 39% and 32%, respectively.
Rental Operations--from greater than 50% owned consolidated investees
Rental Revenues
Rental revenues increased $42.3 million, or 41%, from $103.6 million in 1995 to
$145.9 million in 1996. This increase was primarily attributable to an increase
in the number of multifamily units owned and operated by ATLANTIC (19,241
operating units at December 31, 1996 compared to 15,823 operating units at
December 31, 1995), coupled with stable occupancies (approximately 95%) in both
1996 and 1995. Also accounting for part of the increase in rental revenues is
the consolidation of Homestead after the spin-out transaction completed on
October 17, 1996 by Security Capital, ATLANTIC and PTR of their extended-stay
lodging assets. Homestead generated $8.2 million in revenues for the two and
one-half month period ended December 31, 1996.
Other Income, Net
Other income consists of interest and miscellaneous income of $3.4 million and
$1.8 million in 1996 and 1995, respectively, and in 1996 includes miscellaneous
gains on sales of ATLANTIC properties.
Rental Expenses
Rental expenses increased by $16.1 million, or 42%, to $54.0 million in 1996
from $37.9 million in 1995. The increase was primarily attributable to the
increase in the number of ATLANTIC's operating multifamily communities
discussed previously. ATLANTIC's rental expenses increased $12.0 million
(excluding REIT and property management fees) in 1996 compared to 1995.
Homestead's rental expenses were $4.1 million for the period from October 17,
1996 to December 31, 1996.
45
<PAGE>
Depreciation and Amortization
Total depreciation and amortization for Security Capital was $34.5 million and
$26.0 million in 1996 and 1995, respectively. Of those amounts, $21.9 million
and $15.9 million represented depreciation and amortization from rental
operations in 1996 and 1995, respectively.
Depreciation for ATLANTIC increased $4.9 million to $20.8 million in 1996 from
$15.9 million in 1995, an increase of 31%, due to the increase in the number of
operating multifamily communities between 1995 and 1996. Depreciation for
Homestead was $1.1 million for the two and one-half month period ended December
31, 1996. The remaining depreciation and amortization of $12.6 million and
$10.1 million in 1996 and 1995, respectively, is attributable to the Services
Division, which is discussed below.
SERVICES DIVISION
Revenues
Services Division revenues increased from $49.4 million in 1995 to $77.5
million in 1996. Services Division revenues are only reflected in the Company's
consolidated financial statements if they were earned from investees in which
Security Capital owns less than a 50% interest. Financial services revenues
earned from PTR and SCI are based on a percentage of the cash flow from
operations or on a percentage of revenues, as defined by the REIT and property
management agreements, respectively. Through the Advisory Agreement (as defined
below) with Security Capital USREALTY, Security Capital earns revenues based on
a percentage of the fair value of Security Capital USREALTY's investments (not
including short term investments and investments in Security Capital). The
increase of $28.1 million in Services Division revenues in 1996 as compared to
1995 was primarily attributable to growth in operations at each of the
Company's non-consolidated investees. In particular, financial services
revenues earned from SCI increased $13.8 million, financial services revenues
earned from PTR increased $3.8 million and advisory revenues earned from
Security Capital USREALTY increased $7.9 million. The remaining services
revenues of $2.6 million were earned by Security Capital Markets Group.
Services Division revenues and associated expenses will be reduced
substantially following completion of the proposed Mergers. See "--Overview."
Depreciation and Amortization
As discussed above, total depreciation and amortization for Security Capital
was $34.5 million in 1996, $12.6 million of which was attributable to Services
Division companies, representing an increase of $2.5 million over Services
Division depreciation and amortization for 1995 of $10.1 million. Both the 1996
and 1995 amounts included approximately $7.9 million of amortization of
goodwill from the 1995 Merger, as further described in Note 1 to Security
Capital's consolidated financial statements. The $2.5 million increase between
1995 and 1996 is a result of additional depreciation on furniture, fixtures and
equipment (consisting primarily of computer and communications equipment)
acquired in connection with the expansion of the Services Division and Security
Capital's decision to fund additional investments in information technology.
INTEREST EXPENSE
Security Capital's consolidated interest expense consists of interest on the
2014 Convertible Debentures and 2016 Convertible Debentures, interest on
revolving lines of credit which are obligations of Security Capital and
ATLANTIC and interest on mortgage notes payable which are obligations of
ATLANTIC and Homestead. Interest expense for 1996 and 1995 is summarized as
follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
SECURITY CAPITAL ATLANTIC HOMESTEAD TOTAL
--------------------- --------------------- --------- ---------------------
1996 1995 1996 1995 1996 1996 1995
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Dollars in thousands
Convertible Debentures $ 93,912 $ 78,785 - - - $ 93,912 $ 78,785
Lines of credit 6,256 5,977 $ 16,947 $ 15,784 - 23,203 21,761
Mortgage notes payable - - 9,484 7,662 $ 2,978 12,462 7,662
Capitalized interest - - (10,250) (4,404) (2,103) (12,353) (4,404)
--------- --------- --------- --------- --------- --------- ---------
Total $ 100,168 $ 84,762 $ 16,181 $ 19,042 $ 875 $ 117,224 $ 103,804
========= ========= ========= ========= ========= ========= =========
</TABLE>
46
<PAGE>
Debenture interest increased as a result of the issuance of 2016 Convertible
Debentures in 1996 totalling $226.5 million as well as the issuance of an
additional $185 million of 2014 Convertible Debentures during 1995. See the
discussion of "Convertible Debt" in Note 4 to the Company's consolidated
financial statements included herein.
ATLANTIC's mortgage interest expense increase in 1996 was the result of an
increase in average mortgage debt outstanding.
ATLANTIC's line of credit interest expense increase in 1996 was primarily
attributable to an increase in the average outstanding balance ($204.3 million
in 1996 as compared to $178.3 million in 1995) and was partially offset by a
lower weighted-average interest rate (7.39% in 1996 as compared to 7.92% in
1995). The increase was also attributable to increased amortization of loan-
related costs.
The overall increase in interest expense for ATLANTIC was offset by an increase
in capitalized interest of $5.8 million in 1996 over 1995. The increase in
capitalized interest was attributable to ATLANTIC's increased development
activity.
Homestead's mortgage interest expense for 1996 was attributable to Homestead's
borrowing under its funding commitment agreement with PTR for development of
extended-stay lodging facilities. Interest expense was recorded for the period
from October 17, 1996, the date of the spin-out transaction, through December
31, 1996. Interest expense for Homestead was also affected by the amortization
of deferred financing costs and other loan-related costs incurred as a result
of the spin-out.
PAYROLL AND RELATED COSTS
Payroll and related costs increased by $24.0 million, or 43%, in 1996 to $80.1
million from $56.1 million in 1995. The increase was primarily attributable to
the expansion of the Services Division, including the hiring of additional
professionals. Security Capital continues to make substantial investments in
personnel, operating systems and research capabilities in order to take
advantage of future growth opportunities. Payroll and related costs will be
reduced following the proposed Mergers as a result of the transfer of personnel
employed by Security Capital to PTR and SCI. See "--Overview."
GENERAL AND ADMINISTRATIVE
General and administrative costs increased by $13.0 million, or 56%, in 1996 to
$36.0 million from $23.0 million in 1995. The increase was directly
attributable to the increase in the number of employees as a result of the
growth of the Services Division. General and administrative costs will be
reduced following the proposed Mergers as a result of the transfer of personnel
employed by Security Capital to PTR and SCI. See "--Overview."
PROVISION FOR INCOME TAXES
The provision for income taxes in 1996 was primarily attributable to deferred
income taxes on the equity in earnings of Security Capital USREALTY, none of
which is currently taxable. In 1995, Security Capital had net deferred tax
assets (primarily net operating losses) that were completely offset by a
valuation allowance. Accordingly, no provision for income taxes was recorded in
1995. See Note 8 to the Company's consolidated financial statements included
herein.
MINORITY INTERESTS
Minority interests increased from $4.8 million in 1995 to $13.4 million in 1996
due to increased earnings at ATLANTIC, coupled with an increase in minority
interests in ATLANTIC in conjunction with its initial public offering in
October 1996.
PREFERRED STOCK DIVIDENDS
On April 1, 1996, Security Capital issued 139,000 shares of Series A Preferred
Stock to a single investor. The Series A Preferred Stock carries a 7.5%
preferential cash dividend rate, payable when and if authorized by the Board
quarterly in arrears. Security Capital paid $7.8 million in dividends on the
Series A Preferred Stock in 1996. See "Description of Capital Stock--Preferred
Stock."
1995 COMPARED TO 1994
CAPITAL DIVISION INVESTMENTS
Dividends Received
Security Capital's dividends received increased $41.4 million, or 86%, from
$48.2 million in 1994 to $89.6 million in 1995.
47
<PAGE>
Equity in earnings of less than 50% owned investees
Security Capital consolidated SCI's operations in 1994 and reported earnings of
SCI based on the equity method in 1995. For purposes of comparison between the
years, SCI results of operations for 1994 are discussed below as if the equity
method was in effect for 1994. Security Capital's share of SCI's earnings
increased 65%, from $12.7 million in 1994 to $21.0 million in 1995. This
increase was primarily attributable to an increase in the amount of
distribution space owned and leased by SCI (58.5 million square feet at
December 31, 1995 compared to 39.1 million square feet at December 31, 1994),
improvements in SCI's average occupancy levels (95.42% in 1995 compared to
93.32% in 1994) and increased rental rates on renewal leases for previously
occupied space. At December 31, 1995 and 1994, Security Capital's ownership
interest in the outstanding common shares of SCI was 48% and 51%, respectively.
Security Capital reported earnings of PTR based on the equity method in both
1995 and 1994. However, PTR's 1995 earnings include the earnings of PACIFIC
which was merged into PTR in March 1995. For purposes of comparison between the
years, PTR's results of operations for 1994 are discussed below as if the PTR
Merger had occurred at the beginning of 1994. Security Capital's share of PTR's
earnings increased 69%, from $14.6 million in 1994 ($8.8 million from PTR and
$5.8 million from PACIFIC) to $24.6 million in 1995. This increase was
primarily attributable to a substantial increase in 1995 in the number of
multifamily properties owned by PTR (38,737 operating units at December 31,
1995 compared to 30,182 operating units at December 31, 1994) and Security
Capital's increased ownership interest in PTR. At December 31, 1995 and 1994,
Security Capital's ownership interest in the outstanding common shares of PTR
was 38% and 32%, respectively.
Rental Operations--from greater than 50% owned consolidated investees
Rental Revenues and Expenses
During 1995 and 1994, all rental revenues and expenses of the Company pertained
solely to ATLANTIC's operations. Rental revenues increased $48.6 million, or
88%, to $103.6 million in 1995 from $55.0 million in 1994. Rental expenses
increased $14.9 million, or 65%, to $37.9 million in 1995 (excluding REIT and
property management fees) from $23.0 million in 1994. The increase in rental
revenues and expenses was primarily attributable to the increase in the number
of multifamily communities. At December 31, 1995, ATLANTIC had 15,823 operating
multifamily units as compared to 11,990 operating multifamily units at December
31, 1994. In 1994, ATLANTIC acquired 11,307 units and the majority of its
properties were not owned for the full year. At December 31, 1994, 94.7% of
ATLANTIC's units were classified as "pre-stabilized" as compared to 25.7% at
December 31, 1995. The term "pre-stabilized" means that renovation,
repositioning, new management and new marketing programs (or development and
marketing in the case of newly developed communities) have not been completed
and in effect for a sufficient period of time (but in no event longer than 12
months, except in cases of major rehabilitation) to achieve 93% occupancy at
market rents.
Depreciation and Amortization
Total depreciation and amortization for Security Capital was $26.0 million for
1995, which represented an increase of $17.2 million from depreciation and
amortization of $8.8 million for 1994. Depreciation and amortization from
rental operations was $15.9 million and $8.8 million in 1995 and 1994,
respectively. The $7.1 million increase in depreciation and amortization from
rental operations, which represented an increase of 81% over 1994, was due to
increases in ATLANTIC's portfolio of operating properties and the reflection of
a full year of depreciation in 1995 for properties acquired during 1994. The
remaining increase of $10.1 million in 1995 was attributable to the Services
Division.
SERVICES DIVISION
Revenues
Services Division revenues were $49.4 million in 1995. As mentioned previously,
the Services Division companies were acquired by Security Capital on January 1,
1995 as a result of the 1995 Merger.
Depreciation and Amortization
Depreciation and amortization for the Services Division was $10.1 million in
1995, of which $7.9 million was attributable to amortization of goodwill from
the 1995 Merger and $2.2 million was attributable to depreciation on furniture,
fixtures and equipment (primarily computer and communications equipment) which
was not owned by Security Capital in 1994.
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INTEREST EXPENSE
Security Capital's interest expense for 1995 and 1994 consisted of interest on
the 2014 Convertible Debentures, interest on revolving lines of credit which
are obligations of Security Capital and ATLANTIC and interest on mortgage notes
payable which are obligations of ATLANTIC. Interest expense for 1995 and 1994
can be summarized as follows:
----------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY CAPITAL ATLANTIC TOTAL
--------------------- --------------------- ---------------------
Dollars in thousands 1995 1994 1995 1994 1995 1994
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
2014 Convertible
Debentures $ 78,785 $ 29,647 - - $ 78,785 $ 29,647
Lines of credit 5,977 6,424 $ 15,784 $ 5,487 21,761 11,911
Mortgage notes payable - - 7,662 3,363 7,662 3,363
Capitalized interest - - (4,404) (793) (4,404) (793)
--------- --------- --------- --------- --------- ---------
$ 84,762 $ 36,071 $ 19,042 $ 8,057 $ 103,804 $ 44,128
========= ========= ========= ========= ========= =========
</TABLE>
Interest on 2014 Convertible Debentures increased $49.1 million in 1995 from
$29.6 million in 1994. The increase was primarily due to the issuance of $461
million of 2014 Convertible Debentures in 1994, and the issuance of an
additional $185 million of 2014 Convertible Debentures in 1995.
ATLANTIC's mortgage interest expense increased $4.3 million in 1995 as compared
to 1994, due to an increase in average mortgage debt outstanding.
ATLANTIC's line of credit interest expense increased $10.3 million in 1995 over
1994. The increase was primarily attributable to an increase in the average
outstanding balance on its line of credit ($178.3 million in 1995 as compared
to $65.6 million in 1994) and a higher weighted-average interest rate (7.92% in
1995 as compared to 7.34% in 1994). A portion of the increase was also
attributable to amortization of loan-related costs.
The overall increase in interest expense was offset by an increase in
capitalized interest of $3.6 million in 1995 over 1994. The increase in
capitalized interest was the result of ATLANTIC's increased development
activity.
PAYROLL AND RELATED COSTS
During 1995, Security Capital incurred payroll and related costs of $56.1
million as a result of the acquisition of the Services Division in the 1995
Merger.
GENERAL AND ADMINISTRATIVE
General and administrative costs increased to $23.0 million in 1995 from $6.2
million in 1994, primarily as a result of the acquisition of the Services
Division in the 1995 Merger. General and administrative costs in 1994 consisted
primarily of a REIT management fee paid by Security Capital amounting to $5.3
million, which was eliminated in 1995 as a result of the acquisition of the
Services Division in the 1995 Merger. General and administrative costs in 1995
included approximately $22.1 million in additional costs related to expansion
of the Services Division.
PROVISION FOR INCOME TAXES
Security Capital elected to be taxed as a REIT in 1994 and, therefore, incurred
no federal or state tax at the corporate level in 1994. In 1995, Security
Capital elected to be taxed as a C corporation. Security Capital sustained a
loss for tax purposes in 1995 and its deferred tax assets (primarily net
operating losses) were completely offset by a valuation allowance.
MINORITY INTERESTS
Minority interests decreased $10.4 million, from $15.2 million in 1994 to $4.8
million in 1995, primarily as a result of the deconsolidation of SCI and
PACIFIC.
INVESTING AND FINANCING ACTIVITIES
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
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activities of Security Capital's operating companies consist primarily of the
acquisition and development of real estate. 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.
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), the proceeds of this Offering and funds currently
available under its $300 million revolving line of credit will be sufficient to
enable Security Capital to satisfy its anticipated requirements for operating
and investing activities for the next twelve months. Security Capital intends
to finance its long-term business activities (including investments in new
business initiatives) through the proceeds of the Offering, borrowings under an
expanded line of credit and the exercise of the Warrants to be issued as
described below. In addition, the Company 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.
As of December 31, 1996, Security Capital had $193.0 million of callable
subscriptions for 2016 Convertible Debentures and Class A Shares, which
subscription amounts had been called and received as of March 31, 1997.
Concurrent with the Offering, Security Capital intends to register Warrants to
purchase $250 million of Class B Shares and to distribute the Warrants to the
shareholders of certain of its investees pursuant to the Mergers. These
Warrants will be issued subject to the closing of the proposed Mergers, will
have an exercise price based on the price of the Class B Shares on a date to be
established following completion of the Offering, and will have a term of one
year.
Security Capital's consolidated investees have undertaken the following recent
financing activities:
. In April 1997, ATLANTIC completed an $86 million (gross proceeds) equity
offering to finance development and acquisition plans for 1997. (The
offering is subject to a 15% overallotment option that could be
exercised at the option of the underwriters through May 10, 1997.)
Additionally, cash on hand, borrowings under its $350 million line of
credit and securities offerings are expected to provide the remaining
source of 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 $129 million and $111 million, respectively, in financing,
as well as through outstanding warrants to purchase approximately $51
million of Homestead common stock outstanding as of December 31, 1996
(if such warrants are exercised). Homestead is currently negotiating a
revolving line of credit and is considering securities offerings to
provide additional sources of capital to meet its financing needs.
1996 INVESTING AND FINANCING ACTIVITIES
Security Capital recorded investments of approximately $832.3 million in 1996,
consisting primarily of (i) $267 million invested by ATLANTIC for the
development and acquisition of multifamily communities, (ii) $65 million
invested by Homestead for development of extended-stay lodging properties from
October 17, 1996 to December 31, 1996, (iii) $95 million invested by Security
Capital for common shares of SCI and ATLANTIC and (iv) $392.9 million invested
by Security Capital for common shares of Security Capital USREALTY.
Security Capital's 1996 net financing activity of $807.7 million consisted
primarily of (i) net proceeds from sales of common and preferred stock of
$438.3 million and $139.0 million, respectively, (ii) $221.6 million in net
proceeds from the issuance of Convertible Debentures, (iii) a $45.9 million
increase in outstanding mortgage loans for ATLANTIC and Homestead, (iv) net
repayments on lines of credit of $10.0 million and (v) other financing
transactions resulting in an aggregate use of cash of $26 million.
Also in 1996, ATLANTIC increased its line of credit to $350 million, and
Security Capital increased its line of credit to $300 million.
Security Capital completed the following non-cash transaction in 1996:
. On October 17, 1996, Security Capital, PTR, ATLANTIC and Homestead
consummated the merger transactions described under "Relationship with
Operating Companies--Homestead--Homestead Transaction." Since ATLANTIC
and Homestead are consolidated with Security Capital, only the effect of
PTR's transaction with Homestead is reflected in the Company's
consolidated financial statements for the
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year ended December 31, 1996. With respect to the transaction between
PTR and Homestead, Homestead acquired at the date of merger
approximately $166 million of net assets in exchange for the issuance of
9,485,727 shares of Homestead common stock and $76 million of
convertible mortgage notes payable.
1995 INVESTING AND FINANCING ACTIVITIES
Security Capital recorded investments of approximately $493.9 million in 1995,
consisting primarily of $235.1 million invested by ATLANTIC for the development
and acquisition of multifamily communities and $254.4 million invested by the
Company for the acquisition of common shares of PTR, SCI, ATLANTIC and Security
Capital USREALTY.
Security Capital's 1995 net financing activity of $486.9 million primarily
consisted of (i) net proceeds from the sale of common stock of $363.3 million,
(ii) $184.8 million in net proceeds from the issuance of Convertible
Debentures, (iii) a decrease in outstanding mortgage loans of $7.0 million for
ATLANTIC, (iv) net repayments on lines of credit of $39.5 million and (v) other
financing transactions resulting in an aggregate use of cash of $14.7 million.
Security Capital completed the following non-cash investing and financing
activities in 1995:
. On January 1, 1995, Security Capital acquired through the 1995 Merger
the net assets of the Services Division companies for $233.7 million in
exchange for debt and equity securities of Security Capital.
. On March 23, 1995, Security Capital exchanged the shares of its PACIFIC
subsidiary for additional shares of PTR. The transaction was valued at
approximately $136.0 million and resulted in Security Capital receiving
an additional 8.5 million shares of PTR.
1994 INVESTING AND FINANCING ACTIVITIES
Security Capital recorded investments of approximately $1.2 billion in 1994,
primarily as a result of ATLANTIC's development and acquisition of multifamily
communities and SCI's development and acquisition of distribution facilities.
Security Capital also invested approximately $73.8 million to acquire PTR
common shares.
Security Capital's 1994 net financing activity of $1.2 billion primarily
consisted of (i) net proceeds from the sale of common stock of $788 million,
(ii) $48.2 million in net proceeds from the issuance of 2014 Convertible
Debentures; (iii) net borrowings on lines of credit of $400 million, (iv)
distributions to shareholders (primarily SCI shareholders) amounting to $50
million and (v) other financing transactions resulting in an aggregate use of
cash of $19 million.
Security Capital completed the following non-cash investing and financing
activities in 1994:
. In June 1994, the Board authorized a distribution of 2014 Convertible
Debentures. For the year ended December 31, 1994, $417.2 million of 2014
Convertible Debentures were distributed representing $757.50 for each
common share outstanding or subscribed for.
. During the year ended December 31, 1994, Security Capital assumed $274.1
million in mortgage notes payable in connection with the acquisition of
multifamily communities and distribution facilities through its
ATLANTIC, PTR and SCI investees.
LINE OF CREDIT
SC Realty, a wholly owned subsidiary of the Company, has entered into a $300
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, Security
Capital USREALTY and Homestead, as well as warrants to purchase shares in
Homestead.
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 the Company, including a minimum shareholders'
equity test, a total liabilities to net worth ratio and an interest
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coverage ratio, as well as restrictions on the Company's ability to incur
indebtedness and effect consolidations, mergers (other than a consolidation or
merger in which the Company is the surviving entity) and sales of assets. The
guaranty also contains a restricted payments covenant which prohibits dividends
and distributions on the Company's capital stock in excess of 95% of the
Company's cash flow available for distribution (as defined).
As of April 25, 1997, SC Realty had borrowed $22 million under the line of
credit. See "Use of Proceeds."
2014 CONVERTIBLE DEBENTURES
At December 31, 1996, the Company had approximately $713.7 million principal
amount of 2014 Convertible Debentures outstanding. The 2014 Convertible
Debentures accrue interest at an annual rate of 12% and require semi-annual
cash interest payments at a minimum rate of 3.5%. Interest above the minimum
may be paid currently or deferred at the option of the Company. Any deferred
interest accrues interest at 12% and is due upon maturity. The principal amount
of the 2014 Convertible Debentures are convertible into Class A Shares at
$1,046.00 per share at the option of the holder at any time after the earlier
to occur of (i) the first anniversary of the Company's initial public offering,
(ii) July 1, 1999, (iii) the consolidation or merger of the Company with
another entity (other than a merger in which the Company is the surviving
entity) or any sale or disposition of substantially all the assets of the
Company or (iv) notice of redemption of the 2014 Convertible Debentures by the
Company. The Company may redeem the 2014 Convertible Debentures at any time, in
whole or in part, at par plus accrued and unpaid interest to the date of
redemption.
2016 CONVERTIBLE DEBENTURES
At December 31, 1996, the Company had approximately $226.5 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
the Company's initial public offering, (ii) March 29, 2001, (iii) the
consolidation or merger of the Company with another entity (other than a merger
in which the Company is the surviving entity) or any sale or disposition of
substantially all the assets of the Company, (iv) a recommendation by the Board
of any tender offer or exchange offer for 50% or more of the Company's
outstanding common stock (provided that the 2014 Convertible Debentures have
then become convertible pursuant to their terms) or (v) notice of redemption of
the 2016 Convertible Debentures by the Company. The Company 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.
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RELATIONSHIPS WITH OPERATING COMPANIES
In addition to the transactions with affiliates described elsewhere in this
Prospectus, Security Capital has entered into the following agreements with its
affiliated real estate operating companies:
ATLANTIC
ATLANTIC REIT Management Agreement
ATLANTIC's REIT manager, Security Capital (Atlantic) Incorporated (the
"ATLANTIC REIT Manager"), is owned by Security Capital. The ATLANTIC REIT
Manager's sole business and principal occupation since its formation in October
1993 is advising ATLANTIC. The services provided or coordinated by the ATLANTIC
REIT Manager include strategic and day-to-day management, research, investment
analysis, acquisition and due diligence, multifamily property development,
asset management, capital markets, asset disposition, legal and accounting
services. All such services are included in the fee paid to the ATLANTIC REIT
Manager by ATLANTIC (the "ATLANTIC REIT Management fee"), including capital
markets and development services, which most REITs capitalize (or, in the case
of capital markets, deduct from proceeds). The ATLANTIC REIT Management fee is
paid monthly and was $10.4 million, $6.9 million and $3.7 million for the years
ended December 31, 1996, 1995 and 1994, respectively. This agreement will be
terminated upon the closing of the Mergers and all the employees of the
ATLANTIC REIT Manager will become employees of ATLANTIC.
ATLANTIC Property Management
Commencing May 12, 1994, SCG Realty Services (Atlantic) Incorporated (the
"ATLANTIC Property Manager"), an affiliate of the ATLANTIC REIT Manager and a
subsidiary of Security Capital, began providing property management services
for certain of ATLANTIC's properties. At March 31, 1997, the ATLANTIC Property
Manager managed approximately 88.3% of ATLANTIC's multifamily units. The
agreement terminates September 30, 1997, subject to earlier termination by
ATLANTIC on 30 days' notice, is renewable annually upon approval of ATLANTIC's
independent directors and contemplates a fee to the ATLANTIC Property Manager
of 3.5% per annum of property revenues for properties located in Atlanta and
Washington, D.C. markets and 3.75% per annum of property revenues for all other
properties, paid monthly, which was $4.2 million, $3.5 million and $1.5 million
for the years ended December 31, 1996, 1995 and 1994, respectively. Any
management contracts executed with the ATLANTIC Property Manager are expected
to be at market rates. This agreement will be terminated upon the closing of
the Mergers and all employees of the ATLANTIC Property Manager will become
employees of ATLANTIC.
ATLANTIC Investor Agreement
ATLANTIC and Security Capital are parties to an Investor Agreement, dated as of
October 28, 1993 (the "ATLANTIC Investor Agreement"), which required Security
Capital to purchase $21.5 million in common stock of ATLANTIC, subject to
certain conditions. The ATLANTIC Investor Agreement, among other things,
requires ATLANTIC to obtain Security Capital's approval of (i) the annual
operating budget and substantial deviations therefrom, (ii) contracts for
investment management, property management or leasing services or that
contemplate annual payments in excess of $100,000 and (iii) acquisitions or
dispositions in a single transaction or a group of related transactions where
the purchase price exceeds $5 million. The ATLANTIC Investor Agreement also
provides that, so long as Security Capital owns at least 10% of the outstanding
common stock of ATLANTIC, ATLANTIC may not increase its Board of Directors to
more than seven members. Security Capital is entitled to designate one or more
persons as directors, and ATLANTIC is obligated to use its best efforts to
cause the election of such persons, as follows: (i) so long as Security Capital
owns at least 10%, but less than 20%, of the outstanding common stock of
ATLANTIC, it is entitled to nominate two persons; and (ii) so long as Security
Capital owns at least 20% of the outstanding common stock of ATLANTIC, it is
entitled to nominate three persons.
In addition, the ATLANTIC Investor Agreement provides Security Capital with
registration rights pursuant to which, in certain circumstances, Security
Capital may demand, at any time, registration pursuant to Rule 415 under the
Securities Act of 1933, as amended (the "Securities Act") of all or any part of
the shares of ATLANTIC's common stock owned by Security Capital.
At the closing of the Mergers, ATLANTIC and Security Capital will amend and
restate the ATLANTIC Investor Agreement (as so amended and restated, the
"ATLANTIC Amended Investor Agreement"), which will provide that, without first
having consulted with the nominees of Security Capital designated in writing,
ATLANTIC may
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not seek Board of Directors approval of (i) ATLANTIC's annual budget; (ii) the
incurrence of 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) the purchase or sale of any assets in any
single transaction or series of related transactions in the ordinary course of
ATLANTIC's business where the aggregate purchase price to be paid or received
by ATLANTIC would exceed $25 million; and (iv) the entering into of 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 ATLANTIC in excess of $1 million. ATLANTIC is under no
obligation to accept or comply with any advice offered by Security Capital with
respect to the foregoing matters.
Additionally, so long as Security Capital beneficially owns at least 25% of the
common shares of ATLANTIC, Security Capital will have the right to approve the
following matters proposed by ATLANTIC: (i) the issuance or sale of any common
shares, (including the 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 the issuance or sale of any security convertible into or
exchangeable for common shares) at a price per share less than the fair market
value of a common share on the date of such issuance or sale; (ii) the issuance
and sale of any disqualified shares (as defined) if, as a result thereof,
ATLANTIC's Fixed Charge Coverage Ratio (as defined) would be less than 1.4 to
1.0; (iii) the adoption of any employee benefit plan pursuant to which shares
of ATLANTIC or any securities convertible into shares of ATLANTIC may be issued
and any action with respect to the compensation of the senior officers of
ATLANTIC (including the granting or award of any bonuses or share-based
incentive awards); and (iv) the incurrence of any additional indebtedness
(including guarantees and including renegotiations and restructurings of
existing indebtedness) if, as a result thereof, ATLANTIC's Interest Expense
Coverage Ratio (as defined) would be less than 2.0 to 1.0. The restriction
referred to in clause (i) above does not apply to (A) the sale or grant of any
options to purchase shares of ATLANTIC pursuant to the provisions of any
benefit plan approved by the shareholders of ATLANTIC, (B) the issuance or sale
of shares 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 closing date of the Mergers or in accordance with the
provisions of the ATLANTIC Amended Investor Agreement, (C) the issuance and
sale of any shares of ATLANTIC pursuant to any dividend reinvestment and share
purchase plan approved by the ATLANTIC Board of Directors 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 ATLANTIC or
securities convertible into or exercisable for shares.
The ATLANTIC Amended Investor Agreement will also provide that, so long as
Security Capital owns at least 10% of the outstanding common shares, ATLANTIC
may not increase the number of persons serving on the ATLANTIC Board of
Directors to more than seven. Security Capital also will be entitled to
designate one or more persons as directors of ATLANTIC, as follows: (i) so long
as Security Capital owns at least 10% but less than 25% of the outstanding
common shares, it is entitled to nominate one person; and (ii) so long as
Security Capital owns at least 25% of the outstanding common shares, it is
entitled to nominate that number of persons as shall bear approximately the
same ratio to the total number of members of the ATLANTIC Board of Directors as
the number of common shares beneficially owned by Security Capital bears to the
total number of outstanding common shares, provided, that Security Capital
shall be entitled to designate no more than three persons so long as the
ATLANTIC Board of Directors consists of no more than seven members.
As part of the ATLANTIC Amended Investor Agreement, Security Capital may make
employment opportunities with Security Capital or its affiliates available to
the officers and employees of ATLANTIC. Prior to commencing discussions with a
senior officer of ATLANTIC about any such opportunity, Security Capital must
give the ATLANTIC Board of Directors 14 days' prior written notice.
In addition, the ATLANTIC Amended Investor Agreement provides Security Capital
with registration rights pursuant to which, in certain specified circumstances,
Security Capital may request at any time, registration of all of Security
Capital's common shares pursuant to Rule 415 under the Securities Act. Security
Capital may request one such registration for every $100 million (based on
market value) of common shares of ATLANTIC it owns.
Administrative Services Agreement
At the closing of the Mergers, ATLANTIC and Security Capital will enter into an
administrative services agreement, pursuant to which Security Capital will
provide ATLANTIC with certain administrative and other services with respect to
certain aspects of ATLANTIC's business, as selected from time to time by
ATLANTIC at
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its option. These services are expected to include, but are not limited to,
payroll and tax administration services, cash management and accounts payable
services, data processing and other computer services, human resources,
research, investor relations, insurance administration and legal
administration. The fees payable to Security Capital will be equal to Security
Capital's cost of providing such services plus 20%, subject to a maximum amount
of approximately $5.2 million during the initial term of the agreement, of
which approximately $1.5 million will apply to the period between the closing
of the Mergers and December 31, 1997 and the remainder will apply to 1998. Cost
savings under this agreement will accrue to ATLANTIC. The agreement will be for
an initial term expiring on December 31, 1998 and will be automatically renewed
for consecutive one-year terms, subject to approval by a majority of the
independent members of the ATLANTIC Board of Directors.
License Agreement
At the closing of the Mergers, ATLANTIC and Security Capital will enter into a
license agreement pursuant to which Security Capital will grant ATLANTIC a non-
exclusive license to use Security Capital's registered logo and the non-
exclusive right to use the name "Security Capital." The term of the license
will be for a period of 15 years, subject to ATLANTIC's right to extend the
license for up to two additional five-year periods.
Protection of Business Agreement
At the closing of the Mergers, ATLANTIC and Security Capital will enter into a
protection of business agreement (the "ATLANTIC Protection of Business
Agreement"), which will prohibit Security Capital and its affiliates from
providing, anywhere within the United States, directly or indirectly,
substantially the same services as those currently provided by the ATLANTIC
REIT Manager and the ATLANTIC Property Manager to any entity that owns or
operates multifamily properties. The ATLANTIC Protection of Business Agreement
does not prohibit Security Capital or its affiliates from owning the securities
of any class of ATLANTIC or PTR. The ATLANTIC Protection of Business Agreement
will terminate in the event of an acquisition, directly or indirectly, (other
than by purchase from Security Capital or any of its affiliates), by any person
(or group of persons acting in concert), other than Security Capital or any of
its affiliates, of the greater of (i) 25% or more of the outstanding shares of
voting securities of ATLANTIC and (ii) the percentage of outstanding voting
securities of ATLANTIC owned directly or indirectly by Security Capital and its
affiliates, in either case without the prior written consent of the ATLANTIC
Board of Directors. Subject to earlier termination pursuant to the preceding
sentence, the ATLANTIC Protection of Business Agreement will terminate on the
third anniversary of the closing date of the Mergers.
ATLANTIC Development Agreements
ATLANTIC and certain affiliates of Hanover Realty Services Inc. ("Hanover") are
parties to several development agreements, in connection with the acquisition
and development of six properties located in North Carolina. In consideration
for Hanover's development of these properties, the development agreements
provide that ATLANTIC will make certain earnest payments to Hanover either in
the form of cash, shares of ATLANTIC's common stock or shares of Security
Capital's common stock, as determined in the sole discretion of Hanover. The
amount of such payments shall be determined on a per site basis and shall be a
percentage of the amount by which annualized net operating income exceeds the
total actual project costs. In February 1997, Hanover was paid $800,000 with
respect to one community. The aggregate amount of such earnout amounts for the
five remaining communities cannot exceed $5.8 million. Hanover was not entitled
to receive any earnout payment at February 28, 1997 on the five remaining
communities.
HOMESTEAD
Homestead Transaction
In January 1996, Security Capital began considering ways for ATLANTIC, PTR and
Security Capital to maximize shareholder value with respect to their Homestead
Village properties and operations. In May 1996, ATLANTIC, PTR, Security Capital
and Homestead entered into a merger agreement, pursuant to which each of
ATLANTIC, PTR and Security Capital agreed to contribute, through a series of
merger transactions, all of their respective assets relating to Homestead
Village properties to Homestead, and ATLANTIC and PTR agreed to enter into
certain funding commitment agreements. ATLANTIC's and PTR's respective
shareholders approved the Homestead transaction on September 13, 1996 and
September 12, 1996, respectively, and the closing of the Homestead transaction
occurred on October 17, 1996, which resulted in (i) ATLANTIC (a) owning
4,201,220 shares of Homestead common stock, (b) owning 2,818,517 warrants each
to purchase one share of Homestead common stock at $10 per share, (c) agreeing
to provide up to $111.1 million of mortgage financing to Homestead in exchange
for up to approximately $98 million in convertible mortgage notes and (d)
providing a cash payment of $16.6 million to Homestead on the closing date;
(ii) PTR (a) owning 9,485,727 shares of Homestead common stock, (b) owning
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6,363,789 warrants each to purchase one share of Homestead common stock at $10
per share and (c) agreeing to provide up to $198.8 million of mortgage
financing to Homestead in exchange for up to approximately $221 million in
convertible mortgage notes and (iii) Security Capital (a) owning 4,062,788
shares of Homestead common stock and (b) owning 817,694 warrants each to
purchase one share of Homestead common stock at $10 per share. ATLANTIC and PTR
both distributed the Homestead common stock and warrants which each received to
their respective shareholders pro rata in the Homestead transaction on November
12, 1996 to shareholders of record on October 29, 1996. Each holder of record
of a share of ATLANTIC's common stock received 0.110875 shares of Homestead
common stock and warrants to purchase 0.074384 shares of Homestead common stock
and each holder of record of a share of PTR's common shares received 0.125694
shares of Homestead common stock and warrants to purchase 0.084326 shares of
Homestead common stock. As a result of the Homestead transaction, including the
distributions by each of ATLANTIC and PTR, Security Capital owned 9,894,401
shares of Homestead common stock and warrants to purchase 4,730,022 shares of
Homestead common stock. As of March 31, 1997, Security Capital had purchased in
the open market warrants to purchase 1,420,700 shares of Homestead common stock
and has exercised warrants to purchase 3,250,000 shares of Homestead common
stock, and as a result, as of March 31, 1997 owned 13,144,401 shares of
Homestead common stock and warrants to purchase 2,900,722 shares of Homestead
common stock.
Protection of Business Agreement
ATLANTIC, PTR and Security Capital entered into a protection of business
agreement with Homestead, dated as of October 17, 1996 (the "Homestead
Protection of Business Agreement"), which prohibits ATLANTIC, PTR and Security
Capital, and their respective affiliates, from engaging, directly or
indirectly, in the extended-stay lodging business except through Homestead and
its subsidiaries. The agreement also prohibits Homestead from, directly or
indirectly, engaging in the ownership, operation, development, management or
leasing of multifamily communities. The agreement does not prohibit ATLANTIC,
PTR or Security Capital from: (i) owning securities of Homestead; (ii) owning
up to 5% of the outstanding securities of another person engaged in owning,
operating, developing, managing or leasing extended-stay lodging properties, so
long as it does not actively participate in the business of such person; (iii)
owning the outstanding securities of another person, a majority-owned
subsidiary, division, group, franchise or segment of which is engaged in
owning, operating, developing, managing or leasing extended-stay lodging
properties, so long as not more than 5% of such person's consolidated revenues
are derived from such properties; and (iv) owning securities of another person
primarily engaged in a business other than owning, operating, developing,
managing or leasing extended-stay lodging properties, including a person
primarily engaged in business as an owner, operator or developer of hotel
properties, whether or not such person owns, operates, develops, manages or
leases extended-stay lodging properties. The agreement does not prohibit
Homestead from: (i) owning securities of ATLANTIC, PTR or Security Capital;
(ii) owning up to 5% of the outstanding securities of another person engaged in
owning, operating, developing, managing or leasing multifamily communities; and
(iii) owning the outstanding securities of another person, a majority-owned
subsidiary, division, group, franchise or segment of which is engaged in
owning, operating, developing, managing or leasing multifamily communities, so
long as not more than 5% of such person's consolidated revenues are derived
from such properties. The agreement will terminate in the event of an
acquisition, directly or indirectly (other than by purchase from ATLANTIC, PTR
or Security Capital or any of their respective affiliates), by any person (or
group of associated persons acting in concert), other than ATLANTIC, PTR or
Security Capital or their respective affiliates, of 25% or more of the
outstanding voting stock of Homestead, without the prior written consent of
Homestead's Board of Directors. Subject to earlier termination pursuant to the
preceding sentence, the Homestead Protection of Business Agreement will
terminate on October 17, 2006.
Homestead Investor Agreement
Homestead and Security Capital have entered into an investor agreement (the
"Homestead Investor Agreement"), dated as of October 17, 1996, which requires
Security Capital, upon notice from Homestead, to exercise all of the warrants
to purchase shares of Homestead common stock (at an exercise price of $10 per
share) owned by Security Capital. Homestead may call for the exercise of such
warrants by Security Capital upon 10 days' prior written notice. The Homestead
Investor Agreement, among other things, provides that, without having first
consulted with the nominee of Security Capital designated in writing, Homestead
may not seek Homestead Board of Directors' approval of (i) Homestead's annual
budget, (ii) the incurrence of expenses in any year exceeding (A) any line item
in the annual budget by 20% and (B) the total expenses set forth in the annual
budget by 5%, (iii) acquisitions or dispositions in a single transaction or
group of related transactions where the aggregate purchase price paid or
received exceeds $5 million, (iv) new contracts with a service provider (A) for
investment management, property management or leasing services or (B) that
reasonably contemplates annual contract payments by Homestead in excess of
$200,000, (v) the declaration or payment of any dividend or other distribution,
(vi) the approval of stock
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option plans, (vii) the offer or sale of any shares of stock of Homestead or
any securities convertible into shares of stock of Homestead (other than the
sale or grant of any stock or grants of options or exercise of options granted
under any benefit option plan approved by stockholders) and (viii) the
incurrence, restructuring, renegotiation or repayment of indebtedness for
borrowed money in which the aggregate amount involved exceeds $5 million. The
Homestead Investor Agreement also provides that, so long as Security Capital
owns at least 10% of the outstanding shares of Homestead's common stock,
Homestead may not increase the number of persons serving on the Homestead Board
of Directors to more than seven. Security Capital also will be entitled to
designate one or more persons as directors of Homestead, as follows: (i) so
long as Security Capital owns at least 10% but less than 30% of the outstanding
shares of Homestead's common stock, it is entitled to nominate one person and
(ii) so long as Security Capital owns at least 30% of the outstanding shares of
Homestead's common stock, it is entitled to nominate that number of persons as
shall bear approximately the same ratio to the total number of members of the
Homestead Board of Directors as the number of shares of Homestead common stock
beneficially owned by Security Capital bears to the total number of outstanding
shares of Homestead common stock, provided that Security Capital shall be
entitled to designate no more than two persons so long as the Homestead Board
of Directors consists of no more than seven members. Any person who is employed
by Security Capital or who is an employee, a 25% shareholder or a director of
any corporation of which Security Capital is a 25% shareholder (except for
Homestead) shall be deemed to be a designee of Security Capital.
In addition, the Homestead Investor Agreement provides Security Capital with
registration rights pursuant to which, in certain specified circumstances,
Security Capital may request, at any time after October 22, 1997, and on not
more than three occasions, registration pursuant to Rule 415 under the
Securities Act of all of the shares of Homestead's common stock owned by
Security Capital.
Homestead Escrow Agreement
Pursuant to an escrow agreement dated October 17, 1996 (the "Escrow Agreement")
among Homestead, Security Capital and State Street Bank and Trust Company (the
"Escrow Agent"), a portion of the shares of Homestead common stock issuable to
Security Capital as part of the Homestead transaction described above was
placed in an escrow account maintained with the Escrow Agent. In general, as
PTR and ATLANTIC advance funds to Homestead in accordance with the terms of
their respective funding commitment agreements with Homestead, a portion of the
shares of Homestead's common stock in the escrow account will be released to
Security Capital, together with a proportionate amount of accrued dividends, if
any. On January 1, 2000, unless all of the shares of Homestead's common stock
placed in the escrow account have been released to Security Capital sooner in
accordance with the provisions of the Escrow Agreement, the Escrow Agent will
release to Homestead all of the shares of Homestead's common stock remaining in
the escrow account. All dividends or other distributions paid by Homestead in
respect of the shares of Homestead's common stock held in the escrow account
shall be retained by the Escrow Agent for the benefit of the party to whom the
related shares of Homestead's common stock are ultimately issued. The Escrow
Agent will vote all shares of Homestead's common stock held in the escrow
account proportionately in accordance with the vote of all other Homestead
shareholders as instructed by Homestead. In the event that instructions are not
received, the Escrow Agent will not vote such shares. Currently, 1,671,929
shares of Homestead common stock remain in the escrow account.
Homestead Administrative Services Agreement
Homestead has entered into an administrative services agreement with Security
Capital (the "Homestead Administrative Services Agreement"), pursuant to which
Security Capital, through SCGroup, provides Homestead with administrative
services with respect to certain aspects of Homestead's business. These
services include, but are not limited to, insurance administration, accounts
payable administration, internal audit, cash management, human resources,
management information systems, tax and legal administration, research,
shareholder communications and investor relations. The fees payable to Security
Capital are based on Security Capital's cost of the services provided plus an
additional 20%. Any arrangements under the Homestead Administrative Services
Agreement for the provision of services are required to be commercially
reasonable and on terms not less favorable than those which could be obtained
from unaffiliated third parties. The Homestead Administrative Services
Agreement expires on December 31, 1997 and is automatically renewed for
successive one-year terms, subject to approval by a majority of the
disinterested members of the Homestead Board of Directors of the annual
compensation payable to Security Capital for services rendered to Homestead.
Homestead paid fees of $375,000 to Security Capital for administrative services
provided in 1996.
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PTR
Merger and Public Offerings
On December 6, 1994, PTR entered into a merger agreement with PACIFIC and
Security Capital, providing for the merger (the "PTR Merger") of PACIFIC with
and into PTR. The PTR Merger was consummated on March 23, 1995 with 80.7% of
PTR's common shares being voted in favor of the PTR Merger. Pursuant to the PTR
Merger, each then outstanding share of PACIFIC common stock was converted into
the right to receive 0.611 PTR common shares. Security Capital was the
principal stockholder of PACIFIC prior to the PTR Merger, having owned
approximately 97.6% of PACIFIC's common stock outstanding at the time of the
PTR Merger. Security Capital's PACIFIC common stock was converted into
8,266,112 PTR common shares pursuant to the terms of the PTR Merger. In
addition, William D. Sanders, the Chairman of Security Capital, and William G.
Myers and John C. Schweitzer, both trustees of PTR, received 9,165, 9,165 and
7,637 PTR common shares, respectively, upon conversion of their PACIFIC common
stock pursuant to the terms of the PTR Merger. Upon consummation of the PTR
Merger, PTR changed its name from "Property Trust of America" to "Security
Capital Pacific Trust."
PTR REIT Management Agreement
Security Capital Pacific Incorporated (the "PTR REIT Manager") is owned by
Security Capital. All officers of PTR are employees of the PTR REIT Manager and
PTR has no employees. Pursuant to a REIT management agreement (the "PTR REIT
Management Agreement"), the PTR REIT Manager provides both strategic and day-
to-day management to PTR, including research, investment analysis, acquisition
and development services, asset management, capital markets services,
disposition of assets and legal and accounting services. The PTR REIT
Management Agreement requires PTR to pay a base annual fee of $855,000 plus 16%
of cash flow (as defined in the PTR REIT Management Agreement) in excess of
$4,837,000. The PTR REIT Manager also receives a fee of 0.25% per year on the
average daily balance of cash equivalent investments. PTR is obligated to
reimburse the PTR REIT Manager for certain expenses incurred by the PTR REIT
Manager on behalf of PTR relating to PTR's operations, primarily including
third party legal, accounting and similar fees paid on behalf of PTR, and
travel expenses incurred in seeking financing, property acquisitions, property
sales, property development, attendance at trustee and shareholder meetings and
similar activities on behalf of PTR. The PTR REIT Management Agreement is
renewable by PTR annually, subject to a determination by the independent
trustees that the PTR REIT Manager's performance has been satisfactory and that
the compensation payable to the PTR REIT Manager is fair. Each of PTR and the
PTR REIT Manager may terminate the PTR REIT Management Agreement on 60 days'
notice. For 1996, 1995 and 1994, the PTR REIT Manager earned REIT management
fees totalling $22.2 million, $20.4 million and $13.2 million, respectively.
This agreement will be terminated upon the closing of the Mergers and all
employees of the PTR REIT Manager will become employees of PTR.
PTR Property Management
At March 31, 1997, SCG Realty Services Incorporated ("SCG Realty Services"), as
property manager for most of PTR's multifamily communities, managed
approximately 95.2% of PTR's operating multifamily units, with the balance in
various stages of transition to SCG Realty Services' management. Security
Capital owns SCG Realty Services. Rates for services performed by SCG Realty
Services are subject to annual approval by PTR's independent trustees (who
receive an annual review of fees paid for similar services from an independent
third party). During 1996, 1995 and 1994, PTR paid aggregate fees of $9.7
million, $7.9 million and $7.1 million, respectively, to SCG Realty Services.
This agreement will be terminated upon the closing of the Mergers and all
employees of SCG Realty Services will become employees of PTR.
PTR Investor Agreement
Pursuant to various agreements, as amended, between PTR and Security Capital
(the "PTR Investor Agreement"), Security Capital is entitled to designate three
persons to be nominated for election to the PTR Board of Trustees. So long as
Security Capital beneficially owns at least 10% of PTR's common shares, PTR is
prohibited from increasing the number of members of the PTR Board of Trustees
to more than seven. Additionally, the PTR Investor Agreement, among other
things, requires PTR to obtain Security Capital's approval of (i) the annual
operating budget and substantial deviations therefrom, (ii) contracts for
investment management, property management or leasing services or that
contemplate annual payments in excess of $100,000 and (iii) acquisitions or
dispositions in a single transaction or a group of related transactions where
the purchase or sale price exceeds $5 million. The PTR Investor Agreement also
provides certain registration rights to Security Capital in respect of PTR's
common shares beneficially owned by Security Capital.
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At the closing of the Mergers, PTR and Security Capital will amend and restate
the PTR Investor Agreement such that it will be substantially similar to the
ATLANTIC Amended Investor Agreement described above except: (i) it will
restrict the ability of Security Capital (or a group of which it is a member)
from acquiring in excess of 49% of PTR's common shares subject to certain
exceptions and (ii) it will permit PTR to increase the size of the PTR Board of
Trustees to eight members.
Administrative Services Agreement
At the closing of the Mergers, PTR and Security Capital will enter into an
administrative services agreement, pursuant to which Security Capital will
provide PTR with certain administrative and other services with respect to
certain aspects of PTR's business, as selected from time to time by PTR at its
option. These services are expected to include, but are not limited to, payroll
and tax administration services, cash management and accounts payable services,
data processing and other computer services, human resources, research,
investor relations, insurance administration and legal administration. The fees
payable to Security Capital will be equal to Security Capital's cost of
providing such services plus 20%, subject to a maximum amount of approximately
$7.7 million during the initial term of the agreement, of which approximately
$2.2 million will apply to the period between closing of the Mergers and
December 31, 1997 and the remainder will apply to 1998. Cost savings under this
agreement will accrue to PTR. The agreement will be for an initial term
expiring on December 31, 1998 and will be automatically renewed for consecutive
one-year terms, subject to approval by a majority of the independent members of
the PTR Board of Trustees.
License Agreement
At the closing of the Mergers, PTR and Security Capital will enter into a
license agreement (the "PTR License Agreement") pursuant to which Security
Capital will grant PTR a non-exclusive license to use Security Capital's
registered logo and the non-exclusive right to use the name "Security Capital."
The term of the license will be for a period of 15 years, subject to PTR's
right to extend the license for up to two additional five-year periods. As part
of the PTR License Agreement, Security Capital will agree that, during the term
of the agreement, it will not exercise its rights under the PTR Declaration of
Trust to cause PTR to change its name.
Protection of Business Agreement
At the closing of the Mergers, PTR and Security Capital will enter into a
protection of business agreement (the "PTR Protection of Business Agreement"),
which will prohibit Security Capital and its affiliates from providing,
anywhere within the United States, directly or indirectly, substantially the
same services as those currently provided by the PTR REIT Manager and the PTR
Property Manager to any entity that owns or operates multifamily properties.
The PTR Protection of Business Agreement does not prohibit Security Capital or
its affiliates from owning the securities of any class of PTR or ATLANTIC. The
PTR Protection of Business Agreement will terminate in the event of an
acquisition, directly or indirectly, (other than by purchase from Security
Capital or any of its affiliates), by any person (or group of persons acting in
concert), other than Security Capital or any of its affiliates, of the greater
of (i) 25% or more of the outstanding shares of voting securities of PTR and
(ii) the percentage of outstanding voting securities of PTR owned directly or
indirectly by Security Capital and its affiliates, in either case without the
prior written consent of the PTR Board of Trustees. Subject to earlier
termination pursuant to the preceding sentence, the PTR Protection of Business
Agreement will terminate on the third anniversary of the closing date of the
Mergers.
PTR Development Services
PTR owns all of the preferred stock of PTR Development Services Incorporated
("PTR Development Services"), which entitles PTR to 95% of the net operating
cash flow of PTR Development Services. Security Capital owned all of the common
stock of PTR Development Services during 1995. Effective as of January 1, 1996,
Security Capital transferred such common stock to an unaffiliated trust. The
common stock is entitled to receive the remaining 5% of net operating cash
flow. During 1996, PTR made mortgage loans to PTR Development Services in an
aggregate amount of $18.8 million for the purchase of land for multifamily
development. Owning land through PTR Development Services provides greater
flexibility for the use of such land and the disposition of excess parcels. PTR
expects to make similar loans to PTR Development Services in 1997. The
aggregate amount of such loans will vary depending upon the volume of
development activity.
SCI
SCI REIT Management Agreement
Security Capital Industrial Incorporated (the "SCI REIT Manager") is owned by
Security Capital. All officers of SCI are employees of the SCI REIT Manager and
SCI has no employees. Pursuant to a REIT management
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agreement (the "SCI REIT Management Agreement"), the SCI REIT Manager provides
both strategic and day-to-day management, research, investment analysis,
acquisition and due diligence, development, marketing, asset management,
capital markets, disposition of assets, management information systems support
and legal and accounting services. The SCI REIT Management Agreement requires
SCI to pay a base annual fee of approximately 16% of cash flow as defined in
the SCI REIT Management Agreement. The SCI REIT Manager also receives a fee of
0.20% per year on the average daily balance of cash equivalent investments. SCI
is obligated to reimburse the SCI REIT Manager for all expenses incurred by the
SCI REIT Manager on behalf of SCI relating to SCI's operations, primarily
including third-party legal, accounting, property development and similar fees
paid on behalf of SCI, and travel expenses incurred in seeking financing,
property acquisitions, property sales, attendance at SCI Board of Trustees and
shareholder meetings and similar activities on behalf of SCI. The SCI REIT
Management Agreement is renewable annually by SCI, subject to a determination
by the independent trustees that the SCI REIT Manager's performance has been
satisfactory and that the compensation payable to the SCI REIT Manager is fair.
Each of SCI and the SCI REIT Manager may terminate the SCI REIT Management
Agreement on 60 days' notice. For 1996, 1995 and 1994, the SCI REIT Manager
earned REIT management fees of $21.5 million, $14.2 million and $8.7 million,
respectively, pursuant to the SCI REIT Management Agreement. This agreement
will be terminated upon the closing of the Mergers and all employees of the SCI
REIT Manager will become employees of SCI.
SCI Property Management
Commencing in January 1994, SCI Client Services Incorporated ("Client
Services"), an affiliate of the SCI REIT Manager, began providing property
management services for certain of SCI's properties. As of March 31, 1997
Client Services managed 92.7% of SCI's 82.7 million total operating square
feet. The agreement is subject to termination by SCI on 30 days' notice and by
Client Services on 60 days' notice, is renewable annually upon approval of
SCI's independent trustees, and contemplates a fee to Client Services of not
more than 3% per annum of property revenues, paid monthly, plus leasing
commissions and maintenance recovery fees consistent with industry practice,
which together were $11.8 million, $5.3 million and $1.7 million for 1996, 1995
and 1994, respectively. Any management contracts executed with Client Services
are expected to be at or below market rates. This agreement will be terminated
upon the closing of the Mergers and all employees of Client Services will
become employees of SCI.
SCI Investor Agreement
SCI and Security Capital are parties to an Investor Agreement, dated as of
November 18, 1993 (the "SCI Investor Agreement"), which required Security
Capital to invest a minimum of $75 million in SCI's common shares in SCI's
December 1993 private rights offering to shareholders, subject to certain
conditions. The SCI Investor Agreement, among other things, requires SCI to
obtain Security Capital's approval of (i) the annual operating budget and
substantial deviations therefrom, (ii) contracts for investment management,
property management or leasing services or that contemplate annual payments in
excess of $100,000 and (iii) acquisitions or dispositions in a single
transaction or a group of related transactions where the purchase or sale price
exceeds $5 million. The SCI Investor Agreement also provides that, so long as
Security Capital beneficially owns at least 10% of the outstanding SCI common
shares, SCI may not increase the size of its Board of Trustees to more than
seven members. Security Capital is entitled to designate one or more persons
for nomination to election as trustees, and SCI is obligated to use its best
efforts to cause the election of such persons, as follows: (i) so long as
Security Capital beneficially owns at least 10% but less than 20% of the
outstanding SCI common shares, it is entitled to designate two persons; and
(ii) so long as Security Capital beneficially owns at least 20% of the
outstanding SCI common shares, it is entitled to designate three persons. The
SCI Investor Agreement also provides certain registration rights to Security
Capital with respect to SCI's common shares beneficially owned by Security
Capital.
At of the closing of the Mergers, SCI and Security Capital will amend and
restate the SCI Investor Agreement such that it will be substantially similar
to the ATLANTIC Amended Investor Agreement described above.
Administrative Services Agreement
At the closing of the Mergers, SCI and Security Capital will enter into an
administrative services agreement, pursuant to which Security Capital will
provide SCI with certain administrative and other services with respect to
certain aspects of SCI's business, as selected from time to time by SCI at its
option. These services are expected to include, but are not limited to, payroll
and tax administration services, cash management and accounts payable services,
data processing and other computer services, human resources, research,
investor relations, insurance administration and legal administration. The fees
payable to Security Capital will be equal to Security Capital's cost
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of providing such services plus 20%, subject to a maximum amount of
approximately $7.1 million during the initial term of the agreement, of which
approximately $2.0 million will apply to the period between the closing of the
Mergers and December 31, 1997 and the remainder will apply to 1998. Cost
savings under this agreement will accrue to SCI. The agreement will be for an
initial term expiring on December 31, 1998 and will be automatically renewed
for consecutive one-year terms, subject to approval by a majority of the
independent members of the SCI Board of Trustees.
License Agreement
At the closing of the Mergers, SCI and Security Capital will enter into a
license agreement (the "SCI License Agreement") pursuant to which Security
Capital will grant SCI a non-exclusive license to use Security Capital's
registered logo and the non-exclusive right to use the name "Security Capital."
The term of the license will be for a period of 15 years, subject to SCI's
right to extend the license for up to two additional five-year periods. As part
of the SCI License Agreement, Security Capital will agree that during the term
of the agreement, it will not exercise its rights under the SCI Declaration of
Trust to cause SCI to change its name.
Protection of Business Agreement
At the closing of the Mergers, SCI and Security Capital will enter into a
protection of business agreement (the "SCI Protection of Business Agreement"),
which will prohibit Security Capital and its affiliates from providing,
anywhere within the United States, directly or indirectly, substantially the
same services as those currently provided by the SCI REIT Manager and the SCI
Property Manager to any entity that owns or operates distribution properties.
The SCI Protection of Business Agreement does not prohibit Security Capital or
its affiliates from owning the securities of any class of SCI. The SCI
Protection of Business Agreement will terminate in the event of an acquisition,
directly or indirectly, (other than by purchase from Security Capital or any of
its affiliates), by any person (or group of persons acting in concert), other
than Security Capital or any of its affiliates, of the greater of (i) 25% or
more of the outstanding shares of voting securities of SCI and (ii) the
percentage of outstanding voting securities of SCI owned directly or indirectly
by Security Capital and its affiliates, in either case without the prior
written consent of the SCI Board of Trustees. Subject to earlier termination
pursuant to the preceding sentence, the SCI Protection of Business Agreement
will terminate on the third anniversary of the closing date of the Mergers.
SCI Development Services
To better serve national companies which are valued SCI customers and enable
SCI to exclusively meet all of their distribution space needs, SCI Development
Services Incorporated ("SCI Development Services") develops for these customers
build-to-suit distribution space facilities which do not meet SCI's strict
investment criteria. SCI will not own these buildings but owns a preferred
stock interest representing 95% of the net operating cash flow of SCI
Development Services. Security Capital owned all of the common stock of SCI
Development Services during 1995. Effective as of January 1, 1996, Security
Capital transferred such common stock to an unaffiliated trust. The common
stock is entitled to receive the remaining 5% of net operating cash flow.
Through its preferred stock ownership, SCI will realize substantially all
economic benefits of SCI Development Services' activities. Under a separate
agreement, the SCI REIT Manager provides SCI Development Services with day-to-
day management services for a fee based on 16% of SCI Development Services'
pre-tax cash flow plus .20% of the average daily balance of cash equivalent
investments, including gains and losses realized on property sales. The fee
incurred for 1996, 1995 and 1994 was approximately $1.3 million, $700,000 and
$20,000, respectively. During 1996, 1995 and 1994, SCI earned $1.1 million,
$1.7 million and $1.1 million, respectively, in interest income and had $2.7
million, $1.9 million and $17,000, respectively, in accrued interest receivable
from SCI Development Services. As of December 31, 1996, 1995 and 1994, SCI had
outstanding $162 million, $31.1 million and $1.1 million, respectively, of
mortgage loans to SCI Development Services for development and acquisition of
distribution facilities. SCI expects to make similar loans to SCI Development
Services in 1997, however, SCI is unable to quantify the amount of such loans.
SECURITY CAPITAL USREALTY
Advisory Agreement
Pursuant to an agreement dated July 7, 1995 (the "Advisory Agreement"),
Security Capital USREALTY appointed Security Capital (EU) Management S.A.
("USREALTY Adviser") as operating advisor to provide Security Capital USREALTY
with advice with respect to strategy, investments, financing, administrative
and all other operating matters affecting Security Capital USREALTY. The
USREALTY Adviser receives a single all-inclusive annual advisory fee equal to
1.25% of Security Capital USREALTY's assets, excluding investments in Security
Capital
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securities and investments of short-term cash and cash equivalents. The fee
payable to the USREALTY Adviser is reduced to the extent that the third-party
operating and administrative expenses of Security Capital USREALTY exceed .25%
of assets per annum. The USREALTY Adviser is responsible for paying all fees of
Security Capital Investment Research and Security Capital Investment Research
Group (described below) and any other Security Capital advisory affiliates for
services related to advising Security Capital USREALTY. The Advisory Agreement
expires on July 7, 1997 and is automatically renewable for successive two-year
periods, unless either the USREALTY Adviser, on one hand, or Security Capital
USREALTY and Security Capital Holdings S.A., a wholly owned subsidiary of
Security Capital USREALTY ("USREALTY Holdings"), acting together, on the other
hand, give sixty days' prior written notice that the Advisory Agreement will
not be renewed; provided, however, after the first anniversary date of the
agreement or the first anniversary date of any renewal date, both Security
Capital USREALTY and USREALTY Holdings, acting together, may terminate the
agreement on not less than sixty days' prior written notice to the USREALTY
Adviser. During 1996 and 1995, the USREALTY Adviser received fees of $8.0
million and $99,000, respectively, pursuant to the Advisory Agreement.
Sub-Advisory Agreements
Pursuant to an agreement dated July 7, 1995 (the "Sub-Advisory Agreement"), the
USREALTY Adviser appointed Security Capital Investment Research Incorporated, a
wholly owned subsidiary of Security Capital ("Security Capital Investment
Research") as sub-adviser to provide fundamental research, investment
identification, investment due diligence and investment monitoring services.
Effective , 1997, the Sub-Advisory Agreement was amended and the
USREALTY Advisor entered into a separate agreement (together with the Sub-
Advisory Agreement, the "Sub-Advisory Agreements") with Security Capital
Investment Research Group Incorporated, a wholly-owned subsidiary of Security
Capital Investment Research ("Security Capital Investment Research Group") and
a registered investment adviser under the Investment Advisers Act of 1940, as
amended, with respect to its analysis, advice and research in relation to
intermediate term investments in real estate operating companies. Pursuant to
its Sub-Advisory Agreements, Security Capital Investment Research receives (i)
an annual fee based on .06% on strategic investments up to $1 billion and .03%
on strategic investments in excess of $1 billion, (ii) a one time fee equal to
.10% of the consideration payable each time Security Capital USREALTY makes a
strategic investment and (iii) reimbursement of certain expenses, and pursuant
to its Sub-Advisory Agreement, Security Capital Investment Research Group
receives an annual fee equal to .50% on Security Capital USREALTY's other
investments and reimbursement of certain expenses. The Sub-Advisory Agreements
expire on July 7, 1997 and are automatically renewable for successive two-year
periods unless the USREALTY Adviser notifies Security Capital Investment
Research or Security Capital Investment Research Group that either Sub-Advisory
Agreement will not be renewed; provided, however, after the first anniversary
date of the agreements or at any time during a renewal period, the USREALTY
Adviser may terminate either agreement on not less than sixty days' prior
written notice to Security Capital Investment Research or Security Capital
Investment Research Group. During 1996 and 1995, Security Capital Investment
Research earned $1.6 million and $60,000, respectively, pursuant to the Sub-
Advisory Agreement.
OTHER TRANSACTIONS WITH AFFILIATES
In ATLANTIC's March through June 1995 private offering, Security Capital
purchased $94.8 million of shares of ATLANTIC's common stock at $22 per share.
In ATLANTIC's December 1995 through May 1996 private offering, Security Capital
purchased an aggregate of $50 million of shares of ATLANTIC's common stock,
$21.1 million of which were purchased at $23 per share (which was the price per
share paid by other investors in the offering) and $28.9 million of which were
purchased at $23.136 per share. In ATLANTIC's October 1996 initial public
offering, Security Capital purchased $10 million of shares of ATLANTIC's common
stock at $24 per share. Except as described above, all subscriptions were made
on the same terms and at the same times as made available to other investors.
In previous offerings, Security Capital purchased approximately $75 million of
SCI's common shares in 1993 at a price of $11 per share, $98 million of SCI's
common shares in 1994 at a price of $11.50 per share, $53 million of SCI's
common shares in 1994 at a price of $15.125 per share, $150 million of SCI's
common shares in 1994 at a price of $15.25 per share and $100 million of SCI's
common shares in 1995 at a price of $15.375 per share. All such purchases were
made on the same terms and at the same time as such shares were made available
to other shareholders or investors.
62
<PAGE>
CERTAIN RELATIONSHIPS AND TRANSACTIONS
On March 31, 1995, Security Capital entered into an unsecured, full recourse
promissory note with R. Scot Sellers, a Managing Director of PTR and PTR's REIT
Manager. Under the terms of the promissory note, Security Capital lent Mr.
Sellers $249,997.13, which amount is due on the earlier of January 4, 2005 or
120 days after Mr. Sellers is no longer an officer of PTR. Interest on the
unpaid balance accrues at a floating rate per annum equal to the lowest rate
charged by Morgan Guaranty Trust Company of New York to its most creditworthy
corporate customers for unsecured loans having a maturity of ninety days or
less, in effect from time to time, plus .25%, and is payable semiannually on
each July 4 and January 4. The proceeds of the promissory note were used by Mr.
Sellers to purchase common shares of PTR.
On March 31, 1995, Security Capital entered into an unsecured, full recourse
promissory note with Constance B. Moore, then a Managing Director of PTR and
PTR's REIT Manager. Under the terms of such promissory note, Security Capital
lent Ms. Moore $245,625, which amount is due on the earlier of January 4, 2005
or 120 days after Ms. Moore is no longer an officer of PTR or any affiliate
thereof. Interest on the unpaid balance accrues at a floating rate per annum
equal to the lowest rate charged by Morgan Guaranty Trust Company of New York
to its most creditworthy corporate customers for unsecured loans having a
maturity of ninety days or less, in effect from time to time, plus .25%, and is
payable semiannually on each July 4 and January 4. The proceeds of such
promissory note were used by Ms. Moore to purchase common shares of PTR.
On October 3, 1995, Security Capital entered into an unsecured, full recourse
promissory note with K. Dane Brooksher, Co-Chairman and Chief Operating Officer
of SCI and SCI's REIT Manager. Under the terms of the promissory note, Security
Capital lent Mr. Brooksher $249,997.50, which amount is due on the earlier of
January 4, 2005 or 120 days after Mr. Brooksher is no longer an officer of SCI.
Interest on the unpaid balance accrues at a floating rate per annum equal to
the lowest rate charged by Morgan Guaranty Trust Company of New York to its
most creditworthy corporate customers for unsecured loans having a maturity of
ninety days or less, in effect from time to time, plus .25%, and is payable
semi-annually on each July 4 and January 4. The proceeds of the promissory note
were used by Mr. Brooksher to purchase common shares of SCI.
On May 10, 1996, Security Capital entered into an unsecured, full recourse
promissory note with Ms. Moore, Co-Chairman and Chief Operating Officer of
ATLANTIC and ATLANTIC's REIT Manager. Under the terms of such promissory note,
Security Capital lent Ms. Moore $250,000, which amount is due on the earlier of
January 5, 2006 or 120 days after Ms. Moore is no longer an officer of
ATLANTIC. Interest on the unpaid balance accrues at a floating rate per annum
equal to the lowest rate charged by Morgan Guaranty Trust Company of New York
to its most creditworthy corporate customers for unsecured loans having a
maturity of ninety days or less, in effect from time to time, plus .25%, and is
payable semiannually on each July 5 and January 5. The proceeds of such
promissory note were used by Ms. Moore to purchase common shares of ATLANTIC.
On May 17, 1996, Security Capital entered into an unsecured, full recourse
promissory note with James C. Potts, Co-Chairman and Chief Investment Officer
of ATLANTIC and ATLANTIC's REIT Manager. Under the terms of the promissory
note, Security Capital lent Mr. Potts $180,550, which amount is due on the
earlier of January 5, 2006 or 120 days after Mr. Potts is no longer an officer
of ATLANTIC. Interest on the unpaid balance accrues at a floating rate per
annum equal to the lowest rate charged by Morgan Guaranty Trust Company of New
York to its most creditworthy corporate customers for unsecured loans having a
maturity of ninety days or less, in effect from time to time, plus .25%, and is
payable semi-annually on each July 5 and January 5. The proceeds of the
promissory note were used by Mr. Potts to purchase common shares of ATLANTIC.
On December 27, 1996, Security Capital entered into a secured promissory note
and related pledge agreement with C. Ronald Blankenship, a Managing Director of
Security Capital. Under the terms of the secured promissory note, Security
Capital lent Mr. Blankenship $925,000, which amount is due on the earlier of
January 15, 2000 or 120 days after Mr. Blankenship is no longer an officer of
Security Capital or an affiliate thereof. Interest on the unpaid balance
accrues at six percent per year and is payable annually on January 15 each year
the secured promissory note is outstanding. The proceeds of the secured
promissory note were used by Mr. Blankenship to repay principal and interest on
earlier notes issued by Mr. Blankenship to Security Capital between August 1992
and March 1995, aggregating approximately $370,000, for repayment of other
obligations and for the payment of taxes. The secured promissory note is
secured by Class A Shares of Security Capital, common shares of PTR, SCI,
ATLANTIC and Homestead, and by 2014 Convertible Debentures, owned by Mr.
Blankenship. The secured promissory note is also secured by a life insurance
policy on Mr. Blankenship in the amount of $925,000 which policy names Security
63
<PAGE>
Capital as beneficiary. Mr. Blankenship has also agreed that if he exercises
any options for Security Capital securities prior to repayment of the secured
promissory note, any securities obtained upon exercise of such options shall
become subject to the pledge agreement and the net proceeds (after payment of
minimum withholding taxes) of any securities obtained upon exercise of such
options and disposed of by Mr. Blankenship shall be immediately applied to the
outstanding and unpaid interest and principal on the secured promissory note.
On April 1, 1997, Security Capital entered into a secured promissory note and
related pledge agreement with Thomas G. Wattles, a Managing Director of
Security Capital. Under the terms of the secured promissory note, Security
Capital lent Mr. Wattles $411,000, which amount may be increased by Mr. Wattles
up to $536,000, which amount is due on the earlier of January 15, 2000 or 120
days after Mr. Wattles is no longer an officer of Security Capital or an
affiliate thereof. Interest on the unpaid balance accrues at six percent per
year and is payable annually on January 15 each year the secured promissory
note is outstanding. The proceeds of the secured promissory note were used by
Mr. Wattles to repay principal and interest on earlier notes issued by Mr.
Wattles to Security Capital between January 1991 and October 1995, aggregating
approximately $362,000, for repayment of other obligations and for the payment
of taxes. The secured promissory note is secured by Class A Shares of Security
Capital, common shares of SCI, and by 2014 Convertible Debentures, owned by Mr.
Wattles. The secured promissory note is also secured by a life insurance policy
on Mr. Wattles in the amount of $536,000 which policy has been assigned to
Security Capital. Mr. Wattles has also agreed that if he exercises any options
for Security Capital securities prior to repayment of the secured promissory
note, any securities obtained upon exercise of such options shall become
subject to the pledge agreement and the net proceeds (after payment of minimum
withholding taxes) of any securities obtained upon exercise of such options and
disposed of by Mr. Wattles shall be immediately applied to the outstanding and
unpaid interest and principal on the secured promissory note.
As of April 24, 1997, Security Capital and William D. Sanders, Chairman and
Chief Executive Officer of Security Capital, entered into an agreement (the
"Sanders Agreement") under which Security Capital agreed to acquire all the
shares of a corporation owned by Mr. Sanders in exchange for 19,938 Class A
Shares, providing Mr. Sanders increased direct ownership in the Company. The
corporation's sole assets are warrants and options issued to Mr. Sanders
between 1991 and 1993 to purchase an aggregate of 16,143 Class A Shares and
$8,047,303 principal amount of 2014 Convertible Debentures (convertible into an
aggregate of 7,693 Class A Shares), or a total of 23,836 Class A Shares, with
an aggregate exercise price of approximately $11.3 million. All the options and
warrants are fully vested and expire in 2002. The Company and Mr. Sanders
agreed to use the average net asset value of the Class A Shares between April 1
and April 21, 1997 of $1,205 per share in determining the value of the 23,836
Class A Shares, which was approximately $28.7 million. The Sanders Agreement
was entered into as an alternative to Mr. Sanders funding the exercise of the
options and warrants with Class A Shares owned by Mr. Sanders, which was
rejected by the Company. Under the Sanders Agreement, the Company issued $17.4
million of Class A Shares which is equal to the difference between the total
value of the shares issuable ($28.7 million), and the total exercise price
($11.3 million) for the options and warrants. As additional consideration in
the transaction, the Company issued $6.6 million of Class A Shares for the
value of the holder's ability to defer exercising the warrants and options
until 2002 in accordance with their terms. As a result, the Company agreed to
issue 19,938 Class A Shares with an aggregate value of $24 million. The
transaction will result in a non-cash, non-recurring charge to earnings of the
Company in 1997 of approximately $6.6 million.
On April 24, 1997, SCI, through an affiliate of SCI, acquired the
refrigerated warehouse and distribution operations of Christian Salvesen, Inc.
and related companies located in the United States and Canada for $122.4
million. The acquired companies were subsequently transferred to a new entity,
CS Integrated LLC ("CSI"), which is 60% owned by an affiliate of SCI and 40%
owned by an affiliate of Hunt Financial Corporation. SCI's affiliate paid
approximately $73.4 million for its interest in CSI and the affiliate of Hunt
Financial Corporation paid approximately $49.0 million for its interest in CSI.
Under the terms of its agreement with Hunt Financial Corporation's affiliate,
SCI's affiliate has the option to increase its ownership interest in CSI to 80%
as SCI's affiliate invests additional capital. Hunt Financial Corporation is a
wholly owned subsidiary of Hunt Consolidated Inc., which is part of the Hunt
family interests headed by Ray L. Hunt, who is a director of Security Capital.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of March 31, 1997, the beneficial ownership
of Class A Shares and Class B Shares which could be received if the respective
Class A Shares were converted into Class B Shares by the holders thereof after
January 1, 1998 for (i) each director of Security Capital, (ii) each Named
Executive Officer, (iii) each person known to Security Capital to be the
beneficial owner of more than 5% of Class A Shares, and (iv) the directors and
executive officers of Security Capital or certain affiliates as a group and the
percentage ownership by each of such persons after the Offering and all of such
interests are owned directly, and the indicated person or entity has sole
voting and investment power. There are currently no Class B Shares outstanding.
The address for each director and executive officer listed below is c/o
Security Capital Group Incorporated at its administrative offices located at
7777 Market Center Avenue, El Paso, Texas 79912.
<TABLE>
<CAPTION>
-----------------------------------------------------
CLASS A SHARES CLASS B SHARES
(1)(2) (1)(2)(3)
---------------------- ----------------------
NAME AND ADDRESS
OF BENEFICIAL OWNER NUMBER % NUMBER %
------------------------ ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Samuel W. Bodman 3,922 * 196,100
Hermann Buerger - (4) * -
John P. Frazee, Jr. 3,526(5) * 176,300
Cyrus F. Freidheim, Jr. 2,762 * 138,100
H. Laurance Fuller 2,935(6) * 146,750
Ray L. Hunt 20,041(7) 1.54 1,002,050(7)
John T. Kelley III 2,652(8) * 132,600
William D. Sanders 39,124(9)(10) 3.00 1,956,200
Peter S. Willmott 3,344(11) * 167,200
C. Ronald Blankenship 3,853 * 192,650
Thomas G. Wattles 3,085(12) * 154,250
K. Dane Brooksher 1,361 * 68,050
David C. Dressler, Jr. 2,326 * 116,300
All directors and
executive officers
as a group (22 persons) 90,882(13) 6.99 4,544,100
The Allstate Corporation
2775 Sanders Road
Northbrook, IL 60062 69,474 5.34 3,473,700
</TABLE>
- --------
* Less than 1%
(1) Includes Class A Shares that may be acquired upon the exercise of options
or warrants within 60 days for Messrs. Bodman (1,362), Buerger (0), Frazee
(1,362), Freidheim (1,362), Fuller (1,362), Hunt (1,362), Kelley (1,362),
Sanders (3,817), Willmott (1,362), Blankenship (3,559), Wattles (2,918),
Brooksher (855) and Dressler (1,330).
(2) For each person who owns options or warrants that are exercisable within 60
days, the calculation of the percentage ownership assumes that only that person
has exercised all of his options or warrants and that no other person has
exercised any outstanding options or warrants.
(3) Assumes full conversion of all Class A Shares into Class B Shares and does
not give effect to the exercise of any Warrants that may be issued pursuant to
the Merger Agreements.
(4) Mr. Buerger is Executive Vice President of Commerzbank AG in New York.
Commerzbank Aktiengesellschaft, Grand Cayman Branch, owns all 139,000 shares of
Series A Preferred Stock, which are convertible into a maximum of 105,896 Class
A Shares as described under "Description of Capital Stock--Preferred Stock."
Mr. Buerger disclaims beneficial ownership of these shares.
(5) Includes five shares held by Mr. Frazee's children, and one share held by
his wife.
(6) Includes three shares held by Mr. Fuller's wife, and three shares held by
his children.
(7) Includes four shares held by family trusts for which Mr. Hunt is trustee
and 3,572 shares for which Mr. Hunt shares beneficial ownership pursuant to a
power of attorney. Excludes 1,430 shares that Mr. Hunt's wife owns as separate
property, of which Mr. Hunt disclaims beneficial ownership.
(8) Includes 1,289 shares held by a trust of which Mr. Kelley is trustee, and
one share held by his son.
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<PAGE>
(9) Includes 430 shares held by the Sanders Foundation; an aggregate of 93
shares held by Mr. Sanders' wife and children; and 17,993 warrants held by Mr.
Sanders.
(10) Subsequent to March 31, 1997, Mr. Sanders acquired 19,938 Class A Shares
in exchange for shares of a corporation he owned which holds options and
warrants to purchase 16,143 Class A Shares and $8,047,303 principal amount of
2014 Convertible Debentures. See "Certain Relationships and Transactions."
(11) Includes two shares held by Mr. Willmott's children.
(12) Includes one share held by Mr. Wattles' wife.
(13) Includes options to purchase 23,417 Class A Shares exercisable within 60
days.
The following table sets forth, as of March 31, 1997, the beneficial ownership
of the outstanding common shares of each of the operating companies for (i)
each director of Security Capital, (ii) each Named Executive Officer and (iii)
the directors and executive officers of Security Capital as a group. The
address of each person listed below is c/o Security Capital Group Incorporated
at its administrative offices located at 7777 Market Center Avenue, El Paso,
Texas 79912. Unless otherwise indicated in the footnotes, all of such interests
are owned directly, and the indicated person or entity has sole voting and
investment power.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
SECURITY
ATLANTIC HOMESTEAD PTR SCI CAPITAL
(1)(2) (2)(3) (1)(2) (1)(2) USREALTY (2)
-------------- ---------------- ---------------- --------------- ------------------
NAME OF BENEFICIAL OWNER NUMBER % NUMBER % NUMBER % NUMBER % NUMBER %
- ------------------------ ------ --- ------- ---- ------- ---- ------- --- --------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Samuel W. Bodman (4) - - - - - - 48,308 * 196,705 *
Hermann Buerger (5) - - 12,000 - - - - - - -
John P. Frazee, Jr. (6) 6,250 * 4,758(7) * 7,637 * 40,223 * - -
Cyrus F. Freidheim,
Jr. (8) 2,500 * 1,102 * 3,055 * 5,408 * 5,000 *
H. Laurance Fuller (9) 500 * 216 * 610 * 2,850 * - -
Ray L. Hunt 17,000(10) * 85,237(11) * 390,404(12) * 160,135(13) * 2,131,056(14) 1.87
John T. Kelley III (15) 250 * 2,739 * 16,835 * 90,448 * 26,000 *
William D. Sanders (16) 6,155 * 235,111 * 287,938 * 269,403 * 611,028 *
Peter S. Willmott (17) 1,250 * 3,447 * 15,327 * 10 * - -
C. Ronald Blankenship (18) 500 * 7,311 * 34,385 * 436 * - -
Thomas G. Wattles (19) 12 * 1,837 * 8,750 * 26,245 * - -
David C. Dressler (20) 500 * 25,629 * 6,611 * 2,425 * 1,600 *
K. Dane Brooksher (21) 1,075 * 325 * 611 * 30,077 * 5,000 *
All directors and
executive officers as a
group (20 persons) 35,992 * 368,912 1.32% 772,163 1.01% 675,968 * 2,976,389 2.62%
</TABLE>
- --------
* Less than 1%
(1) Assumes that (i) no common shares are issued pursuant to the rights
offerings being conducted pursuant to the Merger Agreements and (ii) Security
Capital receives common shares of ATLANTIC, common shares of PTR
and common shares of SCI, respectively, pursuant to the Merger
Agreements.
(2) For each person who owns options or warrants that are exercisable within 60
days, the calculation of the percentage ownership assumes that only that person
has exercised all of his options or warrants and that no other person has
exercised any outstanding options or warrants.
(3) Includes common shares and warrants.
(4) SCI shares are owned by the Bodman Foundation, a charitable trust of which
Mr. Bodman is a trustee. Security Capital USREALTY shares include 49,176 shares
owned by Elizabeth L. Bodman Trust. Mr. Bodman claims no beneficial interest in
these shares.
(5) Homestead shares include warrants to acquire 11,000 shares held by Mr.
Buerger and warrants to acquire 1,000 shares held in trust for Mr. Buerger's
daughter.
(6) ATLANTIC and PTR shares are held in an IRA account; SCI shares include 404
shares held by Mr. Frazee's wife and 2,428 shares held by children.
(7) Includes option for 2,000 shares.
(8) Security Capital USREALTY shares are held by Mr. Freidheim's wife.
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<PAGE>
(9) Includes 250 ATLANTIC shares held by Mr. Fuller's wife, 108 Homestead
shares held by Mr. Fuller's wife, 305 PTR shares held by Mr. Fuller's children,
404 SCI shares held by Mr. Fuller's children and two SCI shares held by Mr.
Fuller's wife.
(10) Includes 750 shares held by a family trust for which Mr. Hunt is trustee,
2,250 shares for which Mr. Hunt shares direct or indirect beneficial ownership
pursuant to powers of attorney, 12,500 shares held by a family limited
partnership of which a corporation that Mr. Hunt owns is the general partner
and 750 shares held by a corporation that Mr. Hunt owns. Excludes 750 shares
that Mr. Hunt's wife owns as separate property, of which Mr. Hunt disclaims
beneficial ownership.
(11) Includes 198 shares held by family trusts for which Mr. Hunt is trustee,
396 shares for which Mr. Hunt shares beneficial ownership pursuant to powers of
attorney, 3,304 shares held by a family limited partnership of which a
corporation that Mr. Hunt owns is the general partner, and 198 shares held by a
corporation that Mr. Hunt owns. Excludes 198 shares that Mr. Hunt's wife owns
as separate property and 14,052 shares held by Hunt Financial Corporation, the
capital stock of which is held, indirectly through a series of corporations, by
trusts for the benefit of Mr. Hunt and members of his family, as to which Mr.
Hunt disclaims beneficial ownership. Includes 132 warrants held by family
trusts for which Mr. Hunt is trustee, 701 warrants for which Mr. Hunt shares
beneficial ownership pursuant to powers of attorney, 2,217 warrants held by a
family limited partnership of which a corporation that Mr. Hunt owns is the
general partner and 132 warrants held by a corporation that Mr. Hunt owns.
Excludes 132 warrants that Mr. Hunt's wife owns as separate property and 9,427
warrants held by Hunt Financial Corporation, as to which Mr. Hunt disclaims
beneficial ownership.
(12) Includes 917 shares held by a family trust for which Mr. Hunt is trustee,
2,748 shares for which Mr. Hunt shares direct or indirect beneficial ownership
pursuant to powers of attorney, 15,275 shares held by a family limited
partnership of which a corporation that Mr. Hunt owns is the general partner
and 916 shares held by a corporation that Mr. Hunt owns. Excludes 916 shares
that Mr. Hunt's wife owns as separate property and 111,800 shares held by Hunt
Financial Corporation, as to which Mr. Hunt disclaims beneficial ownership.
(13) Includes 6,343 shares held by family trusts for which Mr. Hunt is trustee,
3,801 shares for which Mr. Hunt shares direct or indirect beneficial ownership
pursuant to powers of attorney, 146,192 shares held by a family limited
partnership of which a corporation that Mr. Hunt owns is the general partner,
1,266 shares held by a corporation that Mr. Hunt owns and 1,266 shares of which
Mr. Hunt may be deemed to be the beneficial owner as trustee of family trusts
owning 50% of the stock of a corporation that owns those shares. Excludes 1,269
shares that Mr. Hunt's wife owns as separate property, of which Mr. Hunt
disclaims beneficial ownership.
(14) Includes 196,706 shares for which Mr. Hunt shares indirect beneficial
ownership pursuant to powers of attorney, 1,671,997 shares held by a family
limited partnership of which a corporation that Mr. Hunt owns is the general
partner and 98,353 shares held by a corporation that Mr. Hunt owns. Excludes
82,000 shares that Mr. Hunt's wife owns as separate property, of which Mr. Hunt
disclaims beneficial ownership.
(15) ATLANTIC shares and Homestead shares are held in a trust for which Mr.
Kelley is trustee. SCI shares include 404 shares held by Mr. Kelley's son;
remaining SCI shares are held in a trust for which Mr. Kelley is trustee.
Security Capital USREALTY shares includes 1,000 shares held by Mr. Kelley's
son.
(16) Homestead shares includes 40,340 shares and 61,080 shares held by
partnerships, 2,625 shares held by the Sanders Foundation and 3,500 shares held
by a limited partnership. PTR shares include 74,188 shares and 9,165 shares
held by partnerships and 12,500 shares held by the Sanders Foundation. SCI
shares include 74,005 shares and 22,666 shares held by partnerships and an
aggregate of 2,730 shares held by Mr. Sanders' wife and children. Security
Capital USREALTY shares include 207,117 shares held by partnerships and an
aggregate of 500 shares held by Mr. Sanders' children.
(17) Includes four SCI shares held by Mr. Willmott's children.
(18) Includes 2,895 shares of Homestead stock held by Mr. Blankenship's child;
13,791 PTR common shares owned by a corporation of which Mr. Blankenship is
controlling shareholder.
(19) Includes 12 shares of ATLANTIC common stock held by Mr. Wattles' children;
Homestead shares include one share held by Mr. Wattles' child, remaining
Homestead shares are held in an IRA account; PTR shares are held in an IRA
account; SCI shares include 1,970 shares held by Mr. Wattles' children, five
shares held by his wife, and 7,422 shares held in an IRA account.
(20) ATLANTIC shares are held in trust accounts of which Mr. Dressler is
trustee; Homestead shares include 25,000 shares of restricted securities; PTR
common shares include 3,611 shares held in trust accounts for which Mr.
Dressler is trustee and SCI shares include one share held by Mr. Dressler's son
and shares held in trust accounts of which Mr. Dressler is trustee; Security
Capital USREALTY shares are held in trust accounts for which Mr. Dressler is
trustee.
(21) SCI shares include 640 shares held in Mr. Brooksher's wife's name;
Security Capital USREALTY shares are held in an IRA account.
67
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of Security Capital consists of 250,000,000
shares, consisting of 20,000,000 Class A Shares, 229,861,000 Class B Shares and
139,000 shares of Series A Preferred Stock. The Board may, by articles
supplementary, classify or reclassify any unissued shares of stock from time to
time by setting or changing the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends and other distributions,
qualifications or terms or conditions of redemption of such stock. No holder of
any class of capital stock of Security Capital will have any preemptive right
to subscribe for any securities of Security Capital except as may be granted by
the Board pursuant to an agreement between Security Capital and a shareholder.
Under Maryland law, shareholders are generally not liable for Security
Capital's debts or obligations. For a description of certain provisions that
could have the effect of delaying, deferring or preventing a change in control,
see "Risk Factors--Limitations on Acquisition of Shares and Change in Control,"
and "Certain Provisions of Maryland Law and of Security Capital's Charter and
Bylaws."
The transfer agent and registrar for the Shares is The First National Bank of
Boston, 150 Royall Street, Canton, Massachusetts 02021.
COMMON STOCK
The holders of outstanding Class A Shares are entitled to one vote, and the
holders of outstanding Class B Shares are entitled to one two-hundredth
(1/200th) of a vote, for each share held of record on all matters submitted to
a vote of shareholders. Unless otherwise required by Maryland law, the Class A
Shares and the Class B Shares will vote as a single class with respect to all
matters submitted to a vote of shareholders of Security Capital, including the
election of directors. Shareholders do not have the right to cumulate their
votes in the election of directors, which means that, the holders of a majority
of the outstanding Class A Shares can elect all of the directors then standing
for election.
Commencing January 1, 1998, each Class A Share may be converted into 50 Class B
Shares at the holder's option at any time. Class B Shares are not convertible
into Class A Shares or any other security.
Holders of Class A Shares are entitled to receive ratably such dividends as may
be declared by the Board out of funds legally available therefor. Holders of
Class B Shares are entitled to dividends equal to one-fiftieth (1/50th) of the
amount per share declared by the Board for each Class A Share. Dividends with
respect to the Class B Shares will be paid in the same form and at the same
time as dividends with respect to the Class A Shares, except that, in the event
of a stock split or stock dividend, holders of Class A Shares will receive
Class A Shares and holders of Class B Shares will receive Class B Shares,
unless otherwise specifically designated by resolution of the Board. Security
Capital has no present intention to pay a dividend on Class B Shares or Class A
Shares (which would necessitate a one-fiftieth (1/50th) equivalent dividend on
Class B Shares) in the future.
In the event of the liquidation, dissolution or winding-up of Security Capital,
holders of Class A Shares and Class B Shares are entitled to share ratably in
all assets remaining after the payment of liabilities, with holders of Class B
Shares entitled to receive per share one-fiftieth (1/50th) of any amount per
share received by holders of Class A Shares. Neither holders of Class A Shares
or Class B Shares shall have preemptive rights to subscribe for additional
shares of either class. All outstanding Class A Shares are, and all Class B
Shares to be outstanding upon completion of the Offering will be, fully paid
and non-assessable.
PREFERRED STOCK
The Board is empowered by the Charter, without the approval of shareholders, to
cause shares of preferred stock to be issued in one or more series and to
determine, among other things, the number of preferred shares of each series
and the rights, preferences, powers and limitations of each series which may be
senior to the rights of Shares. The issuance of preferred stock could have the
effect of delaying, deferring or preventing a change in control of Security
Capital and may adversely affect the voting and other rights of shareholders.
Upon completion of the Offering and except for the Series A Preferred Stock
described below, no shares of preferred stock will be outstanding and Security
Capital has no present plans to issue any preferred stock following completion
of the Offering other than as contemplated by the Rights Agreement (as defined
below).
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Security Capital currently has outstanding 139,000 shares of Series A Preferred
Stock. Generally, the Series A Preferred Stock is entitled to receive quarterly
cumulative cash dividends in an annual amount equal to $75 per share. The
Series A Preferred Stock is entitled to receive $1,000 per share, plus an
amount equal to accrued and unpaid dividends, if any, upon any liquidation,
dissolution or winding up of Security Capital before any distribution could be
made to holders of Class A Shares or Class B Shares. Each share of Series A
Preferred Stock is convertible at the option of the holder, into 0.76184 Class
A Shares, subject to customary adjustments to prevent dilution. In the event
that a holder of the Series A Preferred Stock would be prohibited under the
Bank Holding Company Act of 1956, as amended, from owning securities
constituting or convertible into 5% or more of the outstanding Class A Shares,
then the conversion rights of the shares of Series A Preferred Stock by such
holder shall be modified as follows: (i) the number of shares of Series A
Preferred Stock held by such holder which may then be converted by such holder
without resulting in such holder owning 5% or more of the Class A Shares
outstanding after such conversion shall be convertible into Class A Shares; and
(ii) any shares of Series A Preferred Stock held by such holder in excess of
the number of shares which may then be converted as described in clause (i)
will not be convertible into Class A Shares until such time as (and only to the
extent that) (A) such shares may be converted without resulting in such holder
owning 5% or more of the Class A Shares outstanding after such conversion or
(B) such shares are held by a person not prohibited from owning securities
constituting or convertible into 5% or more of Class A Shares as described
above.
The Series A Preferred Stock is not redeemable before March 29, 1999. On and
after such date, the Series A Preferred Stock is redeemable, in whole or in
part, at the option of Security Capital upon not less than 30 days' notice, in
cash at $1,000 per share plus accrued and unpaid dividends, if any. The vote or
consent of a majority of the Series A Preferred Stock is necessary (i) to
amend, alter or repeal any provision of the Articles Supplementary governing
the Series A Preferred Stock in a manner which materially and adversely affects
the voting powers, rights or preferences of the Series A Preferred Stock or
(ii) to authorize, reclassify, create or increase the authorized amount of any
stock of any class (or any security convertible into stock of any class)
ranking prior to the Series A Preferred Stock in the distribution of assets on
any liquidation, dissolution or winding up of Security Capital or in the
payment of dividends. The Series A Preferred Stock is entitled to one vote per
Class A Share into which the Series A Preferred Stock is then convertible,
voting together with the Class A Shares, on any of the following matters if the
Class A Shares are entitled to vote thereon: (i) an amendment, alteration or
repeal of any of the provisions of the Charter, (ii) a consolidation or merger
of Security Capital with or into another entity or of another entity with or
into Security Capital, (iii) a sale or transfer of all or substantially all of
Security Capital's assets or (iv) the voluntary liquidation or dissolution of
Security Capital. Also, the Series A Preferred Stock is entitled to one-half
vote per Class A Share into which the Series A Preferred Stock is then
convertible, voting together with the Class A Shares, on any other matter
submitted to a vote of Security Capital's shareholders.
PURCHASE RIGHTS
On April 21, 1997, the Board declared a dividend of one Purchase Right for each
Share outstanding at the close of business on April 21, 1997 (the "Rights
Record Date") to the holders of Shares of record as of the Rights Record Date.
The dividend was paid on the Rights Record Date. The holders of any additional
Shares issued after the Rights Record Date and before the redemption or
expiration of the Purchase Rights will also be entitled to one Shareholder
Purchase Right for each such additional Share. Each Purchase Right entitles the
registered holder, under certain circumstances, to purchase from Security
Capital, in the event the underlying share is a Class A Share, one one-
hundredth of a Participating Preferred Share of Security Capital at a price of
$6,000 per one one-hundredth of a Participating Preferred Share (the "Purchase
Price"), subject to adjustment. In the event the underlying share is a Class B
Share, the Purchase Right entitles the registered holder under certain
circumstances to purchase from Security Capital one five-thousandth of a
Participating Preferred Share of Security Capital at a price of $120 per one
five-thousandth of a Participating Preferred Share. The description and terms
of the Purchase Rights are set forth in the Rights Agreement dated as of April
21, 1997 between Security Capital and The First National Bank of Boston, as
rights agent (the "Rights Agreement").
The Purchase Rights will be exercisable and will be evidenced by separate
certificates only after the earlier to occur of: (1) 10 days following a public
announcement that a person or group of affiliated or associated persons, other
than Security Capital USREALTY and certain affiliates of Security Capital, has
acquired beneficial ownership of 20% or more of the voting power of the voting
equity securities of Security Capital (thereby becoming an "Acquiring Person")
or (2) 15 business days (or such later date as may be determined by action of
the Board prior
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to such time as any person or group of affiliated persons becomes an Acquiring
Person) following the commencement of, or announcement of an intention to make,
a tender offer or exchange offer the consummation of which would result in the
beneficial ownership by a person or group of persons of 25% or more of the
voting power of the voting equity securities of Security Capital (the first to
occur of such dates being called the "Rights Distribution Date"). With respect
to any of the Class A Share or Class B Share certificates outstanding as of the
Rights Record Date, until the Rights Distribution Date the Purchase Rights will
be evidenced by such certificate. Until the Rights Distribution Date (or
earlier redemption or expiration of the Purchase Rights), new certificates
issued after the Rights Record Date upon transfer or new issuance of Class A
Shares or Class B Shares will contain a notation incorporating the Rights
Agreement by reference. Notwithstanding the foregoing, if the Board in good
faith determines that a person who would otherwise be an Acquiring Person under
the Rights Agreement has become such inadvertently, and such person divests as
promptly as practicable a sufficient number of Class A Shares or Class B Shares
so that such person would no longer be an Acquiring Person, then such person
shall not be deemed to be an Acquiring Person for purposes of the Rights
Agreement.
The Purchase Rights will expire on April 21, 2007 (the "Final Expiration
Date"), unless the Final Expiration Date is extended or unless the Rights are
earlier redeemed or exchanged by Security Capital, in each case as described
below.
The Purchase Price payable, and the number of Participating Preferred Shares or
other securities or property issuable, upon exercise of the Purchase Rights are
subject to adjustment under certain circumstances from time to time to prevent
dilution. With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price.
Participating Preferred Shares purchasable upon exercise of the Purchase Rights
will not be redeemable. Each Participating Preferred Share will be entitled to
a minimum preferential quarterly distribution payment of $1 per share but will
be entitled to an aggregate distribution of 100 times the distribution declared
per Class A Share, or if no Class A Shares are outstanding, 2 times the
distribution declared per Class B Share. Each Participating Preferred Share
will have 100 votes, voting together with the Shares. In the event of
liquidation, the holders of the Participating Preferred Shares will be entitled
to a minimum preferential liquidation payment of $1 per share but will be
entitled to an aggregate payment of 100 times the payment made per Class A
Share, or if no Class A Shares are outstanding, 2 times the payment made per
Class B Share. In the event of any merger, consolidation or other transaction
in which Class A Shares or Class B Shares are exchanged, each Participating
Preferred Share will be entitled to receive 100 times the amount received per
Class A Share or Class B Share, as the case may be. In the event of issuance of
Participating Preferred Shares upon exercise of the Purchase Rights, in order
to facilitate trading, a depositary receipt may be issued for each one one-
hundredth or one five-thousandth of a Participating Preferred Share. The
Purchase Rights will be protected by customary antidilution provisions.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, proper provision will be made so that each holder
of a Purchase Right, other than Purchase Rights beneficially owned by the
Acquiring Person (which will thereafter be void), will thereafter have the
right to receive upon exercise a number of Class A Shares or Class B Shares, as
the case may be, having a market value (determined in accordance with the
Rights Agreement) of twice the Purchase Price. In lieu of the issuance of Class
A Shares or Class B Shares, as the case may be, upon exercise of Purchase
Rights, the Board may under certain circumstances, and if there is an
insufficient number of Class A Shares or Class B Shares, as the case may be,
authorized but unissued or held as treasury Shares to permit the exercise in
full of the Purchase Rights, the Board is required to, take such action as may
be necessary to cause Security Capital to issue or pay upon the exercise of
Purchase Rights, cash (including by way of a reduction of purchase price),
property, other securities or any combination of the foregoing having an
aggregate value equal to that of the Class A Shares or Class B Shares, as the
case may be, which otherwise would have been issuable upon the exercise of
Purchase Rights.
In the event that, after any person or group becomes an Acquiring Person,
Security Capital is acquired in a merger or other business combination
transaction of 50% or more of its consolidated assets or earning power are
sold, proper provision will be made so that each holder of a Purchase Right
will thereafter have the right to receive, upon
the exercise thereof at the then current Purchase Price, a number of shares of
common stock of the acquiring company having a market value (determined in
accordance with the Rights Agreement) of twice the Purchase Price.
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At any time after any person or group becomes an Acquiring Person and prior to
the acquisition by that person or group of 50% or more of the outstanding Class
A Shares or Class B Shares, the Board may exchange the Purchase Rights (other
than Purchase Rights owned by that person or group which will have become
void), in whole or in part, at an exchange ratio of one Class A Share or Class
B Share, as the case may be (or one one-hundredth or one five-thousandth of a
Participating Preferred Share as the case may be), per Purchase Right (subject
to adjustment).
As soon as practicable after a Rights Distribution Date, Security Capital is
obligated to use its best efforts to file a registration statement under the
Securities Act relating to the securities issuable upon exercise of Purchase
Rights and to cause such registration statement to become effective as soon as
practicable.
At any time prior to the time a person or group of persons becomes an Acquiring
Person, the Board may redeem the Purchase Rights in whole, but not in part, at
a price of $.01 per Purchase Right (the "Redemption Price") payable in cash,
Shares or any other form of consideration deemed appropriate by the Board. The
redemption of the Purchase Rights may be made effective at such time, on such
basis and with such conditions as the Board in its sole discretion may
establish. Immediately upon the effectiveness of any redemption of the Purchase
Rights, the right to exercise the Purchase Rights will terminate and the only
right of the holders of Purchase Rights will be to receive the Redemption
Price.
The terms of the Purchase Rights may be amended by the Board without the
consent of the holders of the Purchase Rights, except that from and after the
time any person or group of affiliated or associated persons becomes an
Acquiring Person no such amendment may adversely affect the interests of the
holders of the Purchase Rights and in no event shall any such amendment change
the 20% threshold at which a person acquiring beneficial ownership of Class A
Shares or Class B Shares becomes an Acquiring Person.
The Purchase Rights have certain anti-takeover effects. The Purchase Rights
will cause substantial dilution to a person or group that attempts to acquire
Security Capital on terms not approved by its Board, except pursuant to an
offer conditioned on a substantial number of Purchase Rights being acquired.
The Purchase Rights should not interfere with any merger or other business
combination approved by the Board since the Purchase Rights may be redeemed by
Security Capital at the Redemption Price prior to the time that a person or
group has acquired beneficial ownership of 20% or more of the voting power of
the voting equity securities of Security Capital. The form of Rights Agreement
specifying the terms of the Purchase Rights has been incorporated by reference
into the registration statement of which this Prospectus forms a part and is
incorporated herein by reference. The foregoing description of the Purchase
Rights does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, the Rights Agreement, including the definitions
therein of certain terms.
RESTRICTION ON SIZE OF HOLDINGS OF SHARES
The Charter contains certain restrictions on the number of Shares that
individual shareholders may own. For the operating companies to qualify as
REITs under the Code, no more than 50% of the value of their shares (after
taking into account options to acquire shares) may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities and constructive ownership among specified family members)
during the last half of a taxable year (other than the first taxable year), by
100 or more persons during at least 335 days of a taxable year or during a
proportionate part of a shorter taxable year. Because certain of the operating
companies are REITs, their respective charters and Security Capital's Charter
contain restrictions on the acquisition of shares intended to ensure compliance
with these requirements.
Subject to certain exceptions specified in the Charter, no holder may own, or
be deemed to own by virtue of the attribution provisions of the Code, more than
9.8% (the "Ownership Limit") of the number or value of the issued and
outstanding shares of Security Capital's stock. The Board, upon receipt of a
ruling from the U.S. Internal Revenue Service (the "IRS") or an opinion of
counsel or other evidence satisfactory to the Board and upon such other
conditions as the Board may direct, may also exempt a proposed transferee from
the Ownership Limit. As a condition of such exemption, the proposed transferee
must give written notice to Security Capital of the proposed transfer no later
than the fifteenth day prior to any transfer which, if consummated, would
result in the intended transferee owning shares of Security Capital's stock in
excess of the Ownership Limit. The Board may require such opinions of counsel,
affidavits, undertakings or agreements as it may deem necessary or advisable in
order to determine or ensure the operating companies' status as REITs. Any
transfer of Shares that would (i) create a direct or indirect ownership of
shares of Security Capital's stock in excess of the Ownership Limit or (ii)
result in a
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Security Capital investee being "closely held" within the meaning of Section
856(h) of the Code, shall be null and void ab initio, and the intended
transferee will acquire no rights to the shares of Security Capital's stock.
The foregoing restrictions on transferability and ownership will not apply if
the Board determines, which determination must be approved by the shareholders,
that it is no longer in the best interests of Security Capital to attempt to,
or to continue to, assist Security Capital's operating companies in qualifying
as REITs. The Charter excludes Security Capital USREALTY (and its transferees)
from the Ownership Limit.
Any shares of Security Capital's stock, the purported transfer of which would
result in a person owning Shares in excess of the Ownership Limit or cause any
or all of the operating companies to become "closely held" under Section 856(h)
of the Code, that is not otherwise permitted as provided above will constitute
excess shares ("Excess Shares"), which will be transferred pursuant to the
Charter to a party not affiliated with Security Capital designated by Security
Capital as the trustee of a trust for the exclusive benefit of an organization
or organizations described in Sections 170(b)(1)(A) and 170(c) of the Code and
identified by the Board as the beneficiary or beneficiaries of the trust (the
"Charitable Beneficiary"), until such time as the Excess Shares are transferred
to a person whose ownership will not violate the restrictions on ownership.
While these Excess Shares are held in trust, they will be entitled to share in
any distributions which will be paid to the trust for the benefit of the
Charitable Beneficiary and may only be voted by the trustee for the benefit of
the Charitable Beneficiary. Subject to the Ownership Limit, the Excess Shares
shall be transferred by the trustee at the direction of Security Capital to any
person (if the Excess Shares would not be Excess Shares in the hands of such
person). The purported transferee will receive the lesser of (i) the price paid
by the purported transferee for the Excess Shares (or, if no consideration was
paid, fair market value on the day of the event causing the Excess Shares to be
held in trust) and (ii) the price received from the sale or other disposition
of the Excess Shares held in trust. Any proceeds in excess of the amount
payable to the purported transferee will be paid to the Charitable Beneficiary.
In addition, such Excess Shares held in trust are subject to purchase by
Security Capital for a 90-day period at a purchase price equal to the lesser of
(i) the price paid for the Excess Shares by the purported transferee (or, if no
consideration was paid, fair market value at the time of the event causing the
Shares to be held in trust) and (ii) the fair market value of the Excess Shares
on the date Security Capital elects to purchase. Fair market value, for these
purposes, means the last reported sales price reported on the NYSE on the
trading day immediately preceding the relevant date, or if not then traded on
the NYSE, the last reported sales price on the trading day immediately
preceding the relevant date as reported on any exchange or quotation system
over or through which the relevant class of shares of stock may be traded, or
if not then traded over or through any exchange or quotation system, then the
market price on the relevant date as determined in good faith by the Board.
From and after the purported transfer to the purported transferee of the Excess
Shares, the purported transferee shall cease to be entitled to distributions,
voting rights and other benefits with respect to the Excess Shares except the
right to payment on the transfer of the Excess Shares as described above. Any
distribution paid to a purported transferee on Excess Shares prior to the
discovery by Security Capital that such Excess Shares have been transferred in
violation of the provisions of the Charter shall be repaid, upon demand, to
Security Capital, which shall pay any such amounts to the trust for the benefit
of the Charitable Beneficiary. If the foregoing transfer restrictions are
determined to be void, invalid or unenforceable by any court of competent
jurisdiction, then the purported transferee of any Excess Shares may be deemed,
at the option of Security Capital, to have acted as an agent on behalf of
Security Capital in acquiring such Excess Shares and to hold such Excess Shares
on behalf of Security Capital.
All certificates representing Shares will bear a legend referring to the
restrictions described above.
Each shareholder shall upon demand be required to disclose to Security Capital
in writing such information with respect to the direct, indirect and
constructive ownership of Shares as the Board deems reasonably necessary to
assist its operating companies in complying with the provisions of the Code
applicable to REITs, to determine Security Capital's operating companies status
as REITs, to comply with the requirements of any taxing authority or
governmental agency or to determine any such compliance.
These ownership limitations could have the effect of discouraging a takeover or
other transaction in which holders of some, or a majority, of the Shares might
receive a premium for their Shares over the then prevailing market price or
which such holders might believe to be otherwise in their best interest.
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CERTAIN PROVISIONS OF MARYLAND LAW AND OF SECURITY CAPITAL'SCHARTER AND BYLAWS
The following paragraphs summarize certain provisions of Maryland law and the
Charter and Bylaws. The summary does not purport to be complete and is subject
to and qualified in its entirety by reference to Maryland law and the Charter
and Bylaws for complete information.
CLASSIFICATION OF THE BOARD
The Bylaws provide that the number of directors may be established by the Board
but may not be fewer than three nor more than fifteen. Any vacancy will be
filled, at any regular meeting or at any special meeting called for that
purpose, by a majority of the remaining directors, except that a vacancy
resulting from an increase in the number of directors will be filled by a
majority of the entire Board. Pursuant to the terms of the Charter, the
directors are divided into three classes. One class holds office for a term
expiring at the annual meeting of shareholders to be held in 1998, another
class holds office for a term expiring at the annual meeting of shareholders to
be held in 1999 and another class holds office for a term expiring at the
annual meeting of shareholders to be held in 2000. As the term of each class
expires, directors in that class will be elected for a term of three years and
until their successors are duly elected and qualify. Security Capital believes
that classification of the Board will help to assure the continuity and
stability of Security Capital's business strategies and policies as determined
by the Board.
The classified director provision could have the effect of making the removal
of incumbent directors more time-consuming and difficult, which could
discourage a third party from making a tender offer or otherwise attempting to
obtain control of Security Capital, even though such an attempt might be
beneficial to Security Capital and its shareholders. At least two annual
meetings of shareholders, instead of one, will generally be required to effect
a change in a majority of the Board. Thus, the classified board provision could
increase the likelihood that incumbent directors will retain their positions.
DIRECTOR LIABILITY LIMITATION AND INDEMNIFICATION
Maryland law permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Charter contains
such a provision which eliminates such liability to the maximum extent
permitted by Maryland law.
The Bylaws provide that Security Capital will, to the maximum extent permitted
by Maryland law in effect from time to time, indemnify and pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
individual who is a present or former director or officer of Security Capital
or (b) any individual who, while a director of Security Capital and at the
request of Security Capital, serves or has served another corporation,
partnership, joint venture, trust, employee benefit plan or any other
enterprise as a director, officer, partner or trustee of such corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
Security Capital has the power with the approval of the Board, to provide such
indemnification and advancement of expenses to a person who has served a
predecessor of Security Capital in any of the capacities described in (a) or
(b) above and to any employee or agent of Security Capital or its predecessors.
Maryland law requires a corporation (unless its charter requires otherwise,
which the Charter does not) to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he or she is made a party by reason of his or her service in that
capacity. Maryland law permits a corporation to indemnify its present and
former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made party by reason of
their service in those or other capacities unless it is established that (a)
the act or omission of the director or officer was material to the matter
giving rise to the proceeding and (i) was committed in bad faith or (ii) was
the result of active and deliberate dishonesty, (b) the director or officer
actually received an improper personal benefit in money, property or services
or (c) in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However, a
Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation. Maryland law permits Security Capital to
advance reasonable expenses to a director or officer upon Security Capital's
receipt of (a) a
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written affirmation by the director of officer of his or her good faith belief
that he or she has met the standard of conduct necessary for indemnification by
Security Capital as authorized by the Bylaws and (b) a written statement by or
on his or her behalf to repay the amount paid or reimbursed by Security Capital
if it shall ultimately be determined that the standard of conduct was not met.
Additionally, Security Capital has entered into indemnity agreements with each
of its officers and directors which provide for reimbursement of all expenses
and liabilities of such officer or director, arising out of any lawsuit or
claim against such officer or director due to the fact that he or she was or is
serving as an officer or director, except for such liabilities and expenses (a)
the payment of which is judicially determined to be unlawful, (b) relating to
claims under Section 16(b) of the Exchange Act or (c) relating to judicially
determined criminal violations.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling Security Capital
pursuant to the foregoing provisions, Security Capital has been informed that
in the opinion of the Commission such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable.
BUSINESS COMBINATIONS
Under Maryland law, certain "business combinations" (including a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns 10% or more of the voting
power of the corporation's shares or an affiliate of the corporation who, at
any time within the two-year period prior to the date in question, was the
beneficial owner of 10% or more of the voting power of the then-outstanding
voting stock of the corporation (an "Interested Stockholder") or an affiliate
thereof are prohibited for five years after the most recent date on which the
Interested Stockholder became an Interested Stockholder. Thereafter, any such
business combination must be recommended by the Board of such corporation and
approved by the affirmative vote of at least (a) 80% of the votes entitled to
be cast by holders of outstanding voting shares of the corporation and (b) two-
thirds of the votes entitled to be cast by holders of outstanding voting shares
of the corporation other than shares held by the Interested Stockholder with
whom the business combination is to be effected, unless, among other things,
the corporation's stockholders receive a minimum price (as defined under
Maryland law) for their shares and the consideration is received in cash or in
the same form as previously paid by the Interested Stockholder for its shares.
These provisions of Maryland law do not apply, however, to business
combinations that are approved or exempted by the Board of the corporation
prior to the time that the Interested Stockholder becomes an Interested
Stockholder.
Security Capital's Charter exempts from these provisions of Maryland law any
business combination with Security Capital USREALTY and its affiliates and
successors. As a result, Security Capital USREALTY and its affiliates and
successors may be able to enter into business combinations with Security
Capital that may not be in the best interests of its stockholders without
compliance by Security Capital with the super majority vote requirements and
other provisions of the statute.
CONTROL SHARE ACQUISITIONS
Maryland law provides that "Control Shares" of a Maryland corporation acquired
in a "Control Share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares of stock owned by the acquiror or by officers or
directors who are employees of the corporation. "Control Shares" are voting
shares of stock which, if aggregated with all other such shares of stock
previously acquired by the acquiror, or in respect of which the acquiror is
able to exercise or direct the exercise of voting power, would entitle the
acquiror to exercise voting power in electing directors within one of the
following ranges of voting power: (i) one-fifth or more but less than one-
third, (ii) one-third or more but less than a majority, or (iii) a majority of
all voting power. Control Shares do not include shares the acquiring person is
then entitled to vote as a result of having previously obtained stockholder
approval. A "Control Share acquisition" means the acquisition of Control
Shares, subject to certain exceptions.
A person who has made or proposes to make a Control Share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the Board to call a special meeting of stockholders to be held
within 50 days of demand to consider the voting rights of the shares. If no
request for a meeting is made, the corporation may itself present the question
at any stockholders meeting.
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If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute,
then, subject to certain conditions and limitations, the corporation may redeem
any or all of the Control Shares (except those for which voting rights have
previously been approved) for fair value determined, without regard to the
absence of voting rights for the Control Shares, as of the date of the last
Control Share acquisition or of any meeting of stockholders at which the voting
rights of such shares are considered and not approved. If voting rights for
Control Shares are approved at a stockholders meeting and the acquiror becomes
entitled to vote a majority of the shares entitled to vote, all other
stockholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the Control Share acquisition.
The Control Share acquisition statute does not apply to shares acquired in a
merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the charter or bylaws
of the corporation.
Security Capital's Bylaws contain a provision exempting Security Capital
USREALTY and its affiliates and successors from the provisions of the Control
Share acquisition statute.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
For nominations or other business to be properly brought before an annual
meeting of shareholders by a stockholder, the Bylaws require such shareholder
to deliver a notice to the Secretary, absent specified circumstances, not less
than 60 days nor more than 90 days prior to the first anniversary of the
preceding year's annual meeting setting forth: (i) as to each person whom the
shareholder proposes to nominate for election or reelection as a director, all
information relating to such person that is required to be disclosed in
solicitations of proxies for the election of directors, pursuant to Regulation
14A of the Exchange Act; (ii) as to any other business that the shareholder
proposes to bring before the meeting, a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting and any material interest in such business of such
shareholder and of the beneficial owner, if any, on whose behalf the proposal
is made; and (iii) as to the shareholder giving notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made, (x) the name
and address of such shareholder as they appear on Security Capital's books, and
of such beneficial owner and (y) the number of Shares which are owned
beneficially and of record by such shareholder and such beneficial owner, if
any.
SHARES AVAILABLE FOR FUTURE SALE
At March 31, 1997, Security Capital had 1,301,010 Class A Shares issued and
outstanding, which will be convertible beginning January 1, 1998 into a total
of 65,050,500 Class B Shares. In addition, Security Capital has 139,000 Series
A Preferred Shares outstanding, convertible into a maximum of 105,896 Class A
Shares. Security Capital also has outstanding (i) approximately $714 million
principal amount of its 2014 Convertible Debentures, convertible into an
aggregate of 682,293 Class A Shares, (ii) approximately $323 million principal
amount of its 2016 Convertible Debentures, convertible into an aggregate of
279,950 Class A Shares, (iii) warrants to purchase 40,241 Class A Shares and
$30,483,000 principal amount of 2014 Convertible Debentures (convertible into
29,142 Class A Shares), and (iv) options to purchase 138,521 Class A Shares and
$55,575,000 principal amount of 2014 Convertible Debentures (convertible into
53,168 Class A Shares) reserved for issuance upon exercise of options under
Security Capital's employee benefit plans. All such Class A Shares, except
those held by affiliates, and the Class B Shares into which they may be
converted, may be sold in the public market in the future pursuant to
registration rights or available exemptions from registration. In addition,
after consummation of the Mergers, Security Capital is expected to have
outstanding Warrants to purchase a total of $250 million of Class B Shares
(based on the price of the Class B Shares on a date to be established following
completion of the Offering). To the extent such Warrants are exercised, the
Class B Shares may be sold in the public markets without limitation. No
prediction can be made regarding the effect of future sales of Class B Shares
on the market prices of Class B Shares.
All of the Class B Shares to be issued or sold by Security Capital in the
Offering, other than any Class B Shares purchased by affiliates, will be
tradeable without restriction under the Securities Act. The Class A Shares
currently issued and outstanding or reserved for issuance upon exercise of
options or warrants or conversion of debentures
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will be eligible for sale, subject to the volume resale, manner of sale and
notice limitations of Rule 144 of the Securities Act. In general, under Rule
144, a person (or persons whose shares are aggregated in accordance with the
Rule) who has beneficially owned his or her shares for at least one year,
including any such persons who may be deemed "affiliates" of Security Capital
(as defined in the Securities Act), would be entitled to sell within any three-
month period a number of shares that does not exceed the greater of 1% of the
then outstanding number of shares or the average weekly trading volume of the
shares during the four calendar weeks preceding each such sale. After shares
are held for two years, a person who is not deemed an "affiliate" of Security
Capital is entitled to sell such shares under Rule 144 without regard to the
volume limitations described above. Sales of shares by affiliates will continue
to be subject to the volume limitations. As defined in Rule 144, an "affiliate"
of an issuer is a person that directly or indirectly, through the use of one or
more intermediaries, controls, is controlled by, or is under common control
with, such issuer.
No prediction can be made as to the effect, if any, that future sales of Shares
or the availability of Shares for future sale will have on the market price
prevailing from time to time. Sales of substantial amounts of Shares (including
Shares issued upon the exercise of options or warrants or conversion of
Convertible Debentures and Series A Preferred Stock), or the perception that
such sales could occur, could adversely affect the prevailing market price of
the Shares.
For a description of certain restrictions on transfers of Shares by Security
Capital (and certain of its directors, officers and affiliates), see
"Underwriting."
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF CLASS B SHARES
The following is a general discussion of certain U.S. federal tax consequences
of the ownership and disposition of Class B Shares by a beneficial owner of
such shares that is not a U.S. person (a "non-U.S. holder"). For purposes of
this discussion, a "U.S. person" means a citizen or resident of the United
States, a corporation or partnership created or organized in the United States
or under the law of the United States or of any State or political subdivision
of the foregoing, any estate whose income is includible in gross income for
U.S. federal income tax purposes regardless of its source, or a "United States
Trust." A United States Trust is (a) for taxable years beginning after December
31, 1996, or if the trustee of a trust elects to apply the following definition
to an earlier taxable year, any trust if, and only if, (i) a court within the
United States is able to exercise primary supervision over the administration
of the trust and (ii) one or more U.S. fiduciaries have the authority to
control all substantial decisions of the trust, and (b) for all other taxable
years, any trust whose income is includible in gross income for United States
Federal income tax purposes regardless of its source. This discussion does not
deal with all aspects of U.S. federal income and estate taxation that may be
relevant to non-U.S. holders in light of their particular circumstances, and
does not address state, local or non-U.S. tax considerations. Furthermore, the
following discussion is based on provisions of the Code, Treasury Regulations
promulgated thereunder and administrative and judicial interpretations as of
the date hereof, all of which are subject to change, possibly with retroactive
effect. Treasury Regulations were recently proposed that would, if adopted in
their present form, revise in certain respects the rules applicable to non-U.S.
holders of Class B Shares (the "Proposed Regulations"). The Proposed
Regulations are generally proposed to be effective with respect to payments
made after December 31, 1997. It is not certain whether, or in what form, the
Proposed Regulations will be adopted as final regulations. Each prospective
investor is urged to consult its own tax adviser with respect to the particular
U.S. federal, state and local consequences to it of owning and disposing of
Class B Shares, as well as any tax consequences arising under the laws of any
other taxing jurisdiction.
U.S. INCOME AND ESTATE TAX CONSEQUENCES
Although Security Capital does not currently intend to pay dividends on either
its Class A Shares or Class B Shares, dividends paid to a non-U.S. holder are
subject to U.S. withholding tax at a rate of 30% of the gross amount of the
dividend or, if applicable, a lower treaty rate, unless the dividend is
effectively connected with the conduct of a trade or business in the United
States by a non-U.S. holder (and, if certain tax treaties apply, is
attributable to a United States permanent establishment maintained by such non-
U.S. holder) and a Form 4224 stating that the dividends are so connected is
filed with Security Capital. A dividend that is effectively connected with the
conduct of a trade or business in the United States by a non-U.S. holder (and,
if certain tax treaties apply, is attributable to a
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United States permanent establishment maintained by such non-U.S. holder) will
be exempt from the withholding tax described above and subject instead (i) to
the U.S. federal income tax on net income that applies to U.S. persons and (ii)
with respect to corporate holders under certain circumstances, a 30% (or, if
applicable, lower treaty rate) branch profits tax that in general is imposed on
its "effectively connected earnings and profits" (within the meaning of the
Code) for the taxable year, as adjusted for certain items.
Under current Treasury Regulations, dividends paid to an address in a foreign
country are presumed to be paid to a resident of that country (unless the payor
has knowledge to the contrary) for purposes of the withholding discussed above
and, under the current interpretation of the Treasury Regulations, for purposes
of determining the applicability of a tax treaty rate. Under the Proposed
Regulations, however, a non-U.S. holder of Class B Shares who wishes to claim
the benefit of an applicable treaty rate would be required to satisfy
applicable certification and other requirements. In the case of a foreign
partnership, the certification requirement would generally be applied to the
partners of the partnership. In addition, the Proposed Regulations would also
require the partnership to provide certain information, including a United
States taxpayer identification number, and would provide look-through rules for
tiered partnerships. A non-U.S. holder that is eligible for a reduced rate of
U.S. withholding tax pursuant to an income tax treaty may obtain a refund of
any excess amount withheld by filing an appropriate claim for refund with the
IRS.
Under current law, a non-U.S. holder generally will not be subject to U.S.
federal income tax on any gain recognized on a sale or other disposition of a
Class B Share unless (i) subject to the exception discussed in the paragraph
below Security Capital is or has been at any time within the shorter of the
five-year period preceding such disposition or such holder's holding period a
"United States real property holding corporation" for U.S. federal income tax
purposes, (ii) the gain is effectively connected with the conduct of a trade or
business within the United States of the non-U.S. holder (and, if certain tax
treaties apply, is attributable to a United States permanent establishment
maintained by the non-U.S. holder), (iii) the gain is not described in clause
(ii) above, the non-U.S. holder is an individual who holds the share as a
capital asset, is present in the United States for 183 days or more in the
taxable year of the disposition and the gain is attributable to an office or
other fixed place of business maintained in the United States by such
individual, or (iv) the non-U.S. holder is subject to tax pursuant to the Code
provisions applicable to certain U.S. expatriates. In the case of a non-U.S.
holder that is described under clause (ii) above, its gain will be subject to
the U.S. federal income tax on net income that applies to U.S. persons and, in
addition, if such non-U.S. holder is a foreign corporation, it may be subject
to the branch profits tax as described in the second preceding paragraph. An
individual non-U.S. holder that is described under clause (iii) above will be
subject to a flat 30% tax on the gain derived from the sale, which may be
offset by capital losses which are treated as U.S. source (notwithstanding the
fact that he or she is not considered a resident of the United States).
Security Capital believes that it currently is not a "United States real
property holding corporation." In general, if Security Capital were treated as
or were to become a "United States real property holding corporation" under the
Foreign Investment in Real Property Tax Act ("FIRPTA"), a non-U.S. holder of
Class B Shares deemed to own more than 5% of the Class B Shares would be
subject to United States federal income tax on a sale or other disposition of
such Class B Shares, and a non-U.S. holder that is not deemed to own more than
5% of the Class B Shares would not be subject to United States federal income
tax on gain on a sale or other disposition of such shares provided that such
shares are "regularly traded on an established securities market" (within the
meaning of Section 897(c)(3) of the Code and the temporary regulations issued
pursuant thereto). Additionally if the Class B Shares are not "regularly traded
on an established securities market" a non-U.S. holder of such shares would be
subject to a United States withholding tax equal to 10% of the amount realized
on a disposition of such shares. There is no assurance that Security Capital is
not currently or will not become a "United States real property holding
corporation."
Class B Shares owned or treated as owned by an individual who is not a citizen
or resident (as specially defined for United States federal income tax
purposes) of the United States at the date of death, or Class B Shares subject
to certain lifetime transfers made by such an individual, will be included in
such individual's estate for United States federal estate tax, unless an
applicable estate tax treaty provides otherwise.
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BACKUP WITHHOLDING AND INFORMATION REPORTING
Dividends
Except as provided below, Security Capital must report annually to the IRS and
to each non-U.S. holder the amount of dividends paid to and the tax withheld
with respect to such holder. These information reporting requirements apply
regardless of whether withholding was reduced or eliminated by an applicable
tax treaty. Copies of these information returns may also be available under the
provisions of a specific treaty or agreement with the tax authorities in the
country in which the non-U.S. holder resides. In general, backup withholding at
a rate of 31% and additional information reporting will apply to dividends paid
on Class B Shares to holders that are not "exempt recipients" and that fail to
provide in the manner required certain identifying information (such as the
holder's name, address and taxpayer identification number). Generally,
individuals are not exempt recipients, whereas corporations and certain other
entities generally are exempt recipients. However, dividends that are subject
to U.S. withholding tax at the 30% statutory rate or at a reduced tax treaty
rate are exempt from backup withholding of U.S. federal income tax and such
additional information reporting.
Broker Sales
If a non-U.S. holder sells Class B Shares through a U.S. office of a U.S. or
foreign broker, the broker is required to file an information return and is
required to withhold 31% of the sale proceeds unless the non-U.S. holder is an
exempt recipient or has provided the broker with the information and
statements, under penalties of perjury, necessary to establish an exemption
from backup withholding. If payment of the proceeds of the sale of a share by a
non-U.S. holder is made to or through the foreign office of a broker, that
broker will not be required to backup withhold or, except as provided in the
next sentence, to file information returns. In the case of proceeds from a sale
of a share by a non-U.S. holder paid to or through the foreign office of a U.S.
broker or a foreign office of a foreign broker that is (i) a controlled foreign
corporation for U.S. tax purposes or (ii) a person 50% or more of whose gross
income for the three-year period ending with the close of the taxable year
preceding the year of payment (or for the part of that period that the broker
has been in existence) is effectively connected with the conduct of a trade or
business within the United States (a "Foreign U.S. Connected Broker"),
information reporting is required unless the broker has documentary evidence in
its files that the payee is not a U.S. person and certain other conditions are
met, or the payee otherwise establishes an exemption. In addition, the Treasury
Department has indicated that it is studying the possible application of backup
withholding in the case of such foreign offices of U.S. and Foreign U.S.
Connected Brokers.
The Proposed Regulations would, if adopted, alter the foregoing rules in
certain respects. Among other things, the Proposed Regulations would provide
certain presumptions under which a non-U.S. holder would be subject to backup
withholding and information reporting unless Security Capital receives
certification from the holder of its non-U.S. status.
Refunds
Any amounts withheld under the backup withholding rules from a payment to a
non-U.S. holder may be refunded or credited against the non-U.S. holder's U.S.
federal income tax liability, provided that the required information is
furnished to the IRS.
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ERISA MATTERS
The fiduciary requirements of Title I of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), require the investments of a
pension, profit sharing or other employee benefit plan subject to ERISA (an
"ERISA Plan") to be (i) prudent and in the best interests of the ERISA Plan,
its participants and beneficiaries; (ii) diversified in order to reduce the
risk of large losses, unless it is clearly prudent not to do so; and (iii)
authorized under the terms of the governing documents of the ERISA Plan. Each
fiduciary of an ERISA Plan should carefully consider whether an investment in
the Class B Shares is consistent with his or her fiduciary duties.
A fiduciary making the decision to invest in the Class B Shares on behalf of
an ERISA Plan, a governmental plan, an Individual Retirement Account or certain
non-ERISA plans (a "Plan") is advised to consult his or her own legal advisor
regarding the specific considerations arising under ERISA, the Code or state
law with respect to the purchase, ownership or sale of Class B Shares by such
Plan.
A regulation promulgated by the Department of Labor (the "DOL Regulation")
provides that, except under certain circumstances set forth therein, investment
by a Plan in a corporation, partnership or other entity may result in the
assets of that entity being treated as the assets of the investing Plan.
An investment in an "operating company" is one circumstance in which the
entity's assets will not be deemed to be "plan assets." The DOL Regulation
includes in the definition of "operating company" a "venture capital operating
company" ("VCOC"). A VCOC is an entity which, as of its "initial valuation
date" and annually on its "annual valuation date" (as defined by the DOL
Regulation), has at least 50% of its assets (other than short-term assets
pending long-term investment or distribution), valued at cost, invested in
venture capital investments or derivative instruments and which actually
exercises, in the ordinary course of its business, management rights in one or
more of the operating companies in which it invests. The Company has received
opinions from Mayer, Brown and Platt that it is a VCOC as of its most recent
valuation date and, assuming that at the relevant future valuation dates
(including after giving effect to the Mergers) its investments in qualifying
venture capital investments constitute at least 50% of its assets valued at
cost, and that it continues to exercise its management rights in at least one
of the operating companies in which it invests, it will qualify as a VCOC and
its assets will not be deemed "plan assets" under the DOL Regulation.
The DOL Regulation also provides that an entity's assets will not be treated
as "plan assets" because of an ERISA Plan's investment if the Plan acquires a
"publicly offered security" which is an equity interest in the entity. The DOL
Regulation defines a publicly offered security as a security that is freely
transferable, part of a class of securities that is widely held and either (i)
part of a class of securities registered under Section 12(b) or 12(g) of the
Exchange Act or (ii) sold pursuant to an effective registration statement under
the Securities Act (provided that the securities are registered under the
Exchange Act within 120 days after the end of the fiscal year of the issuer
during which the offering occurred). The Class B Shares are expected to be
registered under Section 12(b) of the Exchange Act upon completion of the
Offering and, prior to the completion of the Offering, the Class A Shares will
be registered under Section 12(g) of the Exchange Act.
A security is "widely held" if it is part of a class of securities owned by
100 or more investors independent of the issuer and of one another. The Company
believes that the Class A Shares are widely held and expects the Class B Shares
to be widely held upon completion of the Offering.
Whether a security is "freely transferable" is a factual question to be
determined on the basis of all relevant facts and circumstances. The DOL
Regulation creates certain safe harbors for securities with a minimum
investment of $10,000 or less, which safe harbor is not available for Class B
Shares offered hereby. Nevertheless, the Company believes that any restrictions
on the transfer of Class A Shares or Class B Shares are limited to the type of
restrictions permitted by the DOL Regulation. The DOL Regulation only
establishes a presumption in favor of free transferability, and no assurance
can be given that the Department of Labor or the U.S. Treasury Department will
not reach a contrary conclusion.
Assuming that the Class A Shares and Class B Shares will be "widely held" and
that no facts and circumstances other than those referred to in the preceding
paragraph exist that restrict transferability, the Company
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believes that, while the issue is not entirely free from doubt because of its
factual nature, the Class A Shares and Class B Shares will be publicly offered
securities and the assets of the Company will not be deemed to be "plan assets"
of any Plan which invests in Class B Shares.
Notwithstanding the foregoing, if the assets of the Company were deemed to be
"plan assets" under ERISA, the Company's ability to engage in business
transactions could be hampered because: (i) certain persons exercising
discretion as to the Company's assets might be considered to be fiduciaries
under ERISA; (ii) transactions involving the Company undertaken at their
direction or pursuant to their advice might violate ERISA; and (iii) certain
transactions that the Company might enter into in the ordinary course of its
business might constitute "prohibited transactions" under ERISA and the Code.
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UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date of this Prospectus (the "Underwriting Agreement"), the
Underwriters named below, for whom J.P. Morgan Securities Inc. is acting as
representative (the "Representative"), have agreed to purchase, and the Company
has agreed to sell to them, the respective numbers of Class B Shares set forth
opposite their names below. Under the terms and subject to the conditions set
forth in the Underwriting Agreement, the Underwriters are obligated to take and
pay for all such Class B Shares, if any are taken. Under certain circumstances,
the commitments of nondefaulting Underwriters may be increased as set forth in
the Underwriting Agreement.
<TABLE>
<CAPTION>
------------------------
UNDERWRITERS NUMBER OF CLASS B SHARES
------------ ------------------------
<S> <C>
J.P. Morgan Securities Inc.
----------
Total.......................................
==========
</TABLE>
The Underwriters propose initially to offer the Class B Shares directly to the
public at the price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $ per
Class B Share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per Class B Share to certain other dealers.
After the initial public offering of the Class B Shares, the public offering
price and such concession may be changed.
Security Capital has granted to the Underwriters an option, expiring at the
close of business on the 30th day after the date of this Prospectus, to
purchase up to additional Class B Shares at the initial public offering
price, less the underwriting discount. The Underwriters may exercise such
option solely for the purpose of covering over-allotments, if any. To the
extent the Underwriters exercise the option, each Underwriter will have a firm
commitment, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number set forth next to such
Underwriter's name in the preceding table bears to the total number of Class B
Shares offered hereby.
The Representative has informed Security Capital that it does not expect sales
to accounts over which the Underwriters exercise discretionary authority to
exceed five percent of the total number of Class B Shares offered by them.
In connection with the Offering, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Class B Shares or
the Class A Shares. Specifically, the Underwriters may overallot the offering,
creating a syndicate short position. In addition, the Underwriters may bid for,
and purchase, Class B Shares or Class A Shares in the open market to cover
syndicate shorts or to stabilize the price of the Class B Shares or the Class A
Shares. Finally, the underwriting syndicate may reclaim selling concessions
allowed for distributing the Class B Shares in the Offering, if the syndicate
repurchases previously distributed Class B Shares in syndicate covering
transactions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market price of the Class B Shares or
the Class A Shares above independent market levels. The Underwriters are not
required to engage in these activities, and may end any of these activities at
any time.
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Application will be made to list the Class B Shares on the NYSE. In order to
meet one of the requirements for listing the Class B Shares on the NYSE, the
Underwriters have undertaken to sell lots of 100 or more Class B Shares to a
minimum of 2,000 beneficial holders.
Security Capital, and certain of its directors, officers and affiliates have
agreed that, without the prior written consent of J.P. Morgan Securities Inc.,
they will not (i) offer, announce the intention to sell, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, rights or warrants to purchase, or otherwise
transfer or dispose of, directly or indirectly, any Shares or any securities
convertible into or exercisable or exchangeable for Shares (including, without
limitation, Shares which may be deemed to be beneficially owned in accordance
with the rules and regulations of the Commission and securities which may be
issued upon exercise of a stock option or warrant) or (ii) enter into any swap
or other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the Shares, whether any such transaction described
in clause (i) and (ii) above is to be settled by delivery of the Shares or such
other securities, in cash or otherwise, for a period of 180 days after the date
of this Prospectus, other than (1) pursuant to employee or director stock
option plans existing on the date of this Prospectus, (2) the conversion or
exchange of convertible or exchangeable securities outstanding on the date of
this Prospectus, (3) the exercise of options or warrants to purchase securities
outstanding on the date hereof, (4) the issuance of up to $250 million of
Warrants pursuant to the terms of the Merger Agreements and the issuance of
Class B Shares upon exercise thereof, (5) the sale to the Underwriters of Class
B Shares under the Underwriting Agreement and (6) the issuance of Class A
Shares pursuant to the Company's Convertible Debenture interest reinvestment
plans as in effect on the date hereof.
Prior to the Offering, there has been no public market for the Class B Shares.
The initial public offering price for the Class B Shares offered hereby will be
determined by agreement among the Company and the Underwriters based on a
methodology which will take into account a range of factors, including (i) the
market value of the Company's securities holdings in public companies, (ii) the
fair value of its securities holdings in private companies and its other
assets, (iii) its accrued or outstanding liabilities, (iv) estimates of its
business potential and prospects for future earnings, (v) an assessment of its
management, (vi) the current state of its industry and the economy as a whole,
(vii) the general conditions of the securities markets at the time of the
Offering and (viii) the prices of similar securities of generally comparable
companies.
At the request of the Company, the Underwriters have reserved up to Class B
Shares for sale at the initial public offering price to directors, officers,
and employees of the Company and its affiliates. The number of Class B Shares
available to the general public will be reduced to the extent such persons
purchase the reserved Class B Shares. Any reserved Class B Shares that are not
so purchased by such persons at the closing of the Offering will be offered by
the Underwriters to the general public on the same terms as the other Class B
Shares offered by this Prospectus.
Security Capital has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
From time to time in the ordinary course of their respective businesses, J.P.
Morgan Securities Inc., and its affiliates have provided and may in the future
provide investment banking, commercial banking and other financial services to
Security Capital and its affiliates. J.P. Morgan Securities Inc. is acting as
financial advisor to ATLANTIC in connection with the proposed Mergers.
EXPERTS
The consolidated financial statements and related schedules of Security Capital
and SCI included in this Prospectus and elsewhere in the registration statement
of which this Prospectus forms a part, have been audited by Arthur Andersen
LLP, independent public accountants to the extent indicated in their reports
thereon also appearing elsewhere herein and in the registration statement. Such
financial statements have been included herein in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
The financial statements and related schedule of PTR included in this
Prospectus and elsewhere in the registration statement, of which this
Prospectus forms a part, have been audited by KPMG Peat Marwick LLP,
independent public accountants to the extent indicated in their reports thereon
also appearing elsewhere herein and in the registration statement. Such
financial statements have been included or consolidated herein in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
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The financial statements and related schedules of ATLANTIC and Homestead
consolidated into the financial statements of Security Capital, have been
audited by Ernst & Young LLP, independent public accountants to the extent
indicated in their reports thereon appearing elsewhere herein and in the
registration statement. Such financial statements have been consolidated in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
The financial statements and related schedules of Security Capital USREALTY
included in this Prospectus and elsewhere in the registration statement of
which this Prospectus forms a part, have been audited by Price Waterhouse LLP,
independent public accountants to the extent indicated in their reports thereon
also appearing elsewhere herein and in the registration statement. Such
financial statements have been included herein in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters in respect of the validity of the issuance of the Class B
Shares offered hereby will be passed upon for Security Capital by Mayer, Brown
& Platt, Chicago, Illinois. Certain legal matters will be passed upon for the
Underwriters by Davis Polk & Wardwell. Mayer, Brown & Platt has in the past
represented and is currently representing Security Capital and certain of its
affiliates, including representation of Security Capital in connection with the
proposed Mergers. As to certain matters of Maryland law, Mayer, Brown & Platt
and Davis Polk & Wardwell may rely upon the opinion of Ballard Spahr Andrews &
Ingersoll, Baltimore, Maryland.
AVAILABLE INFORMATION
Security Capital has filed with the Commission a registration statement (of
which this Prospectus forms a part) on Form S-1 under the Securities Act with
respect to the securities offered hereby. This Prospectus does not contain all
of the information set forth in the registration statement, certain portions of
which have been omitted as permitted by the rules and regulations of the
Commission. Statements contained in this Prospectus as to the content of any
contract or other document are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the registration statement, each such statement being qualified in
all respect by such reference and the exhibits and schedules hereto. For
further information regarding Security Capital and the Class B Shares offered
hereby, reference is hereby made to the registration statement and such
exhibits and schedules.
The registration statement, the exhibits and schedules forming a part thereof
filed by Security Capital with the Commission can be inspected and copies
obtained from the Commission at Room 1204, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following regional offices of the
Commission: Seven World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60611-
2511. Copies of such material can be obtained from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, such material can also be obtained from the
Commission's Web site at http://www.sec.gov.
83
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Security Capital Group Incorporated
Report of Independent Public Accountants................................ F-2
Consolidated Balance Sheets............................................. F-3
Consolidated Statements of Operations................................... F-4
Consolidated Statements of Shareholders' Equity......................... F-5
Consolidated Statements of Cash Flows................................... F-6
Notes to Consolidated Financial Statements.............................. F-9
Schedule III--Real Estate and Accumulated Depreciation.................. F-25
Security Capital Group Incorporated (acquired company)
Report of Independent Public Accountants................................ F-34
Consolidated Balance Sheet.............................................. F-35
Consolidated Statement of Operations.................................... F-36
Consolidated Statement of Shareholders' Equity.......................... F-36
Consolidated Statement of Cash Flows.................................... F-37
Notes to Consolidated Financial Statements.............................. F-38
Security Capital Pacific Trust
Report of Independent Public Accountants................................ F-43
Balance Sheets.......................................................... F-44
Statements of Earnings.................................................. F-45
Statements of Shareholders' Equity...................................... F-46
Statements of Cash Flows................................................ F-47
Notes to Financial Statements........................................... F-48
Schedule III--Real Estate and Accumulated Depreciation.................. F-66
Security Capital Industrial Trust
Report of Independent Public Accountants................................ F-72
Consolidated Balance Sheets............................................. F-73
Consolidated Statements of Operations................................... F-74
Consolidated Statements of Shareholders' Equity......................... F-75
Consolidated Statements of Cash Flows................................... F-76
Notes to Consolidated Financial Statements.............................. F-77
Report of Independent Public Accountants................................ F-93
Schedule III--Real Estate and Accumulated Depreciation.................. F-94
Security Capital U.S. Realty
Report of Independent Public Accountants................................ F-110
Consolidated Statement of Net Assets.................................... F-111
Consolidated Statement of Operations.................................... F-112
Consolidated Statement of Cash Flows.................................... F-113
Consolidated Statement of Changes in Net Assets......................... F-114
Statement of Changes in Shares Outstanding.............................. F-114
Consolidated Schedule of Investments in Strategic Positions............. F-115
Consolidated Schedule of Investments in Special Opportunity Positions... F-115
Notes to the Consolidated Financial Statements.......................... F-116
Security Capital Atlantic Incorporated
Report of Independent Public Accountants................................ F-121
Homestead Village Incorporated
Report of Independent Public Accountants................................ F-122
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Security Capital Group Incorporated:
We have audited the accompanying consolidated balance sheets of Security
Capital Group Incorporated and subsidiaries as of December 31, 1996 and 1995
and the related consolidated statements of operations, shareholders' equity,
and cash flows for each of the three years ended December 31, 1996. These
financial statements and the schedule referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and the schedule referred to below based on our
audits. We did not audit the financial statements and accompanying Schedule
IIIs of Security Capital Pacific Trust, Security Capital Atlantic Incorporated,
Security Capital U.S. Realty and Homestead Village Incorporated, for which the
accompanying statements reflect $1,800,084,000 (58.6%) and $918,860,000 (49.2%)
of the total consolidated assets of Security Capital Group Incorporated and
subsidiaries as of December 31, 1996 and 1995, respectively, and $248,469,000
(62.9%), $103,287,000 (51.5%) and $63,728,000 (35.8%) of the total consolidated
income in the consolidated statements of operations of Security Capital Group
Incorporated and subsidiaries for each of the three years ended December 31,
1996, respectively. Those statements and the accompanying Schedule IIIs were
audited by other auditors whose reports have been furnished to us and our
opinion, insofar as it relates to the amounts included for those entities, is
based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and reports of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of Security Capital Group Incorporated and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years ended December 31,
1996, in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The attached Schedule III
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic consolidated financial statements and, in our
opinion, based solely upon the reports of other auditors, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 28, 1997
(except with respect to the matters discussed in Note 11, as to which the date
is April 18, 1997)
F-2
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
------------------
<TABLE>
<CAPTION>
ASSETS 1996 1995
------ ---------- ----------
<S> <C> <C>
Investments, at equity:
Security Capital Industrial Trust $ 548,194 $ 498,916
Security Capital Pacific Trust 374,317 410,793
Security Capital U.S. Realty 516,426 20,334
---------- ----------
1,438,937 930,043
---------- ----------
Real estate, less accumulated depreciation, held by:
Security Capital Atlantic Incorporated 1,116,069 865,367
Homestead Village Incorporated 249,304 -
---------- ----------
1,365,373 865,367
---------- ----------
Total real estate investments 2,804,310 1,795,410
Cash and cash equivalents 23,662 13,708
Intangible assets 142,600 150,522
Other assets 101,312 45,938
---------- ----------
Total assets $3,071,884 $2,005,578
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
LIABILITIES:
Lines of credit $ 262,000 $ 272,000
Mortgage notes payable 257,099 118,524
Convertible debt 940,197 718,611
Accrued interest on convertible debt 42,450 24,523
Accounts payable and accrued expenses 83,427 33,520
Deferred income taxes 30,872 -
---------- ----------
Total liabilities 1,616,045 1,167,178
---------- ----------
Minority interests 394,537 159,339
SHAREHOLDERS' EQUITY:
Common shares, $.01 par value; 20,000,000 shares
authorized, 1,209,009 and 994,791 shares issued and
outstanding in 1996 and 1995, respectively 12 10
Series A Preferred stock, $.01 par value; 139,000
shares issued and outstanding in 1996; stated
liquidation preference of $1,000 per share 139,000 -
Additional paid-in capital 985,392 766,298
Accumulated deficit (63,102) (87,247)
---------- ----------
Total shareholders' equity 1,061,302 679,061
---------- ----------
Total liabilities and shareholders' equity $3,071,884 $2,005,578
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1995 1994
---------- -------- --------
<S> <C> <C> <C>
INCOME:
Equity in earnings of:
Security Capital Industrial Trust $ 25,439 $ 20,975 $ -
Security Capital Pacific Trust 39,864 24,646 8,812
Security Capital U.S. Realty 103,170 64 -
Rental revenues 145,907 103,634 55,071
Services Division revenues 77,512 49,404 -
Other income, net 6,230 1,811 312
Security Capital Industrial Trust income - - 71,702
Security Capital Pacific Incorporated income - - 20,958
---------- -------- --------
398,122 200,534 156,855
---------- -------- --------
EXPENSES:
Rental expenses 54,050 37,948 23,052
Depreciation and amortization 34,520 26,031 8,770
Interest expense--convertible debt 93,912 78,785 29,647
Interest expense--other obligations 23,312 25,019 14,481
Loss on exchange of convertible notes for stock and
debentures - - 5,650
Payroll and related costs 80,115 56,108 -
General and administrative 36,007 22,992 6,172
Security Capital Industrial Trust expenses - - 46,561
Security Capital Pacific Incorporated expenses - - 15,030
---------- -------- --------
321,916 246,883 149,363
---------- -------- --------
Earnings (loss) before income taxes and minority
interests 76,206 (46,349) 7,492
Provision for income taxes 30,872 - -
Minority interests in net earnings of subsidiaries 13,370 4,763 15,177
---------- -------- --------
Net earnings (loss) 31,964 (51,112) (7,685)
Less Series A Preferred Stock dividends 7,819 - -
---------- -------- --------
Net earnings (loss) attributable to common shares
and common equivalent shares $ 24,145 $(51,112) $ (7,685)
========== ======== ========
Weighted average common shares outstanding 1,133,711 896,681 458,945
========== ======== ========
Net earnings (loss) per common share and common
equivalent share $ 21.30 $ (57.00) $ (16.74)
========== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARES)
----------------------------------------------------------
<TABLE>
<CAPTION>
SERIES A
PREFERRED
STOCK AT
COMMON COMMON AGGREGATE ADDITIONAL TOTAL
SHARES SHARES AT LIQUIDATION PAID-IN ACCUMULATED SHAREHOLDERS'
OUTSTANDING PAR VALUE PREFERENCE CAPITAL DEFICIT EQUITY
----------- --------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1993 246,322 $ 2.463 $ - $ 298,964 $ (5,143) $ 293,823
Subscriptions receivable
collected 19,281 0.193 - 26,994 - 26,994
Sale of subscriptions for
common shares, net of
offering costs 587,081 5.870 - 690,646 - 690,652
Less subscriptions
receivable (243,862) (2.439) - (215,086) - (215,088)
Distribution of convertible
subordinated debentures - - - (417,185) - (417,185)
Cash distributions - - - - (11,652) (11,652)
Net loss - - - - (7,685) (7,685)
--------- --------- --------- --------- --------- ----------
Balances at December 31, 1994 608,822 $ 6.087 $ - $ 384,333 $(24,480) $ 359,859
Retirement of shares in
connection with the
purchase of GROUP (40,252) (0.403) - (26,618) (11,655) (38,273)
Issuance of shares in
connection with the
purchase of GROUP 135,261 1.353 - 163,529 - 163,530
Issuance of common shares on
January 1 for 7.25% and 7%
convertible notes 43,493 0.435 - 26,643 - 26,644
Subscriptions receivable
collected 243,862 2.439 - 215,086 - 215,088
Exercise of stock options 538 0.005 - 140 - 140
Interest Reinvestment Plan 3,683 0.037 - 3,536 - 3,536
Issuance of common shares 26 - - 24 - 24
Repurchase of common shares (642) (0.006) - (375) - (375)
Net loss - - - - (51,112) (51,112)
--------- --------- --------- --------- --------- ----------
Balances at December 31, 1995 994,791 $ 9.947 $ - $ 766,298 $(87,247) $ 679,061
Sale of subscriptions for
common shares, net of
offering costs 307,958 3.080 - 320,116 - 320,119
Less subscriptions
receivable (92,012) (0.920) - (96,521) - (96,522)
Issuance of Series A
preferred stock - - 139,000 - - 139,000
Repurchase of common shares (12,326) (0.123) - (11,483) - (11,483)
Interest Reinvestment Plans 5,214 0.052 - 5,516 - 5,516
Exercise of stock options 5,353 0.054 - 1,430 - 1,430
Issuance of common shares 31 - - 36 - 36
Net earnings - - - - 31,964 31,964
Series A preferred stock
dividends - - - - (7,819) (7,819)
--------- --------- --------- --------- --------- ----------
Balances at December 31, 1996 1,209,009 $12.090 $139,000 $ 985,392 $(63,102) $1,061,302
========= ========= ========= ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
----------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
--------- --------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings (loss) $ 31,964 $ (51,112) $ (7,685)
Adjustments to reconcile net earnings
(loss) to cash flows provided by
operating activities:
Provision for deferred income taxes 30,872 - -
Minority interests 13,370 4,763 15,177
Equity in earnings of unconsolidated
investees (168,473) (45,685) (8,812)
Distributions from unconsolidated
investees 74,653 62,838 13,169
Depreciation and amortization 34,520 26,031 8,770
Amortization of deferred financing
costs 2,923 2,404 1,283
Other (2,792) - -
Increase in other assets (21,172) (5,053) (3,830)
Increase in accrued interest on
convertible debt 17,927 18,195 6,807
Increase in accounts payable and accrued
expenses 20,799 1,289 16,822
Net operating cash flows of:
Security Capital Industrial Trust - - 22,121
Security Capital Pacific Incorporated - - 1,680
--------- --------- ----------
Net cash flows provided by
operating activities 34,591 13,670 65,502
--------- --------- ----------
INVESTING ACTIVITIES:
Real estate properties (396,578) (259,008) (392,718)
Disposition of real estate properties 61,872 23,859 -
Investment in shares of:
Security Capital Industrial Trust (64,528) (100,113) -
Security Capital Pacific Trust - (50,000) (73,843)
Security Capital U.S. Realty (392,922) (300) -
Purchase of Security Capital Atlantic
Incorporated minority interest (30,700) (83,972) -
Advances on notes receivable from
Security Capital U.S. Realty - (53,000) -
Payment on notes receivable from
Security Capital U.S. Realty - 33,030 -
Cash acquired in purchase of GROUP - 4,940 -
Other (9,453) (9,354) -
Net investing cash flows of:
Security Capital Industrial Trust - - (631,871)
Security Capital Pacific
Incorporated - - (132,921)
--------- --------- ----------
Net cash flows used in investing
activities (832,309) (493,918) (1,231,353)
--------- --------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
----------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
--------- --------- ----------
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Proceeds from lines of credit $ 778,000 $ 695,000 $ 999,121
Payments on lines of credit (788,000) (734,525) (717,596)
Proceeds from mortgage notes
payable 45,863 - -
Principal payments on mortgage
notes payable (1,101) (7,001) (190)
Increase in accounts payable--
developments 6,599 - -
Proceeds from issuance of
convertible debt 229,426 184,990 48,228
Proceeds from sale of common
shares, net of expenses 230,579 218,786 502,560
Proceeds from sale of preferred
stock 139,000 - -
Distributions paid to shareholders - - (11,652)
Distributions paid to minority
interest holders (19,090) (8,404) (3,887)
Debt issuance costs (5,688) (6,265) (9,303)
Proceeds from issuance of stock to
minority interest holders 219,226 144,884 3,348
Repurchase of common shares (11,483) (375) -
Retirement of convertible debt (7,840) (194) -
Preferred dividends paid (7,819) - -
Net financing cash flows of:
Security Capital Industrial Trust - - 312,608
Security Capital Pacific
Incorporated - - 43,652
--------- --------- ----------
Net cash flows provided by
financing activities 807,672 486,896 1,166,889
--------- --------- ----------
Net increase in cash and cash
equivalents 9,954 6,648 1,038
Cash and cash equivalents, beginning
of year 13,708 7,060 6,022
--------- --------- ----------
Cash and cash equivalents, end of
year $ 23,662 $ 13,708 $ 7,060
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
----------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Homestead purchase from PTR:
Depreciated cost of assets acquired $177,983 $ - $ -
Liabilities assumed (11,818) - -
Convertible mortgages issued (75,946) - -
Reallocation of investment in PTR to
Homestead (42,376) - -
Minority interest contributed (48,271) - -
Net cash acquired 428 - -
--------- --------- ---------
$ - $ - $ -
========= ========= =========
Dividend distribution declared for 1st
quarter 1997 to minority interest
holders $ 6,375 $ - $ -
========= ========= =========
Purchase of GROUP on January 1, 1995:
Fair value of assets acquired, net of
cash $ - $ 244,920 $ -
Liabilities assumed - (16,152) -
Securities issued - (233,708) -
Net cash acquired - 4,940 -
--------- --------- ---------
$ - $ - $ -
========= ========= =========
Exchange of 7.25% and 7.0% convertible
notes:
Issuance of securities to convertible
note holders:
-convertible subordinated debentures $ - $ 32,947 $ -
-common stock, including value
attributable to induced conversion - 26,644 -
Retirement of 7.25% and 7.0%
convertible notes - (53,201) -
Loss on exchange of convertible notes - (5,650) -
Reduction in interest accrued on
convertible notes - (740) -
--------- --------- ---------
$ - $ - $ -
========= ========= =========
Assumption of existing mortgage notes
payable in conjunction with real estate
acquired $ 17,867 $ 24,678 $274,086
========= ========= =========
Exchange of ownership interest in
Security Capital Pacific Incorporated
for ownership interest in Security
Capital Pacific Trust $ - $ 135,996 $ -
========= ========= =========
Receipt of Security Capital U.S. Realty
shares in satisfaction of indebtedness $ - $ 19,970 $ -
========= ========= =========
Reduction of mortgages payable upon sale
of property $ - $ (6,500) $ -
========= ========= =========
Increase in minority interest as
consideration for real estate acquired $ - $ - $100,000
========= ========= =========
Minority ownership interest contributed $ - $ - $ 16,780
========= ========= =========
Distribution of convertible subordinated
debentures $ - $ - $417,185
========= ========= =========
Disposition proceeds applied to real
estate purchase $ - $ - $ 113
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business:
Security Capital Group Incorporated ("Security Capital"), formerly Security
Capital Realty Incorporated, is a corporation organized under the laws of the
state of Maryland engaged in the creation and operation of real estate
operating companies. Security Capital has invested in five operating companies
(the "Capital Division"). Three such investees are highly focused, fully
integrated real estate operating companies formed as real estate investment
trusts (REITs), which own, develop, acquire, and operate income-producing
multifamily properties and distribution facilities. The fourth investee is a
European-based company formed with the objective of owning strategic positions
in United States real estate operating companies focused on specific subsectors
of retail, office and other well researched property types. The fifth investee
develops, owns and operates moderately priced, extended-stay lodging properties
across the United States. Security Capital also includes a "Services Division",
which provides management and property management services to the companies in
which Security Capital has made investments. The Services Division provides
strategic guidance, research, investment analysis, acquisition and development
services, asset management, property management, capital markets services and
legal and accounting services.
Merger:
Security Capital was formed by the merger of two affiliated, but not commonly
controlled, entities on January 1, 1995. Security Capital Group Incorporated
("GROUP"), a Delaware corporation, which consisted of the Services Division
companies, was merged with and into Security Capital Realty Incorporated
("REALTY"). Subsequently REALTY changed its name to that of its merged
affiliate, Security Capital Group Incorporated, and the combined entity is
referred to herein as Security Capital. In the merger, all of GROUP's
outstanding stock and principal amount of GROUP convertible subordinated
debentures were exchanged for REALTY stock and REALTY convertible subordinated
debentures due June 30, 2014 (the "2014 Convertible Debentures"). REALTY issued
135,261 shares of common stock, $70,178,000 of 2014 Convertible Debentures and
options to acquire 58,772 shares of REALTY common stock and $29,298,000 of 2014
Convertible Debentures for an aggregate securities issuance of $233,708,000.
The REALTY options were issued in exchange for GROUP options and warrants held
by certain employees and directors and such options are exercisable subject to
their prior terms regarding vesting and aggregate exercise price.
The acquisition of GROUP was recorded under the purchase method of accounting.
The results of GROUP operations have been combined with those of REALTY's since
the date of acquisition. The fair value of tangible assets acquired and
liabilities assumed was $91,416,000 and $16,152,000, respectively. The balance
of the purchase price, $158,444,000, was recorded as excess of cost over net
assets acquired (goodwill).
F-9
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table reflects unaudited pro forma combined results of operations
of REALTY and GROUP on the basis that the acquisition had taken place and the
goodwill, noted above, was recorded on January 1, 1994. The weighted average
common shares outstanding have been adjusted to reflect the Merger conversion
rate (1.22 common shares for each GROUP share and 1.147 common shares for each
$1,000 principal amount of GROUP's convertible subordinated debentures). The
pro forma financial information does not necessarily reflect the results of
operations that would have occurred had REALTY and GROUP constituted a single
entity during such period (in thousands, except share data).
--------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
------------
<S> <C>
Revenues $ 177,926
=========
Net loss $ (25,197)
=========
Weighted average common shares outstanding 594,206
=========
Net loss per common share $ (42.40)
=========
</TABLE>
Principles of Financial Presentation:
The accompanying consolidated financial statements include the results of
Security Capital, its majority-owned operating companies (Security Capital
Atlantic Incorporated and Homestead Village 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 and Homestead Village 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.
Goodwill:
Goodwill results from REALTY's acquisition of GROUP on January 1, 1995 and
represents acquisition costs in excess of net assets acquired. Goodwill, net of
accumulated amortization, aggregating $142,600,000 and $150,522,000 at December
31, 1996 and 1995, respectively, is included in intangible assets in the
accompanying consolidated balance sheets and is amortized on a straight-line
basis over 20 years. Amortization for each of the years ended December 31, 1996
and 1995 was $7,922,000.
Cash and Cash Equivalents:
Security Capital considers all cash on hand, demand deposits with financial
institutions and short-term, highly liquid investments with original maturities
of three months or less to be cash equivalents.
Real Estate and Depreciation:
Real estate is carried at cost, which is not in excess of net realizable value.
Costs directly related to the acquisition, renovation or development of real
estate for Security Capital's majority-owned operating companies are
capitalized. Costs incurred in connection with the pursuit of unsuccessful
acquisitions or developments are expensed at the time the pursuit is abandoned.
Repairs and maintenance are expensed as incurred. Renovations and improvements
are capitalized and depreciated over their estimated useful lives.
Depreciation is computed over the expected useful lives of depreciable property
on a straight-line basis. Properties are depreciated principally over the
useful lives of 20 to 40 years for multifamily and extended-stay buildings and
improvements and 2 to 10 years for furnishings and other equipment.
F-10
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Interest:
Security Capital capitalizes interest as part of the cost of real estate
projects under development. During 1996, 1995 and 1994, the total interest paid
on all outstanding debt was $100,423,000, $82,336,000 and $46,760,000,
respectively, including $12,353,000, $4,404,000 and $3,184,000, respectively,
which was capitalized.
Cost of Raising Capital:
Costs incurred in connection with the issuance of common shares are deducted
from shareholders' equity. 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 years ended December 31, 1996, 1995 and 1994 was
$2,923,000, $2,404,000 and $2,387,000, respectively.
Revenue Recognition:
Rental, fee and interest income are recorded on the accrual method of
accounting. A provision for possible loss is made when collection of
receivables is considered doubtful.
Per Share Data:
Per share data is computed based on weighted-average shares outstanding during
the period. In the computation of net loss per common share, outstanding
options and warrants are not included as common stock equivalents as to do so
would have an anti-dilutive effect. 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
into common shares is not assumed as the effect would be anti-dilutive.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Recent Accounting Pronouncement:
Properties and other long-lived assets are periodically evaluated for
impairment and provisions for possible losses are made if required. Statement
of Financial Accounting Standards No. 121, Accounting For The Impairment Of
Long-Lived Assets And For Long-Lived Assets To Be Disposed Of, has been adopted
by Security Capital and its affiliates, as required, effective January 1, 1996.
The adoption of this accounting standard had no material impact on the
financial statements as of the date of adoption.
Reclassifications:
Certain amounts in the 1995 and 1994 consolidated financial statements and
notes to consolidated financial statements have been reclassified to conform to
the 1996 presentation.
F-11
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SERVICES DIVISION
Certain Security Capital Services Division subsidiaries, under the terms of
separate agreements, manage the operations of the separate REITs ("REIT
Managers"), provide property management services to those REITs ("Property
Managers") and manage the operations of Security Capital U.S. Realty
("USREALTY") ("Operating Advisor"). Each REIT Manager is paid a REIT management
fee based on a 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 is generally 16% of cash flow, as so
defined, for the REIT. Property management fees are at market rates and are
paid separately to Security Capital's property management subsidiaries. The
REIT and Property Management Agreements are generally one year in term,
renewable annually by the REIT and cancelable upon sixty days notice. The
Operating Advisor is paid a management fee of 1.25% of USREALTY's investments
at fair value (other than liquid short-term investments and investments in
Security Capital). The Operating Advisor agreement dated August 7, 1995 is for
a term of two years, renewable every two years on the same terms and cancelable
upon sixty days notice.
There were no Services Division revenues reported for the year ended 1994.
These subsidiaries were acquired January 1, 1995 in the GROUP/REALTY merger.
See Note 1.
In late January 1997, Security Capital made a proposal to Security Capital
Industrial Trust, Security Capital Pacific Trust and Security Capital Atlantic
Incorporated to exchange the REIT and Property Managers for additional shares
of the respective REITs. As a result of the proposed transaction, each of the
REITs would become internally managed. The board of trustees or directors of
each REIT has appointed a special committee comprised of independent directors
or trustees to review the proposed transaction. The proposed transaction is
subject to approval (see Note 11) by each REIT's special committee as well as
its board of directors or trustees and shareholders.
REIT, Property and Operating Advisor management fees for the years ended
December 31, 1996 and 1995 were earned from the following sources (in
thousands):
------------------
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
REIT management fees:
Security Capital Industrial Trust $21,472 $14,207
Security Capital Pacific Trust 22,191 20,354
Security Capital Pacific Incorporated - 581
Security Capital Atlantic Incorporated 10,445 6,923
--------- ---------
54,108 42,065
--------- ---------
Property management fees:
Security Capital Industrial Trust 11,781 5,251
Security Capital Pacific Trust 11,466 8,805
Security Capital Pacific Incorporated - 107
Security Capital Atlantic Incorporated 4,244 3,499
--------- ---------
27,491 17,662
--------- ---------
Security Capital U.S. Realty advisory fee 8,041 99
Security Capital Markets Group Incorporated fees 2,561 -
--------- ---------
Total Services Division revenues 92,201 59,826
Less amounts eliminated in consolidation 14,689 10,422
--------- ---------
Consolidated Services Division revenues $77,512 $49,404
========= =========
</TABLE>
F-12
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. REAL ESTATE INVESTMENTS:
Security Capital holds investments at December 31, 1996 through its wholly-
owned subsidiary, SC Realty Incorporated ("SC Realty"), as follows:
. Security Capital Industrial Trust ("SCI"), a publicly held REIT,
acquires, develops, markets, operates and owns distribution facilities
and develops master-planned distribution parks and build-to-suit
facilities throughout the United States. At December 31, 1996 and 1995,
Security Capital owned 46.00% and 48.33%, respectively, of the issued
and outstanding common shares of beneficial interest of SCI. During 1996
and 1995, Security Capital accounted for its investment in SCI by the
equity method as Security Capital's ownership in SCI fell below 50% upon
completion of SCI's September 1995 rights offering. In 1994, Security
Capital consolidated SCI's accounts.
. Security Capital Pacific Trust ("PTR"), a publicly held REIT, primarily
owns, develops, acquires and operates income-producing multifamily
properties in the western United States. On March 23, 1995, Security
Capital Pacific Incorporated ("PACIFIC"), a real estate investment trust
owned 97.61% by Security Capital, was merged with and into PTR, and PTR
changed its name to Security Capital Pacific Trust. In the merger each
share of PACIFIC was converted into 0.611 shares of PTR. At December 31,
1996 and 1995, Security Capital owned 36.28% and 37.93%, 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. Due to PACIFIC's merger into PTR in 1995, Security Capital has
accounted for its investment in PACIFIC in 1995 by the equity method and
combined such amounts with PTR's in the accompanying 1995 consolidated
financial statements. In 1994, Security Capital consolidated PACIFIC's
accounts.
. Security Capital Atlantic Incorporated ("ATLANTIC"), a publicly held
REIT as of October 18, 1996, owns, acquires, develops and operates
income-producing multifamily properties in the southeastern United
States. In consideration for Security Capital's participation in
ATLANTIC's March 31, 1995 and November 15, 1995 private placement
offerings, ATLANTIC assumed Security Capital's Put Obligations to
purchase 3,750,000 shares of ATLANTIC stock, owned by the holder of the
Put Obligations, at a total cost of $83,920,000. On July 1, 1996,
Security Capital purchased 1,250,000 shares of ATLANTIC stock from a
minority interest holder at a total cost of $30,663,000. On October 18,
1996, Security Capital purchased an additional 416,666 shares of
ATLANTIC in ATLANTIC's initial public offering at a cost of $24 per
share. At December 31, 1996 and 1995, Security Capital owned 56.86% and
71.60%, respectively, of the issued and outstanding common shares of
ATLANTIC. Security Capital consolidates ATLANTIC's accounts in the
accompanying consolidated financial statements.
. USREALTY is a Luxembourg real estate corporation formed at the direction
of Security Capital with the objective of becoming one of Europe's
preeminent publicly held real estate entities that will principally own
real estate through strategic positions in both public and private real
estate companies in the United States. Security Capital made its first
investment of $19,970,000 in USREALTY, by converting $19,970,000 of the
principal of a $53,000,000 note receivable to an investment in 1,997,000
shares of USREALTY, on October 30, 1995 as part of its subscription
commitment. Security Capital has funded total subscriptions of
$200,000,000 for the common stock of USREALTY ($199,700,000 was invested
by Security Capital and $300,000 by Security Capital (EU) Management
S.A., a wholly-owned subsidiary of Security Capital and the advisor to
USREALTY). In addition to the subscriptions, on July 1, 1996, Security
Capital purchased 9,132,420 shares of USREALTY in a public European
offering at a cost of $11.06 per share and an additional 6,282,241
shares in a public European offering, at a cost of $12.44 a share, on
December 17, 1996. Also, during 1996, Security Capital purchased shares
of USREALTY with a total value of $34,041,000 in the open market and in
a privately negotiated transaction. At December 31, 1996 and 1995
Security Capital owned 39.44% and 32.20%, respectively, of the issued
and outstanding common shares of USREALTY. Security Capital accounts for
its investment in USREALTY by the equity method.
F-13
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
. On October 17, 1996, Security Capital, ATLANTIC and PTR completed the
spin-out of their extended stay lodging assets to Homestead Village
Incorporated ("Homestead"). As described below, upon consummation of the
transaction, Homestead's common shares were held by Security Capital and
shareholders of ATLANTIC and PTR. Given the common ownership of the
"Homestead assets" before and after the spin-out, Security Capital did
not record a gain on this transaction in its consolidated financial
statements.
Security Capital contributed the contractual rights (primarily fees)
from the PTR and ATLANTIC REIT management agreements and property
management agreements relating to the Homestead properties in exchange
for 4,062,788 shares of Homestead common stock, including 2,150,892
shares which are in escrow and will be released as funds are advanced
under the ATLANTIC and PTR Funding Commitment Agreements described
below. In addition, Security Capital contributed the Homestead
trademark, the operating system and certain Homestead development
properties Security Capital had acquired as they were outside the target
markets of ATLANTIC and PTR. Security Capital also received 817,694
warrants to purchase Homestead shares at $10 per share in exchange for
providing funding to Homestead during the time between the execution of
the merger agreement and the closing date and the use of office
facilities for one year. Under the terms of an Investor Agreement,
Homestead can require Security Capital to exercise all or a portion of
its warrants with proper written notice.
ATLANTIC and PTR contributed assets consisting of operating properties
as well as properties under construction or in planning (or the rights
to acquire such properties) and ATLANTIC contributed $16.8 million in
cash. In addition, ATLANTIC and PTR entered into Funding Commitment
Agreements to provide secured financing of up to $111.1 million and
$199.0 million, respectively, to Homestead for completing the
development and construction of the properties contributed in the
transaction. ATLANTIC and PTR received 4,201,220 and 9,485,727 shares,
respectively, of Homestead common stock in exchange for the assets
contributed and 2,818,517 and 6,363,789 warrants, respectively, to
purchase Homestead shares at $10 per share in exchange for entering into
the Funding Commitment Agreements. ATLANTIC and PTR will receive
convertible mortgage notes from Homestead as fundings occur under the
Funding Commitment Agreements. On November 12, 1996 ATLANTIC and PTR
distributed the Homestead common stock and warrants to their
shareholders of record as of October 29,1996. This distribution caused
Security Capital to receive an additional 5,831,613 shares of Homestead
common stock and 3,912,328 warrants to purchase Homestead shares at $10
per share. Additionally, Security Capital made purchases of Homestead
warrants in the open market totaling 206,400 shares for $1,312,807.
Security Capital exercised $17,500,000 in warrants between October 17,
1996 and December 31, 1996.
Security Capital's ownership of Homestead's outstanding common shares as
of December 31, 1996 was 59.14%. In 1996, Security Capital consolidated
Homestead's accounts in the accompanying consolidated financial
statements.
Security Capital received dividends from its investees for the years ended
December 31, 1996, 1995 and 1994 as follows (in thousands):
----------------------------
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
SCI $40,689 $32,233 $18,886
PTR 33,963 28,244 13,169
PACIFIC - 2,361 5,389
ATLANTIC 33,975 26,715 10,761
--------- --------- ---------
$108,627 $89,553 $48,205
========= ========= =========
</TABLE>
F-14
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following summarizes real estate investments of Security Capital's
consolidated investees as of December 31, 1996 and 1995 (in thousands):
------------------
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Multifamily properties (ATLANTIC):
Operating properties $ 952,770 $781,083
Developments under construction 194,587 95,293
Developments in planning 7,795 11,258
Land held for future development 2,083 1,294
---------- ---------
Subtotal 1,157,235 888,928
---------- ---------
Extended-stay lodging properties (Homestead):
Operating properties 129,035 -
Developments under construction 108,691 -
Developments in planning 12,256 -
Land held for future development 1,448 -
Land held for sale 5,590 -
---------- ---------
Subtotal 257,020 -
---------- ---------
Total real estate, at cost 1,414,255 888,928
Less accumulated depreciation 48,882 23,561
---------- ---------
Total real estate $1,365,373 $865,367
========== =========
</TABLE>
Presented below is the summary balance sheet information for SCI as of December
31, 1996 and 1995 (in thousands):
------------------
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Net real estate investments $2,399,600 $1,771,264
Cash and other assets 62,706 62,708
---------- ----------
Total assets $2,462,306 $1,833,972
========== ==========
Total liabilities $ 805,933 $ 639,040
Minority interest 56,984 58,741
Total shareholders' equity 1,599,389 1,136,191
---------- ----------
Total liabilities and shareholders' equity $2,462,306 $1,833,972
========== ==========
</TABLE>
Presented below is the summary statement of earnings information for SCI for
the years ended December 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
---------------------
1996 1995
--------- ---------
<S> <C> <C>
Rental and other income $233,434 $159,556
--------- ---------
Expenses:
Rental expenses, net of recoveries 26,674 18,460
Depreciation and amortization 59,850 39,767
Interest 38,819 32,005
General and administrative, including REIT
management fee 25,410 17,280
--------- ---------
150,753 107,512
--------- ---------
Net earnings before minority interest 82,681 52,044
Minority interest share in net earnings 3,326 3,331
--------- ---------
Net earnings 79,355 48,713
Less Preferred Share dividends 25,895 6,698
--------- ---------
Net earnings attributable to common shares $ 53,460 $ 42,015
========= =========
Security Capital share of net earnings $ 25,439 $ 20,975
========= =========
</TABLE>
F-15
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Presented below is the summary balance sheet information for PTR as of December
31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
---------------------
1996 1995
---------- ----------
<S> <C> <C>
Net real estate investments $2,245,619 $1,789,731
Cash and other assets 36,813 51,268
---------- ----------
Total assets $2,282,432 $1,840,999
========== ==========
Total liabilities $1,014,924 $ 565,331
Total shareholders' equity 1,267,508 1,275,668
---------- ----------
Total liabilities and shareholders' equity $2,282,432 $1,840,999
========== ==========
</TABLE>
Presented below is the summary statement of earnings information for PTR for
the years ended December 31, 1996, 1995 and 1994 (in thousands) (1995
information includes the operating results of PACIFIC):
----------------------------
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Rental and other income $326,246 $267,496 $186,105
--------- --------- ---------
Expenses:
Rental expenses 128,122 104,046 79,013
Depreciation 44,887 36,685 24,614
Interest 35,288 19,584 19,442
General and administrative, including
REIT management fee 24,730 22,862 16,317
--------- --------- ---------
233,027 183,177 139,386
--------- --------- ---------
Earnings from operations 93,219 84,319 46,719
Gain on sale of investments 37,492 - -
--------- --------- ---------
Net earnings 130,711 84,319 46,719
Less Preferred Share dividends 24,167 21,823 16,100
--------- --------- ---------
Net earnings attributable to common
shares $106,544 $ 62,496 $ 30,619
========= ========= =========
Security Capital share of net earnings $ 39,864 $ 24,646 $ 8,812
========= ========= =========
</TABLE>
Presented below is the summary balance sheet information for USREALTY as of
December 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
---------------------
1996 1995
---------- ---------
<S> <C> <C>
Investments in common shares of real estate
operating companies, at fair value $1,408,140 $54,780
Investment in common shares and debentures of
Security Capital, at cost which approximates fair
value 22,500 -
Cash and other assets 63,617 8,620
---------- ---------
Total assets $1,494,257 $63,400
========== =========
Total liabilities $ 175,158 $ 252
Total shareholders' equity 1,319,099 63,148
---------- ---------
Total liabilities and shareholders' equity $1,494,257 $63,400
========== =========
</TABLE>
F-16
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Presented below is the summary statement of earnings information for USREALTY
for the year ended December 31, 1996 and the period from inception (July 1,
1995) to December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
---------------------
1996 1995
--------- ---------
<S> <C> <C>
Revenues:
Dividends $ 32,163 $504
Realized gains 3,480 -
Unrealized gains 252,294 126
Other income 2,673 84
--------- ---------
290,610 714
--------- ---------
Expenses:
Interest on line of credit 6,168 163
General and administrative, including advisory
fee 15,729 349
--------- ---------
21,897 512
--------- ---------
Net earnings $268,713 $202
========= =========
Security Capital share of net earnings $103,170 $ 64
========= =========
</TABLE>
4. INDEBTEDNESS:
Lines of Credit:
At December 31, 1996, Security Capital and its consolidated REIT subsidiary,
ATLANTIC, had revolving bank lines of credit. Security Capital has a
$300,000,000 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% (1.75% prior to August 19, 1996) 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 .125% to .25% per annum
based on the average unfunded line of credit balance (such fees were .125% on
all unfunded balances prior to October 1, 1996). Security Capital's line is
secured by its holdings in SCI, PTR, ATLANTIC, USREALTY and Homestead,
including warrants to purchase shares of Homestead's common stock, as well as
any unfunded subscriptions for Security Capital's common stock and convertible
subordinated debentures. Subscriptions receivable for Security Capital's 1996
private placement offering totaled $193,045,000 as of December 31, 1996.
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.
On December 18, 1996, ATLANTIC obtained a $350,000,000 unsecured line of credit
from Morgan Guaranty Trust Company of New York ("MGT"), as agent for a group of
lenders, that replaced its previous $350,000,000 secured line of credit.
Borrowings bear interest at prime, or at ATLANTIC's option, LIBOR plus a margin
ranging from 1.0% to 1.375% (currently 1.375% as compared to 1.5% under the
previous agreement) depending on ATLANTIC's debt rating. ATLANTIC currently
pays a commitment fee on the average unfunded line of credit balance of
0.1875%. The line of credit matures December 1998 and may be extended for one
year with the approval of MGT and the other participating lenders.
In August 1995, ATLANTIC entered into a swap agreement with Goldman Sachs
Capital Markets, L.P. covering $100,000,000 of borrowings under the line of
credit. Under this one-year agreement which became effective on February 5,
1996, ATLANTIC paid a fixed rate of interest of 7.46% from February 5, 1996 to
December 17, 1996 and 7.335% thereafter. Upon expiration of the existing swap
agreement on February 5, 1997, a swap agreement with MGT took effect. The MGT
agreement provides for a fixed rate of 7.325% on $100,000,000 of borrowing
through February 5, 1998. The interest rate ATLANTIC will pay under the new
agreement will be reduced if ATLANTIC achieves an investment-grade debt rating
and will range from 6.95% to 7.2% depending on the rating
F-17
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
achieved. ATLANTIC paid $332,000 more in interest during 1996 than was received
under the swap agreement. ATLANTIC is exposed to credit loss in the event of
non-performance by the swap counterparty; however, ATLANTIC believes the risk
of loss is minimal.
Each line requires maintenance of certain financial covenants. Security
Capital, SC Realty and ATLANTIC were in compliance with all such covenants at
December 31, 1996.
A summary of the lines of credit borrowings as of and for the years ended
December 31, 1996 and 1995 is as follows (dollar amounts in thousands):
------------------
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Total lines of credit $650,000 $600,000
Borrowings outstanding at December 31, $262,000 $272,000
Weighted average daily borrowings $268,600 $238,650
Maximum borrowings outstanding at any month end $353,000 $383,500
Weighted average daily interest rate 7.34% 7.95%
Weighted average interest rate as of December 31, 7.29% 7.70%
</TABLE>
Mortgage Notes Payable:
Mortgage notes payable, which are obligations of ATLANTIC and Homestead,
consisted of the following at December 31, 1996 (dollar amounts in thousands):
-----------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY PERIODIC PRINCIPAL
MORTGAGE TYPE RATE DATE PAYMENT TERMS BALANCE
- ------------- -------- -------- ---------------- ---------
<S> <C> <C> <C> <C>
Conventional fixed rate 7.125% 3/1/29 fully amortizing $ 8,021
Conventional fixed rate 8.75% 4/1/24 fully amortizing 6,343
Conventional fixed rate 7.0% 9/1/13 fully amortizing 5,888
Conventional fixed rate 7.750% 11/1/00 (a) 2,004
Conventional fixed rate 7.655% 7/01/02 (c) 5,933
Conventional fixed rate 8.0% 7/10/03 (b) 5,979
---------
34,168
---------
Tax exempt fixed rate 6.0% 6/1/07 interest only 14,500
Tax exempt variable rate
subject to 7 year interest
rate protection agreement 6.48%(e) 6/1/25 interest only 23,085
Tax exempt variable rate
subject to 7 year interest
rate protection agreement 6.51%(e) 6/1/25 interest only 15,500
Tax exempt variable rate
subject to 10 year interest
rate protection agreement 6.74%(e) 6/1/25 interest only 64,635
Tax exempt variable note
subject to 10 year interest
rate protection agreement 6.18%(e) 6/1/25 interest only 5,000
Less amounts held in
principal reserve fund (d) (1,098)
---------
121,622
---------
Convertible fixed rate (f) 9.0% 10/31/06 interest only 112,639
Less discount (11,330)
---------
101,309
---------
$257,099
=========
</TABLE>
- --------
(a) Interest and principal payments due monthly; balloon payment of $1,849,000
due at maturity.
(b) Interest and principal payments due monthly; balloon payment of $5,556,000
due at maturity.
(c) Interest and principal payments due monthly; balloon payment of $5,539,000
due at maturity.
(d) ATLANTIC has a thirty-year credit enhancement agreement with the Federal
National Mortgage Association related to eight tax-exempt bond issues. This
credit enhancement agreement requires ATLANTIC to make monthly payments on each
mortgage, based upon a thirty-year amortization, into a principal reserve
account.
F-18
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(e) Interest rate is fixed through swap agreements executed in conjunction with
the credit enhancement agreement with the Federal National Mortgage
Association.
(f) In connection with the Homestead spin-out transaction described in Note 3,
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.
ATLANTIC's swap agreements related to its tax-exempt variable rate mortgages
are summarized as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNTS OF FIXED
BONDS TERM INTEREST RATE (1) ISSUER
---------- ---- ---------------- ------
<S> <C> <C> <C>
$23.1 million June 1995 to June 2002 6.48% General Re Financial Products Corporation
$64.6 million June 1995 to June 2005 6.74 Morgan Guaranty Trust Company of NY
$5.0 million March 1996 to March 2006 6.18 Morgan Guaranty Trust Company of NY
$15.5 million August 1996 to August 2006 6.51 Morgan Stanley Derivative Products Inc.
----
Weighted-average interest rate 6.64%
====
</TABLE>
- --------
(1) Includes the fixed interest rate provided by the swap agreements, annual
fees associated with the swap agreements and credit enhancement agreement and
amortization of capitalized costs associated with the credit enhancement
agreement.
ATLANTIC paid $1,832,000 more in interest during 1996 and $575,000 more in
interest during 1995 than was received under the swap agreements. The swap
agreements cover the principal amount of the bonds, net of amounts deposited in
the principal reserve fund. ATLANTIC pays interest on that portion of bonds not
covered by the swap agreements at the variable rates as provided by the
mortgage agreements. ATLANTIC is exposed to credit loss in the event of non-
performance by the swap counterparties; however, ATLANTIC believes the risk of
loss is minimal.
Real estate with an aggregate undepreciated cost at December 31, 1996 of
$50,714,000 and $206,963,000 serves as collateral for the conventional mortgage
notes payable and the tax-exempt mortgages, respectively.
Homestead issued warrants to PTR in exchange for entering into the funding
commitment agreements (Note 3). The costs associated with the issuance of the
warrants have been recorded as deferred financing costs. The premium/discount
(i.e. the difference between the stated amount and the funded amount), the
value attributable to the conversion feature, and the costs associated with the
warrants are amortized to interest expense over the term of the related
mortgage note payable using a method which approximates the effective interest
method. The effective interest rate on the PTR convertible mortgage note
payable after giving effect to the related discount, conversion feature, and
warrants is estimated to be 13.56%.
The mortgage notes are convertible, at the option of PTR, into common shares of
Homestead common stock beginning April 1, 1997. The conversion price is equal
to one share of common stock for every $11.50 of principal amount outstanding.
Approximate principal payments due on mortgage notes payable during each of the
years in the five-year period ending December 31, 2001 and thereafter are as
follows (in thousands):
<TABLE>
<S> <C>
1997 $ 1,537
1998 1,654
1999 1,765
2000 3,760
2001 2,037
Thereafter 246,346
--------
$257,099
========
</TABLE>
F-19
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Convertible Debt:
Security Capital's 2014 Convertible Debentures totaling $713,677,000 at
December 31, 1996 and $718,611,000 at December 31, 1995 accrue interest at 12%
per annum but require semi-annual cash interest payments at a minimum rate per
annum of 3.5%. Interest above the minimum may be paid currently or deferred at
the option of Security Capital. Any deferred interest accrues interest at 12%
and is due upon maturity. The Board of Directors of Security Capital approved a
cash interest payment rate of 9.939% and 9.376% per annum for 1996 and 1995,
respectively.
Security Capital's convertible subordinated debentures due March 29, 2016 (the
"2016 Convertible Debentures") totaling $226,520,000 at December 31, 1996 and
none at December 31, 1995 accrue interest at 6.5%
per annum and require semi-annual interest payments on the last business day of
June and December. Security Capital has received subscriptions from its March
1996 private placement offering for 2016 Convertible Debentures of
$323,048,500.
The principal amount of the 2014 and 2016 Convertible Debentures are
convertible into Security Capital common stock at $1,046.00 and $1,153.90 per
share, respectively, at the option of the holder any time after the earlier to
occur of (i) the first anniversary of Security Capital's initial public
offering of its common stock, (ii) July 1, 1999 and March 29, 2001 for the 2014
and 2016 Convertible Debentures, respectively, (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. 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. Security
Capital may redeem the 2014 Convertible Debentures at any time and the 2016
Convertible Debentures may be redeemed at any time after March 29, 1999. To
redeem the debentures, Security Capital must provide 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.
5. SHAREHOLDERS' EQUITY:
Security Capital has received subscriptions from its March 1996 private
placement offerings of securities totaling $785,097,000. Such subscriptions
consist of preferred stock of $139,000,000, common stock of $323,048,500, and
2016 Convertible Debentures of $323,048,500.
On April 1, 1996 Security Capital issued 139,000 shares of its Series A
Cumulative Convertible Redeemable Voting Preferred Stock ("Series A Preferred
Shares"). The Series A Preferred Shares have a liquidation preference of $1,000
per share for an aggregate preference of $139,000,000 plus any accrued but
unpaid dividends. The holder of the Series A Preferred Shares is entitled to
voting rights, equal to the number of common shares into which the Series A
Preferred Shares are convertible, on matters of amendments of Security
Capital's Articles of Incorporation and merger of Security Capital, or sale of
substantially all assets or liquidation or dissolution, and one-half of such
number of common shares on other matters submitted to a vote of the common
shareholders. Each Series A Preferred Share is convertible, at the option of
the holder at any time, into 0.76184 of Security Capital common shares (a
conversion price of $1,312.61 per share). Holders of the Series A Preferred
Shares will be entitled to receive, when, as and if declared by the Board of
Directors, out of funds legally available for the payment of dividends,
cumulative preferential cash distributions at the rate of 7.5% of the
liquidation preference per annum (equivalent to $75.00 per share). Such
distributions are cumulative from the date of original issue and are payable
quarterly in arrears on the last day of each March, June, September and
December or, if not a business day, the next succeeding business day. The
Series A Preferred Shares are redeemable, at the option of Security Capital,
after March 31, 1999.
Through December 31, 1996 Security Capital has received fundings for the
issuance of 215,946 shares of common stock ($226,526,000) and 2016 Convertible
Debentures ($226,526,000). Included in the fundings was $22,500,000 received
from USREALTY. USREALTY has committed to a total subscription of $110,000,000
in Security Capital's offering.
Participants in Security Capital's Debenture Interest Reinvestment Plans may
reinvest the cash portion of their interest payments applicable to Security
Capital's 2014 and 2016 Convertible Debentures in Security Capital
F-20
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
common stock at the estimated fair value per share determined as of the prior
quarter end date. As of December 31, 1996, 74,602 shares of Security Capital's
common stock have been reserved for issuance under these plans.
6. STOCK OPTION PLANS AND WARRANTS:
Security Capital has stock and convertible debenture option plans for
directors, officers and key employees which provide for grants of non-qualified
and incentive options. Prior to 1996, all options and warrants were issued in
units consisting of common stock and 2014 Convertible Debentures. Such options
must be exercised in units which consist of both shares and debentures. In
1996, most option grants were for common stock only. Shares totaling 262,615
have been reserved for options and warrants, including shares obtainable upon
conversion of debentures. Under all plans, the option exercise price equals the
fair value of the stock or stock and debentures, as applicable as of the date
of grant. Vesting of the options commences no more than three years from grant
date and options are fully vested no more than six years from grant date.
Options expire ten years from date of grant.
Security Capital has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation. Accordingly, no compensation cost has been recognized for the
option plans. As permitted by Statement 123, Security Capital has applied its
provisions to options granted subsequent to December 31, 1994. Since the
Statement 123 method of accounting has not been applied to options granted
prior to 1995, the resulting pro forma compensation cost may not be
representative of such costs to be expected in future years. The pro forma
effect of Statement 123 is summarized as follows (in thousands, except share
data):
------------------
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Net earnings (loss)--as reported $24,145 $(51,112)
Net earnings (loss)--pro forma $20,915 $(52,762)
Earnings (loss) per share--as reported $ 21.30 $ (57.00)
Earnings (loss) per share--pro forma $ 18.45 $ (58.84)
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995, respectively: risk-free interest
rates of 6.32% and 6.26%; expected lives of seven years for 1996 and 1995;
expected dividends--none; and expected volatility of 20% for both years.
A summary of the status of Security Capital's stock option plans at December
31, 1996, 1995 and 1994 and changes during the years then ended is presented in
the following table:
---------------------------------------
<TABLE>
<CAPTION>
2014 CONVERTIBLE
COMMON STOCK DEBENTURES
------------------------- -----------------------
WTD. AVG.
WTD. AVG. EX. CONVERSION
SHARES PRICE AMOUNT PRICE
--------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Outstanding at December 31,
1993 14,259 $ 242 $10,374,616 $1,046
Granted 3,627 242 2,693,450 1,046
Exercised - - - -
Forfeited (146) 242 (110,876) 1,046
--------- --------- ----------- ---------
Outstanding at December 31,
1994 17,740 242 12,957,190 1,046
--------- --------- ----------- ---------
Granted--GROUP merger 58,772 203 29,298,305 1,046
Other grants 24,141 948 16,597,259 1,043
Exercised (538) 213 (174,682) 1,046
Forfeited (879) 213 (461,286) 1,046
--------- --------- ----------- ---------
Outstanding at December 31,
1995 99,236 672 58,216,786 1,045
--------- --------- ----------- ---------
Granted 47,982 1,132 2,099,880 1,133
Exercised (5,353) 217 (2,659,650) 1,046
Forfeited (1,551) 785 (917,342) 1,045
--------- --------- ----------- ---------
Outstanding at December 31,
1996 140,314 $ 928 $56,739,674 $1,048
========= ========= =========== =========
</TABLE>
F-21
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes information about options and warrants for
common stock and debentures outstanding at December 31, 1996:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ----------------------------------------------------------- ------------------------
WTD. AVG. WTD. AVG. WTD. AVG.
REMAINING EXERCISE/ EXERCISE/
RANGE OF EXERCISE AND NUMBER/AMOUNT CONTRACTUAL CONVERSION NUMBER/AMOUNT CONVERSION
CONVERSION PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- --------------------- ------------- ----------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Stock
---------------
$ 123-247 72,462 5.5 years $ 215 52,023 $ 216
$ 948 23,706 8.5 years $ 948 372 $ 948
$ 1139-1239 44,146 10 years $1140 - n/a
----------- -----------
140,314 52,395
=========== ===========
Convertible De-
bentures
---------------
$ 1043 $15,737,733 8.5 years $1043 $ 254,980 $1043
$1046-$1191 41,001,941 5.5 years $1051 29,067,294 $1046
----------- -----------
$56,739,674 $29,322,274
=========== ===========
</TABLE>
The weighted-average fair value per share of options granted during 1996 and
1995 was $447 and $368, respectively.
In connection with ATLANTIC's acquisition of a portfolio of multifamily assets
in June 1994, Security Capital issued a warrant to the seller to purchase
40,241 shares and $30,500,000 of 2014 Convertible Debentures for an aggregate
price of $60,000,000 ($865 per fully converted share).The warrant expires March
31, 1998; however, if Security Capital's common stock is not registered by that
date, the warrant will automatically be exercised according to its cashless
exercise provisions. Due to its immateriality, no value has been assigned to
the warrant in the accompanying consolidated balance sheets.
7. LEASES
Minimum future rental payments due under non-cancelable operating leases,
principally for office space, having remaining terms in excess of one year as
of December 31, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
---------
YEAR ENDED
DECEMBER
31, AMOUNT
---------- ---------
<S> <C>
1997 $ 2,984
1998 2,503
1999 2,101
2000 1,701
2001 1,423
Thereafter 3,391
---------
$14,103
=========
</TABLE>
Lease expense for the years ended December 31, 1996 and 1995 was $3,659,000 and
$2,692,000, respectively, including $1,390,000 and $813,000 in 1996 and 1995,
respectively, paid to SCI. There was no lease expense during 1994. Included
above are lease agreements with SCI with a total remaining obligation of
$10,647,000.
F-22
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES:
Security Capital accounts for income taxes under Statement of Financial
Accounting Standards No. 109, Accounting For Income Taxes. Security Capital
files a consolidated Federal income tax return. Homestead also accounts for
income taxes under Statement 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
provisions have been made for Federal income taxes for its operations in
Security Capital's consolidated financial statements.
Federal income tax expense for the years ended December 31, 1996 and 1995
consisted of deferred tax provisions of $30,872,000 and none, respectively.
Prior to 1995, Security Capital had elected to be taxed as a REIT; therefore
there is no tax provision for 1994. Security Capital terminated its REIT status
as of January 1, 1995 as a result of the merger with GROUP.
A reconciliation of income tax expense computed at the applicable Federal tax
rate of 35% in 1996 and 1995 to the amount recorded in the consolidated
financial statements is as follows (in thousands):
<TABLE>
<CAPTION>
---------------------
1996 1995
--------- ---------
<S> <C> <C>
Computed expected provision/(benefit) $26,672 $(16,222)
ATLANTIC minority interest (4,840) (1,667)
Change in valuation allowance (2,674) 15,315
Goodwill amortization 2,773 2,773
Net deferred tax assets in consolidated
subsidiaries 10,824 -
Other (1,883) (199)
--------- ---------
$30,872 $ -
========= =========
</TABLE>
Security Capital had tax net operating loss carryforwards of approximately
$61,000,000 at December 31, 1996 and 1995. If not previously utilized, the loss
carryforwards will expire beginning 2005 through 2010. Utilization of existing
net operating loss carryforwards is limited by IRC Section 382 (limitation on
net operating loss carryforwards following ownership change) and the Separate
Return Limitation Year ("SRLY") rules.
As mentioned above, prior to 1995, Security Capital elected to be taxed as a
REIT. For 1994, total distributions per share were $791.00, consisting of
$33.50 in cash distributions and a $757.50 debenture distribution. For Federal
income tax purposes, the estimated taxability of distributions was as follows--
ordinary income ($7.91 per share); return of capital ($783.09 per share). Also,
for the period that Security Capital elected to be taxed as a REIT, its
Accumulated Deficit included only ordinary income and did not include any
undistributed net realized gains on disposition of real estate.
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and liabilities at December 31, 1996 and 1995, are as
follows (in thousands):
<TABLE>
<CAPTION>
---------------------
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax assets:
Security Capital's net operating loss
carryforwards ("NOL's") $ 21,375 $ 21,375
Homestead's NOL's 1,112 -
Loan costs 3,547 -
Investments in equity method operating
companies - 2,674
--------- ---------
Gross deferred tax assets 26,034 24,049
Homestead valuation allowance (4,659) -
Security Capital valuation allowance (21,375) (24,049)
--------- ---------
Gross deferred tax assets, net of valuation
allowances - -
--------- ---------
Deferred tax liabilities:
Investments in equity method operating
companies 30,872 -
--------- ---------
Net deferred tax liability $ 30,872 $ -
========= =========
</TABLE>
F-23
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. 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 regulations related
to the ownership, operation, development and acquisition of real estate. As
part of 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 financial condition or results of operations.
At December 31, 1996, Security Capital had approximately $323,353,000 of
unfunded development commitments for developments under construction. ATLANTIC
and Homestead's commitments were $95,900,000 and $227,453,000, respectively.
10. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, other assets, accounts
payable and accrued expenses approximates fair value as of December 31, 1996
and 1995 because of the short maturity of these instruments. Similarly, the
carrying value of line of credit borrowings approximates fair value as of those
dates because the interest rates fluctuate based on published market rates. In
the opinion of management, the interest rates associated with the conventional
mortgages payable and the tax exempt mortgages payable approximate the market
interest rates for this type of instrument, and as such, the carrying values
approximate fair value at December 31, 1996 and 1995, in all material respects.
PTR's convertible mortgage notes are convertible into Homestead common stock
after March 31, 1997 on the basis of one share of Homestead common stock for
every $11.50 of principal amount outstanding. The fair value of the convertible
mortgage notes (assuming conversion), based upon the trading price of
Homestead's common stock on the American Stock Exchange at December 31, 1996,
($18.00) is $176,304,000.
11. SUBSEQUENT EVENTS
On March 24, 1997, the board of trustees or directors of SCI, PTR and ATLANTIC
each unanimously approved an agreement with Security Capital to exchange its
REIT common stock for Security Capital's REIT management and property
management companies. The transactions, subject to approval by the shareholders
of Security Capital SCI, PTR and ATLANTIC, are expected to be consummated
during the third quarter of 1997. Under the terms of the agreements, SCI, PTR
and ATLANTIC, will issue $81.9 million, $75.8 million and $54.6 million of
their common stock, respectively, in exchange for Security Capital's REIT
management and property management companies and operating systems. After
giving effect to income taxes, Security Capital expects the gain on sale of the
management companies to SCI and PTR will be immaterial. No gain will be
recorded on the sale to ATLANTIC as Security Capital consolidates ATLANTIC's
accounts.
In order to allow existing shareholders to maintain their relative ownership
interests, SCI, PTR and ATLANTIC will conduct rights offerings during the time
proxies are solicited from their shareholders. Also, as part of the
transaction, Security Capital will issue warrants to acquire $250 million of
Class B shares to the common and convertible preferred shareholders of SCI, PTR
and ATLANTIC. The warrants are expected to be publicly traded and have a term
of twelve months. Security Capital expects to file a registration statement
with the Securities and Exchange Commission covering its initial public
offering of Class B shares in the third quarter of 1997.
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 changed to Class A Shares.
All references to Security Capital common stock are to Class A Shares unless
otherwise noted.
F-24
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED AND SUBSIDIARIES
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
-----------------------------------------------
INITIAL COST COSTS
---------------------- CAPITALIZED
ENCUM- BUILDINGS AND SUBSEQUENT TOR
MUTIFAMILY COMMUNITIESL BRANCES LAND IMPROVEMENTS ACQUISITIOND
- ----------------------- -------- -------- ------------- --------------
<S> <C> <C> <C> <C>
COMMUNITIES
ACQUIRED:
Atlanta, Georgia:
Azalea Park..... $ 15,500 $ 3,717 $ 21,076 $ 975
Balmoral
Village......... - 2,871 16,270 74
Cameron
Ashford......... - 3,672 20,841 399
Cameron
Briarcliff...... (b) 2,105 11,953 191
Cameron Brook... 19,500 3,318 18,784 326
Cameron Creek
I............... - 3,627 20,589 328
Cameron Crest... - 3,525 20,009 290
Cameron
Dunwoody........ - 2,486 14,114 252
Cameron Forest.. - 884 5,008 352
Cameron Place... - 1,124 6,372 579
Cameron Pointe.. - 2,172 12,306 413
Cameron
Station......... 14,500 2,338 13,246 496
Clairmont
Crest........... 11,600 1,603 9,102 315
The Greens...... 10,400 2,004 11,354 382
Lake Ridge...... - 2,001 11,359 4,012
Morgan's
Landing......... - 1,168 6,646 857
Old Salem....... - 1,053 6,144 919
Trolley Square.. - 2,031 11,528 347
Vinings
Landing......... - 1,363 7,902 714
WintersCreek.... 5,000 1,133 6,434 220
Woodlands....... - 3,785 21,471 485
Birmingham,
Alabama:
Cameron on the
Cahaba I........ - 1,020 5,784 352
Cameron on the
Cahaba II....... 8,021 1,688 9,580 501
Colony Woods I.. - 1,560 8,845 281
Morning Sun
Villas.......... - 1,260 7,309 732
Charlotte, North
Carolina:
Cameron at
Hickory Grove... 5,979 1,203 6,808 381
Cameron Oaks.... - 2,255 12,800 306
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------
GROSS AMOUNT AT WHICH CARRIED AT
DECEMBER 31, 1996
---------------------------------
BUILDINGS AND TOTALS ACCUMULATED CONSTRUCTION YEAR
MUTIFAMILY COMMUNITIESL LAND IMPROVEMENTS (C) DEPRECIATION YEAR ACQUIRED
- ----------------------- -------- ------------- ---------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
COMMUNITIES
ACQUIRED:
Atlanta, Georgia:
Azalea Park..... $ 3,717 $ 22,051 $ 25,768 $ 715 1987 1995
Balmoral
Village......... 2,871 16,344 19,215 73 1990 1996
Cameron
Ashford......... 3,672 21,240 24,912 1,551 1990 1994
Cameron
Briarcliff...... 2,105 12,144 14,249 897 1989 1994
Cameron Brook... 3,318 19,110 22,428 1,279 1988 1994
Cameron Creek
I............... 3,627 20,917 24,544 1,473 1988 1994
Cameron Crest... 3,525 20,299 23,824 1,426 1988 1994
Cameron
Dunwoody........ 2,486 14,366 16,852 1,050 1989 1994
Cameron Forest.. 884 5,360 6,244 145 1981 1995
Cameron Place... 1,124 6,951 8,075 185 1979 1995
Cameron Pointe.. 2,172 12,719 14,891 192 1987 1996
Cameron
Station......... 2,338 13,742 16,080 354 (c) 1995
Clairmont
Crest........... 1,603 9,417 11,020 626 1987 1994
The Greens...... 2,004 11,736 13,740 794 1986 1994
Lake Ridge...... 2,001 15,371 17,372 1,200 1979 1993
Morgan's
Landing......... 1,168 7,503 8,671 608 1983 1993
Old Salem....... 1,053 7,063 8,116 485 1968 1994
Trolley Square.. 2,031 11,875 13,906 911 1989 1994
Vinings
Landing......... 1,363 8,616 9,979 613 1978 1994
WintersCreek.... 1,133 6,654 7,787 233 1984 1995
Woodlands....... 3,785 21,956 25,741 761 (d) 1995
Birmingham,
Alabama:
Cameron on the
Cahaba I........ 1,020 6,136 7,156 281 1987 1995
Cameron on the
Cahaba II....... 1,688 10,081 11,769 463 1990 1995
Colony Woods I.. 1,560 9,126 10,686 676 1991 1994
Morning Sun
Villas.......... 1,260 8,041 9,301 554 1985 1994
Charlotte, North
Carolina:
Cameron at
Hickory Grove... 1,203 7,189 8,392 137 1988 1996
Cameron Oaks.... 2,255 13,106 15,361 974 1989 1994
</TABLE>
F-25
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED AND SUBSIDIARIES
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
--------------------------------------------------------
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH CARRIED AT
INITIAL COST COSTS DECEMBER 31, 1996
------------------------- CAPITALIZED ------------------------------------
ENCUM- BUILDINGS AND SUBSEQUENT TO BUILDINGS AND TOTALS ACCUMULATED
MUTIFAMILY COMMUNITIESL BRANCES LAND IMPROVEMENTS LANDACQUIMPROVEMENTSISITION(C) DEPRECIATION
- ----------------------- -------- -------- ------------- ------------- ---------- ------------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ft.
Lauderdale/West
Palm Beach,
Florida:
Cypress Lakes... $ - $ 1,225 $ 6,961 $ 324 $ 1,225 $ 7,285 $ 8,510 $ 271
Park Place at
Turtle Run...... - 2,208 12,223 1,283 2,208 13,506 15,714 223
Parrot's Landing
I............... 15,835 2,691 15,276 684 2,691 15,960 18,651 1,072
The Pointe at
Bayberry Lake... - 2,508 14,210 303 2,508 14,513 17,021 222
Spencer Run..... (b) 2,852 16,194 425 2,852 16,619 19,471 1,133
Sun Pointe
Cove............ 8,500 1,367 7,773 229 1,367 8,002 9,369 550
Trails at Meadow
Lakes........... - 1,285 7,293 262 1,285 7,555 8,840 282
Ft. Myers,
Florida:
Forestwood...... 11,485 2,031 11,540 210 2,031 11,750 13,781 815
Greenville, South
Carolina:
Cameron Court... - 1,602 9,369 89 1,602 9,458 11,060 163
Jacksonville,
Florida:
Bay Club........ - 1,789 10,160 273 1,789 10,433 12,222 773
Memphis,
Tennessee:
Cameron Century
Center.......... - 2,382 13,496 50 2,382 13,546 15,928 60
Cameron at Kirby
Parkway......... - 1,386 7,959 829 1,386 8,788 10,174 686
Country Oaks.... 5,933 1,246 7,061 177 1,246 7,238 8,484 63
Stonegate....... - 985 5,608 483 985 6,091 7,076 360
Miami, Florida:
Park Hill....... - 1,650 9,377 (2,185)(e) 1,650 7,192 8,842 606
Nashville,
Tennessee:
Arbor Creek..... - -(f) 17,671 512 - 18,183 18,183 1,267
Enclave at
Brentwood....... - 2,263 12,847 1,016 2,263 13,863 16,126 605
Orlando, Florida:
Camden Springs.. - 2,477 14,072 808 2,477 14,880 17,357 1,056
Cameron Villas
I............... 6,343 1,087 6,317 609 1,087 6,926 8,013 473
Cameron Villas
II.............. (b) 255 1,454 64 255 1,518 1,773 56
Kingston
Village......... - 876 4,973 164 876 5,137 6,013 192
The Wellington.. (b) 1,155 6,565 282 1,155 6,847 8,002 466
Raleigh, North
Carolina:
Cameron Lake.... - 1,385 7,848 60 1,385 7,908 9,293 35
Cameron Ridge... 5,888 1,503 8,519 109 1,503 8,628 10,131 38
Cameron Square.. - 2,314 13,143 525 2,314 13,668 15,982 959
Emerald Forest.. - 2,202 12,478 - 2,202 12,478 14,680 -
<CAPTION>
CONSTRUCTION YEAR
MUTIFAMILY COMMUNITIESL YEAR ACQUIRED
- ----------------------- ------------ --------
<S> <C> <C>
Ft.
Lauderdale/West
Palm Beach,
Florida:
Cypress Lakes... 1987 1995
Park Place at
Turtle Run...... 1989 1996
Parrot's Landing
I............... 1986 1994
The Pointe at
Bayberry Lake... 1988 1996
Spencer Run..... 1987 1994
Sun Pointe
Cove............ 1986 1994
Trails at Meadow
Lakes........... 1983 1995
Ft. Myers,
Florida:
Forestwood...... 1986 1994
Greenville, South
Carolina:
Cameron Court... 1991 1996
Jacksonville,
Florida:
Bay Club........ 1990 1994
Memphis,
Tennessee:
Cameron Century
Center.......... 1988 1996
Cameron at Kirby
Parkway......... 1985 1994
Country Oaks.... 1985 1996
Stonegate....... 1986 1994
Miami, Florida:
Park Hill....... 1968 1994
Nashville,
Tennessee:
Arbor Creek..... 1986 1994
Enclave at
Brentwood....... 1988 1995
Orlando, Florida:
Camden Springs.. 1986 1994
Cameron Villas
I............... 1982 1994
Cameron Villas
II.............. 1981 1995
Kingston
Village......... 1982 1995
The Wellington.. 1988 1994
Raleigh, North
Carolina:
Cameron Lake.... 1985 1996
Cameron Ridge... 1985 1996
Cameron Square.. 1987 1994
Emerald Forest.. 1986 1996
</TABLE>
F-26
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED AND SUBSIDIARIES
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
-----------------------------------------------
INITIAL COST COSTS
---------------------- CAPITALIZED
ENCUM- BUILDINGS AND SUBSEQUENT TO
MUTIFAMILY COMMUNITIESL BRANCES LAND IMPROVEMENTS
- ----------------------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Richmond,
Virginia:
Camden at
Wellesley....... $ - $ 2,878 $ 16,339 $ 293
Potomac Hunt.... (b) 1,486 8,452 181
Sarasota,
Florida:
Camden at Palmer
Ranch........... - 3,534 20,057 607
Tampa, Florida:
Camden Downs.... - 1,840 10,447 305
Cameron
Bayshore........ - 1,607 9,105 -
Cameron Lakes... - 1,126 6,418 1,107
Country Place
Village I....... 2,004 567 3,219 140
Country Place
Village II...... - 644 3,658 94
Foxbridge on the
Bay............. 10,400 1,591 9,036 328
Summer Chase.... (b) 542 3,094 136
Washington, D.C.:
Camden at
Kendall Ridge... - 1,708 9,698 295
Cameron at
Saybrooke....... - 2,802 15,906 258
Sheffield
Forest.......... - 2,269 12,859 418
West Springfield
Terrace......... - 2,417 13,695 98
Less amounts
held in
principal
reserve
fund(g)......... (1,098) - - -
-------- -------- -------- --------
Total Operating
Communities
Acquired........ $155,790 $124,701 $726,004 $ 27,324
-------- -------- -------- --------
COMMUNITIES
DEVELOPED:
Birmingham,
Alabama:
Colony Woods
II.............. $ - $ 1,254 $ - $ 9,261
Charlotte, North
Carolina:
Waterford
Hills........... - 1,508 - 11,109
Waterford Square
I............... - 1,890 - 17,763
Jacksonville,
Florida:
Cameron Lakes
I............... - 1,759 - 14,358
Raleigh, North
Carolina:
Waterford
Point........... - 985 - 14,854
-------- -------- -------- --------
Total Operating
Communities
Developed....... $ - $ 7,396 $ - $ 67,345
-------- -------- -------- --------
TOTAL OPERATING
COMMUNITIES..... $155,790 $132,097 $726,004 $ 94,669
-------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
GROSS AMOUNT AT WHICH CARRIED AT
DECEMBER 31, 1996
------------------------------------
BUILDINGS AND TOTALS ACCUMULATED CONSTRUCTION YEAR
MUTIFAMILY COMMUNITIESL LANDACQUIMPROVEMENTSISITION(C) DEPRECIATION YEAR ACQUIRED
- ----------------------- ---------- ------------------------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Richmond,
Virginia:
Camden at
Wellesley....... $ 2,878 $ 16,632 $ 19,510 $ 1,240 1989 1994
Potomac Hunt.... 1,486 8,633 10,119 464 1987 1994
Sarasota,
Florida:
Camden at Palmer
Ranch........... 3,534 20,664 24,198 1,469 1988 1994
Tampa, Florida:
Camden Downs.... 1,840 10,752 12,592 780 1988 1994
Cameron
Bayshore........ 1,607 9,105 10,712 - 1984 1996
Cameron Lakes... 1,126 7,525 8,651 365 1986 1995
Country Place
Village I....... 567 3,359 3,926 125 1982 1995
Country Place
Village II...... 644 3,752 4,396 141 1983 1995
Foxbridge on the
Bay............. 1,591 9,364 10,955 652 1986 1994
Summer Chase.... 542 3,230 3,772 219 1988 1994
Washington, D.C.:
Camden at
Kendall Ridge... 1,708 9,993 11,701 755 1990 1994
Cameron at
Saybrooke....... 2,802 16,164 18,966 1,190 1990 1994
Sheffield
Forest.......... 2,269 13,277 15,546 374 1987 1995
West Springfield
Terrace......... 2,417 13,793 16,210 92 1978 1996
Less amounts
held in
principal
reserve
fund(g)......... - - - -
---------- ---------- ---------- -------
Total Operating
Communities
Acquired........ $ 124,701 $ 753,328 $ 878,029 $38,948
---------- ---------- ---------- -------
COMMUNITIES
DEVELOPED:
Birmingham,
Alabama:
Colony Woods
II.............. $ 1,551 $ 8,964 $ 10,515 $ 365 1995 1994
Charlotte, North
Carolina:
Waterford
Hills........... 1,943 10,674 12,617 476 1995 1993
Waterford Square
I............... 2,053 17,600 19,653 436 1996 1994
Jacksonville,
Florida:
Cameron Lakes
I............... 1,959 14,158 16,117 216 1996 1995
Raleigh, North
Carolina:
Waterford
Point........... 1,493 14,346 15,839 519 1996 1994
---------- ---------- ---------- -------
Total Operating
Communities
Developed....... $ 8,999 $ 65,742 $ 74,741 $ 2,012
---------- ---------- ---------- -------
TOTAL OPERATING
COMMUNITIES..... $ 133,700 $ 819,070 $ 952,770 $40,960
---------- ---------- ---------- -------
</TABLE>
F-27
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED AND SUBSIDIARIES
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
---------------------------------------------
INITIAL COST COSTS
---------------------- CAPITALIZED
ENCUM- BUILDINGS AND SUBSEQUENT TO
MUTIFAMILY COMMUNITIESL BRANCES LAND IMPROVEMENTS ACQUISITOIN
- ----------------------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C>
COMMUNITIES UNDER
CONSTRUCTION:
Atlanta, Georgia:
Cameron Creek
II.............. $ - $ 2,730 $ - $ 16,602
Birmingham,
Alabama:
Cameron at the
Summit I........ - 2,774 - 5,709
Charlotte, North
Carolina:
Waterford Square
II.............. - 2,014 - 4,578
Ft.
Lauderdale/West
Palm Beach,
Florida:
Parrot's Landing
II.............. - 1,328 - 6,742
Jacksonville,
Florida:
Cameron
Deerwood........ - 2,331 - 12,173
Cameron Lakes
II.............. - 1,340 - 1,529
Cameron
Timberlin Parc
I............... - 2,167 - 13,280
Nashville,
Tennessee:
Cameron
Overlook........ - 2,659 - 4,679
Raleigh, North
Carolina:
Cameron Brooke.. - 1,353 - 8,717
Waterford
Forest.......... - 2,371 - 17,978
Richmond,
Virginia:
Cameron at
Wyndham......... - 2,038 - 2,366
Cameron Crossing
I & II.......... - 2,752 - 8,450
Washington, D.C.:
Cameron at
Milestone....... - 5,477 - 24,867
Woodway at
Trinity Center.. - 5,342 - 30,241
-------- -------- -------- --------
TOTAL
COMMUNITIES
UNDER
CONSTRUCTION.... $ - $ 36,676 $ - $157,911
-------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
GROSS AMOUNT AT WHICH CARRIED AT
DECEMBER 31, 1996
------------------------------------
BUILDINGS AND TOTALS ACCUMULATED CONSTRUCTION YEAR
MUTIFAMILY COMMUNITIESL LANDACQUIMPROVEMENTSISITION(C) DEPRECIATION YEAR ACQUIRED
- ----------------------- ---------- ------------------------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
COMMUNITIES UNDER
CONSTRUCTION:
Atlanta, Georgia:
Cameron Creek
II.............. $ 2,897 $ 16,435 $ 19,332 $ 39 -(h) 1994
Birmingham,
Alabama:
Cameron at the
Summit I........ 2,778 5,705 8,483 - - 1996
Charlotte, North
Carolina:
Waterford Square
II.............. 2,065 4,527 6,592 - - 1995
Ft.
Lauderdale/West
Palm Beach,
Florida:
Parrot's Landing
II.............. 1,367 6,703 8,070 - - 1994
Jacksonville,
Florida:
Cameron
Deerwood........ 2,332 12,172 14,504 - -(h) 1996
Cameron Lakes
II.............. 1,340 1,529 2,869 - - 1996
Cameron
Timberlin Parc
I............... 2,282 13,165 15,447 16 -(h) 1995
Nashville,
Tennessee:
Cameron
Overlook........ 2,659 4,679 7,338 - - 1996
Raleigh, North
Carolina:
Cameron Brooke.. 1,382 8,688 10,070 - - 1995
Waterford
Forest.......... 2,480 17,869 20,349 52 -(h) 1995
Richmond,
Virginia:
Cameron at
Wyndham......... 2,052 2,352 4,404 - - 1993
Cameron Crossing
I & II.......... 2,768 8,434 11,202 - - 1995(i)
Washington, D.C.:
Cameron at
Milestone....... 5,607 24,737 30,344 43 -(h) 1995
Woodway at
Trinity Center.. 5,584 29,999 35,583 56 -(h) 1994
---------- ---------- ---------- --------
TOTAL
COMMUNITIES
UNDER
CONSTRUCTION.... $ 37,593 $ 156,994 $ 194,587 $ 206
---------- ---------- ---------- --------
</TABLE>
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED AND SUBSIDIARIES
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
----------------------------------------------
INITIAL COST COSTS
---------------------- CAPITALIZED
ENCUM- BUILDINGS AND SUBSEQUENT TO
MUTIFAMILY COMMUNITIESL BRANCES LAND IMPROVEMENTS
- ----------------------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C>
COMMUNITIES IN
PLANNING:
Atlanta, Georgia:
Cameron
Landing......... $ - $ 1,508 $ - $ 512
Ft.
Lauderdale/West
Palm Beach,
Florida:
Cameron
Waterway........ - 4,025 - 361
Jacksonville,
Florida:
Cameron
Timberlin Parc
II.............. - 1,294 - 95
-------- -------- -------- --------
TOTAL
COMMUNITIES IN
PLANNING........ $ - $ 6,827 $ - $ 968
-------- -------- -------- --------
LAND HELD FOR
FUTURE
DEVELOPMENT:
Birmingham,
Alabama:
Cameron at the
Summit II....... - 2,008 - 75
-------- -------- -------- --------
TOTAL LAND HELD
FOR FUTURE
DEVELOPMENT..... $ - $ 2,008 $ - $ 75
-------- -------- -------- --------
TOTAL
MULTIFAMILY
COMMUNITIES,
HELD BY
ATLANTIC........ $155,790 $177,608 $726,004 $253,623
-------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------
GROSS AMOUNT AT WHICH CARRIED AT
DECEMBER 31, 1996
---------------------------------
BUILDINGS AND TOTALS ACCUMULATED CONSTRUCTION YEAR
MUTIFAMILY COMMUNITIESL LANDACIMPROVEMENTSQUISITIO(C)NDEPRECIATION YEAR ACQUIRED
- ----------------------- -------- ------------- ---------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
COMMUNITIES IN
PLANNING:
Atlanta, Georgia:
Cameron
Landing......... $ 1,508 $ 512 $ 2,020 $ - - 1996
Ft.
Lauderdale/West
Palm Beach,
Florida:
Cameron
Waterway........ 4,029 357 4,386 - - 1996
Jacksonville,
Florida:
Cameron
Timberlin Parc
II.............. 1,294 95 1,389 - - 1995
-------- -------- ---------- -------
TOTAL
COMMUNITIES IN
PLANNING........ $ 6,831 $ 964 $ 7,795 $ -
-------- -------- ---------- -------
LAND HELD FOR
FUTURE
DEVELOPMENT:
Birmingham,
Alabama:
Cameron at the
Summit II....... 2,083 - 2,083 - - 1996
-------- -------- ---------- -------
TOTAL LAND HELD
FOR FUTURE
DEVELOPMENT..... $ 2,083 $ - $ 2,083 $ -
-------- -------- ---------- -------
TOTAL
MULTIFAMILY
COMMUNITIES,
HELD BY
ATLANTIC........ $180,207 $977,028 $1,157,235 $41,166
-------- -------- ---------- -------
</TABLE>
F-29
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED AND SUBSIDIARIES
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
GROSS AMOUNT AT WHICH CARRIED AT
INITIAL COST DECEMBER 31, 1996
--------------------- COSTS -------------------------------------
EXTENDED-STAY CAPITALIZED
LODGING ENCUM- BUILDINGS AND SUBSEQUENT TO BUILDINGS AND TOTALS
PROPERTIES BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS (C)
------------- ------- ------- ------------- ------------- ---------- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Albuquerque, New
Mexico:
I-40............ (l) $ 770 $ - $ 1,489 $ 776 $ 1,483 $ 2,259
Osuna/North I-
25.............. (l) 832 - 4,598 840 4,590 5,430
Atlanta, Georgia:
Cumberland...... (m) 1,321 524 2,419 1,321 2,943 4,264
Gwinnett Place.. (m) 743 - 241 790 194 984
North Druid
Hills........... (m) 1,814 144 1,064 1,814 1,208 3,022
Peachtree....... (m) 1,091 5,085 87 1,095 5,168 6,263
Perimeter....... (m) 2,356 982 2,100 2,381 3,057 5,438
Roswell......... (m) 1,923 110 829 1,923 939 2,862
Austin, Texas:
Burnet Road..... (l) 525 - 3,616 723 3,418 4,141
Midtown......... (l) 600 - 4,085 643 4,042 4,685
Pavillion....... (l) 633 - 4,459 633 4,459 5,092
Round Rock...... (l) 483 - 351 506 328 834
Charlotte, North
Carolina:
1-77 Billy
Graham Pkwy..... - 1,500 - 366 1,524 342 1,866
Dallas, Texas:
Coit Road/North
Central......... (l) 425 - 3,051 496 2,980 3,476
Ft.
Worth/Downtown
Freeway......... (l) 350 - 2,653 384 2,619 3,003
Las
Colinas/Irving.. (l) 800 - 3,900 805 3,895 4,700
North
Arlington/Six
Flags Hills..... (l) 340 - 3,487 407 3,420 3,827
North Richland
Hills Road...... (l) 470 - 3,113 544 3,039 3,583
South Arlington. (l) 550 - 3,371 642 3,279 3,921
Skillman/Northwest. (l) 400 - 2,765 400 2,765 3,165
Stemmons/NW
Highway Worth... (l) 356 - 4,275 424 4,207 4,631
Tollway/Addison
Colinas......... (l) 275 - 2,529 353 2,451 2,804
Denver, Colorado:
Cherry Creek.... (l) 1,070 - 1,677 1,078 1,669 2,747
Bellview/Denver
Tech Center..... (l) 876 - 5,318 942 5,252 6,194
Iliff/Aurora.... (l) 615 - 4,543 624 4,534 5,158
Inverness....... (l) 1,041 - 2,110 1,064 2,087 3,151
Houston, Texas:
Astrodome/Medical
Center.......... (l) 1,530 - 3,902 1,669 3,763 5,432
Bammel/Cypress
Station......... (l) 516 - 3,112 595 3,033 3,628
Fuqua/Hobby
Airport......... (l) 416 - 3,034 491 2,959 3,450
Park Ten........ (l) 791 - 3,212 860 3,143 4,003
Stafford/Sugarland. (l) 575 - 3,127 665 3,037 3,702
West by
Northwest/Hwy
290............. (l) 519 - 2,997 568 2,948 3,516
Westheimer/Beltway. (l) 796 - 3,296 897 3,195 4,092
Willowbrook/Northwest. (l) 575 - 3,437 669 3,343 4,012
Jacksonville,
Florida:
JTB............. (m) 1,137 379 976 1,206 1,286 2,492
</TABLE>
<TABLE>
<CAPTION>
----------------------------------
EXTENDED-STAY
LODGING ACCUMULATED CONSTRUCTION YEAR
PROPERTIES DEPRECIATION YEAR ACQUIRED
------------- ------------ ------------ --------
<S> <C> <C> <C>
Albuquerque, New
Mexico:
I-40............ (j) (j) 1996
Osuna/North I-
25.............. 157 1996 1995
Atlanta, Georgia:
Cumberland...... (j) (j) 1996
Gwinnett Place.. (j) (j) 1996
North Druid
Hills........... (j) (j) 1996
Peachtree....... 45 1996 1996
Perimeter....... (j) (j) 1996
Roswell......... (j) (j) 1996
Austin, Texas:
Burnet Road..... 243 1995 1994
Midtown......... 109 1996 1995
Pavillion....... - 1996 1995
Round Rock...... (j) (j) 1995
Charlotte, North
Carolina:
1-77 Billy
Graham Pkwy..... (j) (j) 1996
Dallas, Texas:
Coit Road/North
Central......... 463 1994 1993
Ft.
Worth/Downtown
Freeway......... 82 1996 1994
Las
Colinas/Irving.. 126 1996 1994
North
Arlington/Six
Flags Hills..... 296 1995 1993
North Richland
Hills Road...... 464 1994 1993
South Arlington. 302 1995 1994
Skillman/Northwest. 373 1993 1992
Stemmons/NW
Highway Worth... 441 1995 1992
Tollway/Addison
Colinas......... 468 1993 1993
Denver, Colorado:
Cherry Creek.... (j) (j) 1996
Bellview/Denver
Tech Center..... 120 1996 1994
Iliff/Aurora.... 125 1996 1994
Inverness....... (j) (j) 1996
Houston, Texas:
Astrodome/Medical
Center.......... 236 1995 1994
Bammel/Cypress
Station......... 303 1994 1993
Fuqua/Hobby
Airport......... 412 1994 1993
Park Ten........ 320 1994 1993
Stafford/Sugarland. 332 1994 1993
West by
Northwest/Hwy
290............. 434 1994 1993
Westheimer/Beltway. 383 1994 1993
Willowbrook/Northwest. 250 1995 1994
Jacksonville,
Florida:
JTB............. (j) (j) 1996
</TABLE>
F-30
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED AND SUBSIDIARIES
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
GROSS AMOUNT AT WHICH CARRIED
AT
INITIAL COST COSTS DECEMBER 31, 1996
EXTENDED-STAY --------------------- CAPITALIZED ------------------------------
LODGING ENCUM- BUILDINGS AND SUBSEQUENT TO BUILDINGS AND ACCUMULATED CONSTRUCTION YEAR
PROPERTIES BRANCE LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTAL DEPRECIATION YEAR ACQUIRED
------------- ------ ------- ------------- ------------- ------- ------------- -------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Kansas City,
Missouri:
Merriam......... (l) $ 871 $ - $ 3,136 $ 905 $ 3,102 $ 4,007 (j) (j) 1996
Plaza........... - 1,090 - 208 1,158 140 1,298 (j) (j) 1996
Los Angeles,
California:
Brea............ - 1,518 - 173 1,529 162 1,691 (j) (j) 1996
El Segundo...... (l) 2,233 - 425 2,255 403 2,658 (j) (j) 1996
Miami/Ft.
Lauderdale,
Florida:
Coral Springs-
Northpoint...... - 1,030 - 139 1,059 110 1,169 (j) (j) 1996
Fort Lauderdale. (m) 1,328 633 926 1,384 1,503 2,887 (j) (j) 1996
Miami Airport... (m) 2,238 679 997 2,326 1,588 3,914 (j) (j) 1996
Plantation...... (m) 1,562 358 118 1,636 402 2,038 (j) (j) 1996
Nashville,
Tennessee:
Cool Springs.... (m) 1,106 - 355 1,182 279 1,461 (j) (j) 1996
Nashville
Airport......... (m) 1,292 338 954 1,324 1,260 2,584 (j) (j) 1996
Orange County,
California:
Spectrum........ (l) 2,115 - 508 2,128 495 2,623 (j) (j) 1996
Phoenix, Arizona:
Dunlap/North
West Valley..... (l) 915 - 4,418 935 4,398 5,333 77 1996 1995
Mesa............ (l) 1,470 - 161 1,529 102 1,631 (j) (j) 1996
Tempe........... (l) 808 - 4,613 830 4,591 5,421 107 1996 1995
Scottsdale...... (l) 883 - 3,454 971 3,366 4,337 218 1995 1994
Union Hills..... (l) 810 - 3,963 821 3,952 4,773 - 1996 1996
Portland, Oregon:
Lake Oswego..... (l) 1,960 - 168 2,010 118 2,128 (j) (j) 1996
Sunset East..... (l) 1,289 - 250 1,308 231 1,539 (j) (j) 1996
Raleigh/Durham,
North Carolina:
Hwy 70.......... (m) 901 - 238 936 203 1,139 (j) (j) 1996
North Raleigh... (m) 1,163 301 935 1,197 1,202 2,399 (j) (j) 1996
RTP............. (m) 984 230 1,598 993 1,819 2,812 (j) (j) 1996
Richmond,
Virginia:
Upper Broad..... (m) 1,358 - 482 1,444 396 1,840 (j) (j) 1996
Salt Lake City,
Utah:
Ft. Union....... (l) 1,285 - 440 1,288 437 1,725 (j) (j) 1996
Redwood......... (l) 844 - 2,002 912 1,934 2,846 (j) (j) 1996
San Antonio,
Texas:
Bitters......... (l) 1,000 - 3,836 1,198 3,638 4,836 254 1995 1994
DeZavala/Six
Flags Fiesta.... (l) 844 - 3,731 983 3,592 4,575 258 1995 1994
Fredricksburg/Medical
Center.......... (l) 800 - 3,356 892 3,264 4,156 319 1994 1993
San Diego,
California:
Mission Valley.. (l) 1,603 - 418 1,618 403 2,021 (j) (j) 1996
San Francisco
(Bay Area),
California:
Milpitas........ (l) 1,136 - 3,413 1,143 3,406 4,549 (j) (j) 1996
Mountain View... (l) 1,805 - 675 1,849 631 2,480 (j) (j) 1996
San Jose........ (l) 1,770 - 434 1,776 428 2,204 (j) (j) 1996
San Mateo....... (l) 1,510 - 4,233 1,517 4,226 5,743 (j) (j) 1995
</TABLE>
F-31
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED AND SUBSIDIARIES
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
-----------------------------------------------
INITIAL COST COSTS
----------------------- CAPITALIZED
EXTENDED-STAY ENCUM- BUILDINGS AND SUBSEQUENT TO
LODGING PROPERTIES BRANCE LAND IMPROVEMENTS ACQUISITION
- ------------------ -------- -------- ------------- -------------
<S> <C> <C> <C> <C>
San Ramon....... (l) $ 1,327 $ - $ 402
Santa Clara..... - 1,423 - 25
Sunnyvale....... (l) 1,274 - 4,309
Seattle,
Washington:
Bellevue........ (l) 2,050 - 1,119
Mountain Lake
Terrace/N.
Seattle......... (l) 1,530 - 494
Redmond......... (l) 2,265 - 565
Tukwila......... (l) 900 - 465
Tampa Area,
Florida:
Brandon......... (m) 923 762 584
North Airport... (m) 615 1,142 1,883
St. Petersburg.. (m) 766 155 264
Washington, D.C.:
BWI............. (m) 940 - 486
Dulles-South.... (m) 690 - 237
Fair Oaks....... (m) 1,152 196 372
Merrifield...... (m) 1,500 - 276
Miscellaneous.... (k) 5,429 - 161
Less: Fair Value
in excess of
cost--Properties
acquired from
ATLANTIC......... (3,681) (2,623) -
-------- -------- --------
Total Extended-
Stay Lodging
Properties, held
by Homestead.... $ 89,638 $ 9,395 $157,988
-------- -------- -------- --------
Grand Total
Security
Capital......... $155,790 $267,246 $735,399 $411,611
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
GROSS AMOUNT AT WHICH CARRIED AT
DECEMBER 31, 1996
----------------------------------
EXTENDED-STAY BUILDINGS AND ACCUMULATED CONSTRUCTION YEAR
LODGING PROPERTIES LAND IMPROVEMENTS TOTAL DEPRECIATION YEAR ACQUIRED
- ------------------ -------- ------------- ---------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
San Ramon....... $ 1,341 $ 388 $ 1,729 (j) (j) 1996
Santa Clara..... 1,428 20 1,448 - (n) 1996
Sunnyvale....... 1,278 4,305 5,583 (j) (j) 1995
Seattle,
Washington:
Bellevue........ 2,067 1,102 3,169 (j) (j) 1996
Mountain Lake
Terrace/N.
Seattle......... 1,589 435 2,024 (j) (j) 1996
Redmond......... 2,527 303 2,830 (j) (j) 1996
Tukwila......... 937 428 1,365 (j) (j) 1996
Tampa Area,
Florida:
Brandon......... 971 1,298 2,269 (j) (j) 1996
North Airport... 635 3,005 3,640 (j) (j) 1996
St. Petersburg.. 766 419 1,185 (j) (j) 1996
Washington, D.C.:
BWI............. 1,062 364 1,426 (j) (j) 1996
Dulles-South.... 722 205 927 (j) (j) 1996
Fair Oaks....... 1,157 563 1,720 (j) (j) 1996
Merrifield...... 1,511 265 1,776 (j) (j) 1996
Miscellaneous.... 5,589 1 5,590 - - 1995/1996
Less: Fair Value
in excess of
cost--Properties
acquired from
ATLANTIC......... (3,681) (2,623) (6,304) -
-------- ---------- ---------- -------
Total Extended-
Stay Lodging
Properties, held
by Homestead.... $ 93,687 $ 163,334 $ 257,021 $ 7,717
-------- ---------- ---------- -------
Grand Total
Security
Capital......... $273,894 $1,140,362 $1,414,256 $48,883
======== ========== ========== =======
</TABLE>
- ----
(a) For Federal income tax purposes, ATLANTIC's aggregate cost of real estate
at December 31, 1996 was $1,133,431,000.
(b) Pledged as additional collateral under credit enhancement agreement with
the Federal National Mortgage Association.
(c) Phase I (108 units) was constructed in 1981 and Phase II (240 units) was
constructed in 1983.
(d) Phase I (332 units) was constructed in 1983 and Phase II (312 units) was
constructed in 1985.
(e) A provision for possible loss of $2,500,000 was recognized in December 1996
to more properly reflect the fair value of this community.
(f) The land associated with this community is leased by ATLANTIC through the
year 2058 under an agreement with the Metropolitan Nashville Airport
Authority.
(g) The FNMA credit enhancement agreement requires payments to be made to a
principal reserve fund.
(h) This community is leasing completed units.
(i) 19.24 acres purchased in 1995; 9.86 acres purchased in 1996.
(j) As of December 31, 1996, these properties were under construction or in
planning and owned.
(k) Land held for sale.
(l) Certain properties owned by Homestead are subject to the terms and
conditions of the Funding Commitment Agreement between Homestead and PTR.
At December 31, 1996 convertible mortgage notes in the amount of $112,639
were payable to PTR (carried at $101,309, net of unamortized discount, in
the accompanying financial statements).
(m) Certain properties owned by Homestead are subject to the terms and
conditions of the Funding Commitment Agreement between Homestead and
ATLANTIC. At December 31, 1996 there were no amounts funded on the
convertible mortgage notes payable to ATLANTIC.
(n) Land held for future development.
F-32
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED AND SUBSIDIARIES
NOTE TO SCHEDULE III
AS OF DECEMBER 31, 1996
The following is a reconciliation of the carrying amount and related
accumulated depreciation of ATLANTIC's and Homestead's investment in real
estate, at cost (in thousands):
----------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
CARRYING AMOUNT 1996 1995 1994
--------------- ---------- --------- ---------
<S> <C> <C> <C>
Beginning balances $ 888,928 $631,260 $ 31,005
Acquisitions and renovation
expenditures 339,867 187,267 571,268
Development expenditures, including
land acquisitions 245,166 101,335 28,967
Recurring capital expenditures 2,783 - -
Provision for possible loss (2,500) - -
Dispositions (59,988) (30,934) -
---------- --------- ---------
Ending balances $1,414,256 $888,928 $831,260
========== ========= =========
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
ACCUMULATED DEPRECIATION 1996 1995 1994
------------------------ ---------- --------- ---------
<S> <C> <C> <C>
Beginning balances $ 23,561 $ 8,798 $ 28
Depreciation for the period 21,858 15,925 8,770
Accumulated depreciation of assets
acquired 6,683 - -
Accumulated depreciation--
dispositions (3,219) (1,152) -
---------- --------- ---------
Ending balances $ 48,883 $ 23,561 $ 8,798
========== ========= =========
</TABLE>
F-33
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders of
Security Capital Group Incorporated:
We have audited the accompanying consolidated balance sheet of Security Capital
Group Incorporated and subsidiaries as of December 31, 1994, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Security Capital
Group Incorporated and Subsidiaries as of December 31, 1994, and the results of
their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 17, 1995
F-34
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
Investment in Security Capital Realty Incorporated, at cost $57,110
Notes receivable 6,521
Cash and cash equivalents 4,939
Accounts receivable and accrued interest 3,520
Property and equipment, net 6,258
Intangible assets 11,816
Other assets 2,137
---------
Total assets $92,301
=========
<CAPTION>
LIABILITIES & SHAREHOLDERS' EQUITY
----------------------------------
<S> <C>
LIABILITIES:
Accounts payable and accrued expenses $15,902
Notes payable 250
Convertible subordinated debentures 70,178
---------
Total liabilities 86,330
---------
SHAREHOLDERS' EQUITY 5,971
---------
Total liabilities and shareholders' equity $92,301
=========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-35
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<S> <C>
INCOME:
Services Division revenues $38,900
Investment revenues 2,973
Interest and other income 1,534
---------
43,407
---------
EXPENSES:
General and administrative 43,768
Director fees 187
Depreciation and amortization 1,799
Interest expense 6,091
---------
51,845
---------
Net loss $(8,438)
=========
</TABLE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
-------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------------
CLASS A CLASS B
(VOTING) (NON-VOTING)
(325,000 SHARES (325,000 SHARES
AUTHORIZED) AUTHORIZED)
------------------ ------------------- ADDITIONAL TOTAL
NUMBER $.01 PAR NUMBER $.01 PAR PAID-IN ACCUMULATED TREASURY SHAREHOLDERS'
OF SHARES VALUE OF SHARES VALUE CAPITAL DEFICIT STOCK EQUITY
--------- -------- --------- -------- ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1993 375 $0.004 25,616 $0.256 $27,194 $(10,449) $(2,071) $14,674
Purchase of treasury
shares - - (139) - - - (201) (201)
Issuance of shares - - 164 0.001 164 - - 164
Stock dividend 272 0.002 18,603 0.186 - - - -
Minority interest
acquired - - - - - (228) - (228)
Net loss - - - - - (8,438) - (8,438)
--- ------ ------ ------ ------- -------- ------- -------
Balances at December 31,
1994 647 $0.006 44,244 $0.443 $27,358 $(19,115) $(2,272) $ 5,971
=== ====== ====== ====== ======= ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-36
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<S> <C>
OPERATING ACTIVITIES:
Net loss $ (8,438)
Adjustments to reconcile net loss to net cash flow provided by
operating activities:
Depreciation and amortization 1,799
Decrease in accounts receivable and accrued interest 2,549
Increase in other assets (1,049)
Increase in accounts payable and accrued expenses 12,828
Decrease in accrued interest on debentures (2,331)
---------
Net cash provided by operating activities 5,358
---------
INVESTING ACTIVITIES:
Investments in Security Capital Realty Incorporated (17,791)
Sale of shares of Security Capital Realty Incorporated 8,089
Cash paid upon acquisition of businesses (7,500)
Advances under notes receivable (13,476)
Repayment of notes receivable 13,106
Increase in property and equipment (4,536)
Minority interest acquired (228)
---------
Net cash used by investing activities (22,336)
---------
FINANCING ACTIVITIES:
Advances under notes payable 250
Repayments of notes payable (4,175)
Net proceeds from issuance of debentures 9,612
Retirement of debentures (108)
Purchase of treasury stock (201)
Net proceeds from issuance of stock 164
---------
Net cash flow provided by financing activities 5,542
---------
Net decrease in cash and cash equivalents (11,436)
Cash and cash equivalents, beginning of year 16,375
---------
Cash and cash equivalents, end of year $ 4,939
=========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-37
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. GENERAL
Organization and Recent Merger:
A merger of Security Capital Group Incorporated ("GROUP") with and into
Security Capital Realty Incorporated ("REALTY") was approved by GROUP and
REALTY shareholders during the fourth quarter of 1994. The merger was effective
on January 1, 1995.
The merged entity ("Security Capital") is a private real estate company which
combines GROUP's and REALTY's two complementary businesses. The merged entity
owns controlling positions in three highly focused, fully integrated real
estate operating companies. The new entity also includes the Services Division,
which owns REIT Management and Property Management companies that direct these
operating businesses. The Services Division provides strategic guidance,
research, investment analysis, acquisition and development services, asset
management, property management, capital markets services and legal and
accounting services.
In August 1994, GROUP declared a dividend of .7242 shares to its stockholders.
The stock dividend was paid on August 22, 1994 to holders of record on August
12, 1994.
In the merger, each share of GROUP's outstanding stock was exchanged for 1.22
shares of REALTY stock. Also, each $1,000 principal amount of GROUP's 8.5%
convertible subordinated debentures was exchanged for $1,000 principal amount
of REALTY's convertible subordinated debentures due June 30, 2014 (the "2014
Convertible Debentures") plus 1.147 shares of REALTY stock (equaling 1.22
REALTY shares, on a fully converted basis, for each GROUP share into which the
GROUP debentures were convertible).
Each holder of an unexpired option or warrant to purchase GROUP stock or
debentures automatically received the right to exercise such option or warrant,
as the case may be (subject to the vesting provisions thereof and at the same
aggregate exercise price), for the securities of REALTY the holder could have
received pursuant to the merger had such option or warrant been exercised
immediately prior to the merger.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Financial Presentation:
The accompanying consolidated financial statements include the accounts of
GROUP and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
Depreciation:
Depreciation of furniture and equipment is computed over the estimated useful
lives (generally 3 to 10 years) of the depreciable property on a straight-line
basis.
Goodwill:
Goodwill results from acquisitions of financial services companies and
represents acquisition costs in excess of net assets of the businesses
acquired. Goodwill, aggregating $12,540,111 at December 31, 1994, is included
in other assets in the accompanying consolidated balance sheets and is being
amortized on a straight-line basis over 15-20 years. Accumulated amortization
at December 31, 1994 was $723,806.
Cash and Cash Equivalents:
Cash and cash equivalents consist of cash in bank accounts and investments in
money market funds.
F-38
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SERVICES DIVISION
GROUP's Services Division owns REIT Management (defined below) and Property
Management companies which direct the operations and provide services to the
highly focused, fully integrated real estate operating companies REALTY owns.
Under the terms of separate agreements, GROUP's financial services subsidiaries
manage the operations of separate affiliated REITs ("REIT Managers") and
provide property management services to those REITs ("Property Managers"). Each
REIT Manager is paid a REIT Management fee based on a percentage of the REIT's
pre-management fee cash flow, after deducting regularly scheduled and assumed
mortgage principal payments, as defined in the REIT management agreements. The
fee is generally 16% of cash flow for operating REITs. The fee was 4% of cash
flow with respect to REALTY, except with respect to REALTY's cash flow from
affiliates in which it owns 90% or more of the common stock, as to which no fee
was paid by REALTY. The REIT and Property Management Agreements are generally
one year in term, renewable annually by the affiliated REIT and cancelable upon
sixty days' notice. Property management fees are at market rates and are paid
separately to GROUP's property management subsidiaries.
REIT and property management fees for the year ended December 31, 1994 were
earned from the following sources:
<TABLE>
<S> <C>
REIT management fees:
Security Capital Industrial Trust (NYSE: SCN), a publicly
held REIT which, at December 31, 1994, is 50.86% owned by
REALTY $ 8,673,200
Security Capital Pacific Trust (formerly Property Trust of
America) (NYSE: PTR), which acquired by merger Security
Capital Pacific Incorporated; at December 31, 1994, PTR,
a publicly held REIT, was 31.85% owned by REALTY and
Security Capital Pacific Incorporated, a private REIT,
was 97.61% owned by REALTY 14,878,295
Security Capital Atlantic Incorporated, a private REIT
subsidiary which, at December 31, 1994, was 72.16% owned
by REALTY 3,671,048
REALTY, a private REIT and an affiliate of GROUP 1,391,575
-----------
28,614,118
-----------
Property management fees:
Security Capital Industrial Trust 1,732,797
Security Capital Pacific Trust 6,736,532
Security Capital Atlantic Incorporated 1,316,842
-----------
10,286,171
-----------
Consolidated Services Division revenues $38,900,289
===========
</TABLE>
4. NOTES RECEIVABLE
The following is a summary of GROUP's notes receivable at December 31, 1994:
<TABLE>
<S> <C>
Directors' and officers'
investment notes $5,576,508
Other 944,916
----------
Total notes receivable $6,521,424
==========
</TABLE>
Directors and officers investment notes (used to fund a portion of the purchase
price of securities sold by GROUP and its affiliates) have a term of ten years,
bear interest at prime rate plus 1/4% (8.75% at December 31, 1994) and are
recourse to the respective borrowers.
F-39
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1994:
<TABLE>
<S> <C>
Office furniture and equipment $ 7,439,119
Vehicles 132,938
Leasehold improvements 433,723
Other 51,824
-----------
8,057,604
Less accumulated depreciation (1,799,224)
-----------
Net property and equipment $ 6,258,380
===========
</TABLE>
Depreciation expense charged to operations was $1,004,837 for the year ended
December 31, 1994.
The useful lives of property and equipment for purposes of computing
depreciation are:
<TABLE>
<S> <C>
Office furniture and equipment 5-10 Years
Vehicles 3-5 Years
Leasehold improvements 1-10 Years
Other 1-3 Years
</TABLE>
6. INVESTMENT IN REALTY
At December 31, 1994, GROUP's common stock investment in REALTY aggregated
$26,619,150, which represented 6.61% of REALTY's outstanding common stock.
Dividend income from REALTY for the year ended December 31, 1994 was
$1,153,419. This stock was cancelled in the GROUP/REALTY merger (see Note 1).
On June 5, 1994, REALTY declared a dividend distribution, payable to holders of
common stock of record on June 16, 1994, (the record date) of $757.50 principal
amount of 2014 Convertible Debentures for each share of common stock. These
debentures issued to GROUP in connection with such distribution were cancelled
in the GROUP/REALTY merger.
At December 31, 1994, the investment in REALTY, at cost, was as follows:
<TABLE>
<S> <C>
Common stock $26,619,150
2014 Convertible Debentures 30,490,844
-----------
Total Investment in REALTY $57,109,994
===========
</TABLE>
Total interest income recognized and received on the REALTY 2014 Convertible
Debentures for the year ended December 31, 1994 was $1,819,234.
On March 31, 1994, GROUP renewed a $20,000,000 loan facility to REALTY. As of
December 31, 1994 there was no outstanding balance under the loan facility.
Total interest income recognized on this loan for the year ended December 31,
1994 was $230,935.
7. LEASES
Minimum future rental payments under non-cancelable operating leases,
principally for office space having remaining terms in excess of one year as of
December 31, 1994, are as follows:
<TABLE>
<CAPTION>
YEARS
ENDED
DECEMBER
31, AMOUNT
-------- ----------
<S> <C>
1995 $1,604,987
1996 1,440,372
1997 1,100,541
1998 572,090
1999 428,210
Thereafter 1,136,521
----------
$6,282,721
==========
</TABLE>
Lease expense for the year ended December 31, 1994 was $1,539,052. Included
above is a ten-year lease agreement, which began February 1, 1994, with
Security Capital Industrial Trust, an affiliate, with a total remaining
obligation of $2,528,000.
F-40
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. CONVERTIBLE SUBORDINATED DEBENTURES
The debentures bear interest at the rate of 8.5% per annum. GROUP may defer
annually interest at the rate of 4.5%, which is payable at the maturity of the
debentures (or earlier if the Board so directs). The balance of the interest
amount (4%) is payable to the extent of the net cash flow of GROUP and may be
deferred until payable out of net cash flow. Any amounts deferred accrue
interest at the rate of 8.5%. On January 1, 1995 all 8.5% convertible
subordinated debentures were exchanged for REALTY 2014 Convertible Debentures
and shares of REALTY stock (see Notes 1 and 6). In conjunction with the merger
with REALTY (see Note 1), all current and deferred accrued interest, amounting
to $8,284,407, was paid on December 31, 1994.
On March 31, 1994 GROUP issued $9,833,470 principal amount of 8.5% convertible
subordinated debentures, pursuant to a rights offering to existing
shareholders.
9. INCOME TAXES
GROUP has no significant deferred tax assets or deferred tax liabilities other
than its net operating loss carryforwards incurred from inception through
December 31, 1994. No tax benefits applicable to such operating losses have
been recognized, since GROUP would be unable to carry the operating loss back
to prior periods for federal income tax purposes. GROUP has net operating loss
carryforwards of approximately $18,310,000 at December 31, 1994. If not
previously utilized, the loss carryforwards will expire beginning 2005 through
2009. Subsequent to the merger (see Note 1), utilization of existing net
operating loss carryforwards may be limited by IRC Section 382 (limitation on
net operating loss carryforwards following ownership change) and the Separate
Return Limitation Year ("SRLY") rules.
10. SHARE OPTION PLAN
GROUP's Board of Directors has approved stock option plans and warrants for
officers and directors. The plans permit options to be granted to directors and
non-director employees to acquire units of Class B Common Non-voting Stock and
8.5% convertible subordinated debentures due 2006.
The securities reserved for options and warrant grants and the options and
warrants granted are summarized as follows:
<TABLE>
<CAPTION>
SHARES DEBENTURES
--------- -----------
<S> <C> <C>
Total options and
warrants reserved
for grants 20,833 $29,581,916
========= ===========
Options granted:
Directors 3,466 $ 4,928,802
Employees 12,488 17,733,503
Warrants 4,675 6,636,000
--------- -----------
Total options and
warrants granted 20,629 $29,298,305
========= ===========
</TABLE>
Due to the stock dividend, the option and warrant shares have been increased by
.7242 (see Note 1). All options and warrants had exercise prices of $580 per
share (adjusted to $475 per Security Capital share in the GROUP/REALTY merger)
for the common stock and par for the debentures and must be exercised in units
of both common stock and debentures.
Options granted to directors are one-half vested, with the balance to be fully
vested on January 1, 1996. These options expire December 31, 2002. Of the
options granted to employees, options for 2,664 shares and $3,785,503 of
debentures are fully vested and expire January 1, 1997. The remaining employee
options vest over a period from January 1, 1996 to December 31, 2002, and
expire December 31, 2002. Under the 1995 Option Plan, 1,311 shares
F-41
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and $993,367 of debentures were granted to employees. The 1995 Option Plan is
subject to shareholder approval. If shareholder approval is not received,
options will convert to "phantom" options. If that conversion occurs, on the
option's expiration date the option holder will receive cash equal to the net
value of the option.
The Warrants granted to a director who is also an officer are fully vested and
expire on December 31, 2002. No options or warrants have been exercised.
11. BUSINESS ACQUISITIONS
On May 12, 1994, GROUP entered into an asset purchase agreement with Laing
Properties, Incorporated and Laing Management Company. The total purchase price
was $6,000,000 cash and the entire amount was recorded as goodwill. The
transaction occurred simultaneously with Security Capital Atlantic
Incorporated's acquisition of $336 million of multifamily real estate
properties. A subsidiary of GROUP is managing these properties.
On October 28, 1994, subsidiary of GROUP entered into an asset purchase
agreement with The Krauss/Schwartz Company. The total purchase price was
$1,500,000 cash and the entire amount was recorded as goodwill. The transaction
occurred simultaneously with Security Capital Industrial Trust's acquisition of
$89 million of industrial real estate properties. These properties are managed
by a subsidiary of GROUP.
In a series of transactions completed in January 1994, GROUP acquired all the
outstanding stock of WilsonSchanzer, Inc., a multifamily property management
company, and renamed it SCG Realty Services Incorporated ("REALTY SERVICES").
As part of the consideration, GROUP issued a $250,000 note payable and a three-
year option to purchase Class B common stock and debentures for an exercise
price of $270,000. The note payable bears interest at Texas Commerce Bank prime
rate plus 1/4% and is exchangeable for stock of REALTY. GROUP also acquired the
assignment of rights under a management agreement from the selling shareholders
for $560,000, payable in four equal, annual installments expiring January 31,
1997.
Goodwill applicable to these transactions is being amortized on a straight-line
basis over 15-20 years (see Note 2).
F-42
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Trustees and Shareholders
SECURITY CAPITAL PACIFIC TRUST:
We have audited the balance sheets of SECURITY CAPITAL PACIFIC TRUST as of
December 31, 1996 and 1995 and the related statements of earnings,
shareholders' equity and cash flows for each of the years in the three-year
period ending December 31, 1996. In connection with our audits of the financial
statements, we also have audited Schedule III, Real Estate and Accumulated
Depreciation. These financial statements and financial statement schedule are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedule based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SECURITY CAPITAL PACIFIC TRUST
as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
1996, in conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Chicago, Illinois
January 29, 1997, except as to Note 13which is as of March 10, 1997
F-43
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---------- ----------
ASSETS
<S> <C> <C>
Real estate $2,153,363 $1,855,866
Less accumulated depreciation 97,574 81,979
---------- ----------
2,055,789 1,773,887
Homestead Notes 176,304 -
Other mortgage notes receivable 13,525 15,844
---------- ----------
Net investments 2,245,618 1,789,731
Cash and cash equivalents 5,643 26,919
Accounts receivable and accrued interest 4,157 3,318
Other assets 27,014 21,031
---------- ----------
Total assets $2,282,432 $1,840,999
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Lines of credit $ 110,200 $ 129,000
Long-term debt 580,000 200,000
Mortgages payable 217,188 158,054
Distributions payable 24,537 22,437
Accounts payable 22,782 21,040
Accrued expenses and other liabilities 60,217 34,800
---------- ----------
Total liabilities 1,014,924 565,331
---------- ----------
Shareholders' equity:
Series A Preferred Shares (6,494,967 convertible
shares in 1996 and 9,200,000 in 1995; stated
liquidation preference of $25 per share) 162,374 230,000
Series B Preferred Shares (4,200,000 shares issued;
stated liquidation preference of $25 per share) 105,000 105,000
Common Shares (shares issued--75,510,986 in 1996 and
72,375,819 in 1995) 75,511 72,376
Additional paid-in capital 918,434 952,679
Unrealized holding gain on Homestead Notes 74,923 -
Distributions in excess of net earnings (68,734) (82,450)
Treasury shares (164,901 in 1995) - (1,937)
---------- ----------
Total shareholders' equity 1,267,508 1,275,668
---------- ----------
Total liabilities and shareholders' equity $2,282,432 $1,840,999
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-44
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Rental income $322,046 $262,473 $183,472
Interest income on Homestead Notes 2,035 - -
Other interest income 2,165 2,400 2,633
--------- --------- ---------
326,246 264,873 186,105
--------- --------- ---------
Expenses:
Rental expenses 89,550 73,808 55,772
Real estate taxes 26,962 21,326 16,093
Property management fees paid to affiliates 11,610 8,912 7,148
Depreciation 44,887 36,685 24,614
Interest 35,288 19,584 19,442
REIT management fee paid to affiliate 22,191 20,354 13,182
General and administrative 1,077 952 784
Provision for possible loss on investments - 420 1,600
Other 592 1,136 751
--------- --------- ---------
232,157 183,177 139,386
--------- --------- ---------
Earnings from operations 94,089 81,696 46,719
Gain on sale of investments, net 37,492 2,623 -
--------- --------- ---------
Net earnings before extraordinary item 131,581 84,319 46,719
Less extraordinary item-loss on early
extinguishment of debt 870 - -
--------- --------- ---------
Net earnings 130,711 84,319 46,719
Less Preferred Share dividends 24,167 21,823 16,100
--------- --------- ---------
Net earnings attributable to Common Shares $106,544 $ 62,496 $ 30,619
========= ========= =========
Weighted-average Common Shares outstanding 73,057 67,052 46,734
========= ========= =========
Per Common Share amounts
Net earnings before extraordinary item $ 1.47 $ 0.93 $ 0.66
========= ========= =========
Net earnings $ 1.46 $ 0.93 $ 0.66
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-45
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
-----------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OF BENEFICIAL
INTEREST, $1.00 PAR VALUE
--------------------------------
SERIES A SERIES B
PREFERRED PREFERRED
SHARES AT SHARES AT COMMON
AGGREGATE AGGREGATE SHARES ADDITIONAL UNREALIZED DISTRIBUTIONS
LIQUIDATION LIQUIDATION AT PAR PAID-IN HOLDING IN EXCESS OF TREASURY
PREFERENCE PREFERENCE VALUE CAPITAL GAINS NET EARNINGS SHARES TOTAL
----------- ----------- ------- ---------- ---------- ------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1993 $230,000 $ - $44,809 $523,053 $ - $(40,916) $(1,929) $ 755,017
Net earnings - - - - - 46,719 - 46,719
Common Share
distributions paid - - - - - (46,121) - (46,121)
Redemption of
shareholder purchase
rights - - - - - (448) - (448)
Net increase in Common
Share distributions
accrued - - - - - (3,345) - (3,345)
Preferred Share
dividends paid - - - - - (16,100) - (16,100)
Sale of shares, net of
expenses - - 5,594 95,482 - - - 101,076
Dividend Reinvestment
and Share Purchase
Plan, net - - 216 3,607 - - - 3,823
Exercise of stock
options, net - - 2 19 - - - 21
-------- -------- ------- -------- ------- -------- ------- ----------
Balances at December 31,
1994 230,000 - 50,621 622,161 - (60,211) (1,929) 840,642
Net earnings - - - - - 84,319 - 84,319
Common Share
distributions paid - - - - - (76,804) - (76,804)
Net increase in Common
Share distributions
accrued - - - - - (7,931) - (7,931)
Preferred Share
dividends paid - - - - - (21,823) - (21,823)
Issuance of shares, net
of expenses - 105,000 21,694 329,591 - - - 456,285
Dividend Reinvestment
and Share Purchase
Plan, net - - 61 927 - - - 988
Cost of treasury shares
purchased - - - - - - (8) (8)
-------- -------- ------- -------- ------- -------- ------- ----------
Balances at December 31,
1995 230,000 105,000 72,376 952,679 - (82,450) (1,937) 1,275,668
Net earnings - - - - - 130,711 - 130,711
Common Share
distributions paid - - - - - (90,728) - (90,728)
Net increase in Common
Share distributions
accrued - - - - - (2,100) - (2,100)
Preferred Share
dividends paid - - - - - (24,167) - (24,167)
Conversion of Series A
Preferred shares into
Common Shares (67,626) - 3,294 64,332 - - - -
Distribution of
Homestead common stock
and warrants at book
value, net of
transaction expenses - - - (96,914) - - - (96,914)
Unrealized holding gain
on Homestead Notes - - - - 74,923 - - 74,923
Cost of treasury shares
purchased - - - - - - (1) (1)
Retirement of 164,957
treasury shares - - (165) (1,773) - - 1,938 -
Exercise of stock
options, net - - 6 110 - - - 116
-------- -------- ------- -------- ------- -------- ------- ----------
Balances at December 31,
1996 $162,374 $105,000 $75,511 $918,434 $74,923 $(68,734) $ - $1,267,508
======== ======== ======= ======== ======= ======== ======= ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-46
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
----------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Operating Activities
Net earnings $ 130,711 $ 84,319 $ 46,719
Adjustments to reconcile net earnings to
net cash flow provided by operating
activities:
Depreciation and amortization 46,911 38,228 26,517
Provision for possible loss on
investments - 420 1,600
Gain on sale of investments, net (37,492) (2,623) -
Increase in accounts payable 565 2,719 3,463
(Decrease) increase in accrued real
estate taxes (2,168) 2,167 7,874
Increase in accrued interest on long-
term debt 9,214 - 5,391
Increase in accrued expenses and other
liabilities 4,240 4,857 4,264
Increase in other operating assets (8,042) (8,292) (1,203)
--------- --------- ---------
Net cash flow provided by operating
activities 143,939 121,795 94,625
--------- --------- ---------
Investing activities:
Real estate investments (628,640) (311,619) (380,688)
Advances on Homestead Notes (25,242) - -
Mortgage notes receivable - (1,538) (162)
Principal repayments on other mortgage
notes receivable 2,319 7,701 189
Proceeds from dispositions, net of
closing costs 291,056 10,968 12,146
Operating cash contributed in Homestead
transaction (428) - -
--------- --------- ---------
Net cash flow used in investing
activities (360,935) (294,488) (368,515)
--------- --------- ---------
Financing activities:
Proceeds from sale of shares, net of
expenses - 317,614 101,076
Proceeds from lines of credit 510,985 278,000 266,250
Principal payments on lines of credit (529,785) (302,900) (215,750)
Proceeds from Dividend Reinvestment and
Share Purchase Plan, net - 988 3,823
Proceeds from long-term debt 380,000 - 200,000
Debt issuance costs incurred (5,659) (1,496) (4,422)
Cash distributions paid on Common Shares (90,728) (76,804) (46,121)
Cash dividends paid on Preferred Shares (24,167) (21,823) (16,100)
Redemption of shareholder purchase
rights - - (448)
Regularly scheduled principal payments
on mortgages payable (2,037) (1,748) (1,398)
Principal prepayment of mortgages
payable (43,005) (303) (10,474)
Proceeds from exercise of stock options 116 (8) 21
--------- --------- ---------
Net cash flow provided by financing
activities 195,720 191,520 276,457
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents (21,276) 18,827 2,567
Cash and cash equivalents at beginning of
year 26,919 8,092 5,525
--------- --------- ---------
Cash and cash equivalents at end of year $ 5,643 $ 26,919 $ 8,092
========= ========= =========
Non-cash investing and financing
activities:
Assumption of mortgages payable upon
purchase of multifamily communities $ 104,176 $ 12,078 $ 56,624
Series A Preferred Shares converted to
Common Shares $ 67,626 $ - $ -
Accrual of Common Share distributions $ 24,537 $ 22,437 $ 14,506
Fair market value adjustment related to
Homestead Notes $ 74,923 $ - $ -
Other:
Homestead transaction--See description
in Note 2
Merger with Security Capital Pacific
Incorporated--See description in Note 3
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-47
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Security Capital Pacific Trust (New York Stock Exchange Symbol: "PTR") is an
equity real estate investment trust ("REIT") organized in 1963 under the laws
of the state of Maryland, which primarily owns, develops, acquires and operates
income-producing multifamily communities in the western United States.
Principles of Financial Presentation
The accounts of PTR and its majority-owned subsidiaries are consolidated in the
accompanying financial statements. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The preparation of these financial statements in conformity with generally
accepted accounting principles required management to make estimates and
assumptions that affected the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the dates of the financial statements
and the reported amounts of revenues and expenses during the reporting periods.
Actual amounts realized or paid could differ from those estimates.
Cash and Cash Equivalents
PTR considers all cash on hand, demand deposits with financial institutions and
short-term, highly liquid investments with original maturities of three months
or less to be cash equivalents.
Real Estate and Depreciation
Real estate is carried at depreciated cost, which is not in excess of estimated
fair market value.
Costs directly related to the acquisition (including costs related to certain
planned renovations identified during PTR's pre-acquisition due diligence),
development or improvement of real estate, and certain indirect costs related
to developments are capitalized. Costs incurred in connection with the pursuit
of unsuccessful acquisitions or developments are expensed at the time the
pursuit is abandoned.
Depreciation is computed over the expected useful lives of depreciable property
on a straight-line basis. Real estate assets are depreciated principally over
the following useful lives:
<TABLE>
<S> <C>
Buildings and improvements 20-40 years
Furnishings and other 2-10 years
</TABLE>
Make-Ready and Repairs and Maintenance
Make-ready (expenditures incurred in preparing a vacant multifamily unit for
the next tenant) and repairs and maintenance expenditures, other than
acquisition-related renovation costs identified during PTR's pre-acquisition
due diligence, are expensed as incurred. PTR generally expenses carpet and
appliance repairs and replacements after any planned acquisition-related
renovation expenditures for such items have been incurred.
Interest
During 1996, 1995 and 1994, the total interest paid in cash on all outstanding
debt, net of interest capitalized, was $23,631,000, $17,674,000 and
$11,949,000, respectively.
PTR capitalizes interest incurred during the construction period as part of the
cost of multifamily communities under development. Interest capitalized during
1996, 1995 and 1994 aggregated $16,941,000, $11,741,000 and $6,029,000,
respectively.
Cost of Raising Capital
Costs incurred in connection with the issuance of equity securities are
deducted from shareholders' equity. Costs incurred in connection with the
issuance or renewal of debt are capitalized as other assets and amortized over
the term of the related loan or the renewal period. Amortization of loan costs
included in interest expense for 1996, 1995 and 1994 was $2,233,000, $1,543,000
and $1,903,000, respectively.
F-48
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Interest Rate Contracts
From time to time, PTR utilizes derivative financial instruments as hedges in
anticipation of future debt offerings to manage well-defined interest rate
risk. Unrealized changes in the market value of interest rate contracts are
deferred until the hedged transaction is consummated and realized gains and
losses resulting from changes in the market value of these contracts are
deferred and amortized into interest expense over the life of the related debt
issuance.
Revenue and Gain Recognition
PTR leases its multifamily units under operating leases with terms of generally
less than one year. Rental income is recognized according to the terms of the
underlying leases which approximates the revenue which would be recognized if
spread evenly over the lease term.
Gains on sales of real estate are recorded when the recognition criteria set
forth by generally accepted accounting principles have been met.
Rental Expenses
Rental expenses shown on the accompanying Statement of Earnings include costs
of on-site personnel, utilities, repairs and maintenance, make-ready, property
insurance, marketing, landscaping, property management fees paid to
unaffiliated companies, and other on-site administrative costs.
Federal Income Taxes
PTR has made an election to be taxed as a REIT under the Internal Revenue Code
of 1986, as amended. PTR believes it qualifies as a REIT and, accordingly, no
provisions have been made for federal income taxes in the accompanying
financial statements.
Per Share Data
Primary earnings per share is computed based on the weighted-average number of
common shares of beneficial interest, par value $1.00 per share ("Common
Shares"), outstanding. Fully diluted earnings per Common Share is calculated
from the weighted-average Common Shares outstanding plus the Common Shares that
would be outstanding assuming conversion of all outstanding cumulative
convertible Series A Preferred Shares of Beneficial Interest, par value $1.00
per share ("Series A Preferred Shares"), outstanding Trustee options and
certain warrants exercisable by third parties (Note 8). For purposes of the
fully diluted earnings per share calculation, dividends on the Series A
Preferred Shares are added back to net earnings attributable to Common Shares.
Primary earnings per share and fully diluted earnings per share were
approximately the same for each of the three years presented, although there
was reportable dilution for the third quarter of 1996. See Note 10.
Reclassifications
Certain of the 1995 and 1994 amounts have been reclassified to conform to the
1996 presentation.
F-49
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2) HOMESTEAD TRANSACTION
On October 17, 1996, PTR, Security Capital Atlantic Incorporated ("ATLANTIC"),
Security Capital Group Incorporated ("Security Capital") and Homestead Village
Incorporated ("Homestead") consummated a merger agreement pursuant to which
each of PTR, ATLANTIC and Security Capital contributed, through a series of
merger transactions, all of their respective assets related to their Homestead
Village(R) extended-stay lodging assets to Homestead, a newly formed company.
In connection with the transaction, PTR and ATLANTIC entered into funding
commitment agreements to finance the development of certain Homestead
properties.
PTR contributed 54 Homestead Village(R) properties (or the rights to acquire
such properties) ("Homestead Assets") to Homestead in exchange for 9,485,727
shares of Homestead common stock. Simultaneously, PTR received 6,363,789
warrants to acquire additional shares of Homestead common stock at a price of
$10.00 per share in exchange for entering into a funding commitment agreement.
In this agreement PTR agreed to provide up to $198.8 million in secured
financing for developments to Homestead in exchange for up to $221.3 million in
convertible mortgage notes ("Homestead Notes"), including those existing on the
properties at the transaction date. See Note 5 for information on the Homestead
Notes.
Upon full funding of the Homestead Notes and after giving effect to the
Homestead Distribution described below, PTR's conversion rights would represent
a 34.7% ownership interest in Homestead. This ownership interest assumes no
further equity offerings by Homestead, conversion of all Homestead Notes by PTR
and ATLANTIC and exercise of all outstanding warrants.
PTR's Homestead common stock and warrants to acquire additional common stock
were distributed on November 12, 1996 to holders of record of Common Shares on
October 29, 1996 (the "Homestead Distribution"). Each PTR shareholder received
0.125694 shares of Homestead common stock and 0.084326 warrants per PTR Common
Share plus cash for fractional shares and warrants.
As of October 17, 1996, the Homestead Assets owned by PTR constituted 7.1% of
PTR's total assets, and PTR's investment in its wholly owned Homestead Village
subsidiaries, including intercompany advances, constituted less than 1% of
PTR's total assets. PTR's Homestead Village(R) operations accounted for
approximately 8.2% of PTR's total earnings from operations from January 1, 1996
to October 17, 1996.
The Homestead transaction had the following impact on PTR's balance sheet as of
October 17, 1996, after giving effect to the Homestead Distribution (in
thousands):
<TABLE>
<S> <C>
Real estate contributed, net $154,731
Other non-cash operating assets and liabilities contributed,
net 3,001
Operating cash contributed 428
Deferred revenue (included in accrued expenses) relating to
PTR's funding commitment 14,700
---------
$172,860
=========
Homestead Notes received (funded amount) $ 75,946
Homestead common stock and warrants distributed to PTR common
shareholders (recorded as a reduction of additional paid-in
capital) 96,914
---------
$172,860
=========
</TABLE>
F-50
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3) 1995 MERGER OF SECURITY CAPITAL PACIFIC INCORPORATED AND CONCURRENT
SUBSCRIPTION OFFERING
On March 23, 1995, PTR consummated a merger (the "Merger") of Security Capital
Pacific Incorporated ("PACIFIC"), a Maryland corporation, with and into PTR.
PACIFIC was a private multifamily REIT controlled by Security Capital, PTR's
principal shareholder. PACIFIC's portfolio consisted primarily of 17 operating
multifamily communities aggregating 5,579 units. In the Merger, each
outstanding share of PACIFIC common stock was converted into the right to
receive 0.611 Common Shares. As a result, 8,468,460 of PTR's Common Shares
valued at $138.7 million ($16.375 per share) were issued in the Merger in
exchange for all of the outstanding shares of PACIFIC common stock. In
addition, PTR assumed $51.9 million on PACIFIC's line of credit and $54.4
million of mortgage debt. The Merger has been accounted for as a purchase and,
accordingly, the results of operations of PACIFIC have been included in PTR's
financial statements from March 23, 1995.
The following summarized pro forma (unaudited) information assumes the Merger
occurred on January 1, 1994, and represents the combined historical operating
results of PTR and PACIFIC for the respective pro forma periods. No material
pro forma adjustments to revenue and expenses were required. The weighted-
average Common Shares outstanding have been adjusted to reflect the Merger
conversion rate (0.611 Common Shares for each share of PACIFIC common stock).
The pro forma financial information does not necessarily reflect the results of
operations that would have occurred had PACIFIC and PTR constituted a single
entity during such periods (in thousands, except per share amounts).
------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
--------- ---------
<S> <C> <C>
Rental Income $271,091 $204,337
========= =========
Net earnings attributable to Common Shares $ 64,152 $ 36,512
========= =========
Weighted-average Common Shares outstanding 68,955 52,846
========= =========
Per Common Share amounts:
Net earnings attributable to Common Shares $ 0.93 $ 0.69
========= =========
</TABLE>
Concurrently with the consummation of the Merger, PTR completed a subscription
offering of 13.2 million Common Shares pursuant to which PTR received net
proceeds of $216.3 million. The subscription offering was designed to allow
shareholders of PTR to purchase Common Shares at the same price at which
PACIFIC shareholders acquired Common Shares in the Merger ($16.375 per Common
Share). Security Capital purchased $50 million (3.1 million Common Shares at
$16.375 per Common Share) in the subscription offering pursuant to the
oversubscription privilege.
F-51
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(4) REAL ESTATE
Investments
Equity investments in real estate, at cost, were as follows (dollar amounts in
thousands):
<TABLE>
<CAPTION>
---------------------------------------------
YEAR ENDED DECEMBER 31,
1996 1995
--------------------- ---------------------
INVESTMENT UNITS INVESTMENT UNITS
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Multifamily:
Operating communities $1,861,561 42,702 $1,507,458 38,737
Communities under
construction 186,710 5,479(1) 160,487 5,424(1)
Development communities
in planning:
Development communities
owned 48,504 3,351(1) 19,921 2,047(1)
Development communities
under control (2) 3,737(1) (2) 2,408(1)
---------- --------- ---------- ---------
Total development
communities 48,504 7,088 19,921 4,455
---------- --------- ---------- ---------
Land held for future
development 30,043 - 28,796 -
---------- --------- ---------- ---------
Total multifamily 2,126,818 55,269 1,716,662 48,616
---------- --------- ---------- ---------
Homestead Assets - 108,460
Other non-multifamily 26,545 30,744
---------- ----------
Total real estate $2,153,363 $1,855,866
========== ==========
</TABLE>
- --------
(1) Unit information is based on management's estimates and is unaudited.
(2) PTR's investment as of December 31, 1996 and 1995 for developments in
planning and under control was $1.6 million and $2.2 million, respectively, and
is reflected in the "other assets" caption of PTR's balance sheets.
The change in investments in real estate, at cost, consisted of the following
(in thousands):
<TABLE>
<CAPTION>
----------------------------------
YEAR ENDED DECEMBER 31,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Balance at January 1 $1,855,866 $1,296,288 $ 872,610
---------- ---------- ----------
Multifamily:
Acquisitions and renovations
expenditures 463,935 385,356 270,024
Development expenditures, excluding
land
acquisitions 187,377 117,980 111,184
Acquisition and improvement of land
held for current or future
development 20,880 11,255 16,789
Recurring capital expenditures 7,992 5,119 3,746
Dispositions (269,693) (6,166) (11,902)
---------- ---------- ----------
Net multifamily activity subtotal 410,491 513,544 389,841
---------- ---------- ----------
Non-multifamily:
Homestead development expenditures,
including land acquisitions 54,883 48,247 35,943
Contribution of Homestead Assets
(Note 2) (161,370) - -
Non-multifamily dispositions (6,527) (2,235) (331)
Provisions for possible losses - (220) (1,600)
Other 20 242 (175)
---------- ---------- ----------
Balance at December 31 $2,153,363 $1,855,866 $1,296,288
========== ========== ==========
</TABLE>
F-52
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
At January 29, 1997, PTR had contingent contracts or letters of intent, subject
to PTR's final due diligence, to acquire land for the near term development of
an estimated 3,507 multifamily units with an aggregate estimated development
cost of $264.5 million. At the same date, PTR also had contingent contracts or
letters of intent, subject to final due diligence, for the acquisition of 964
additional operating multifamily units with a total expected investment of
$77.2 million, including planned renovations.
At January 29, 1997, PTR had unfunded development commitments for developments
under construction of $158.8 million.
Pre-Sale Agreements and Development Subsidiary
To enhance its flexibility in developing and acquiring multifamily communities
which meet PTR's investment criteria, PTR has and will enter into presale
agreements with third-party owner/developers to acquire communities developed
by such owner/developers. PTR has and will fund such developments through
mortgage loans on the communities. For financial reporting purposes, these
transactions are recorded as real estate developments rather than mortgage
loans due to PTR's commitment to acquire these properties upon completion.
In addition, to provide greater flexibility for the use of land acquired for
development and to facilitate disposition of excess parcels, PTR has and will
make mortgage loans to PTR Development Services Incorporated ("PTR Development
Services") to purchase land for development. PTR may also fund developments of
multifamily communities by PTR Development Services where the particular
community or submarket does not meet PTR's objectives for long-term ownership
but presents an attractive investment opportunity. PTR owns all of the
preferred stock of PTR Development Services, which entitles PTR to
substantially all of the net operating cash flow (95%) of PTR Development
Services. An unaffiliated trust owns all of the common stock of PTR Development
Services. The common stock is entitled to receive the remaining 5% of net
operating cash flow.
As of December 31, 1996, the outstanding balance of development and mortgage
loans made by PTR to third-party owner/developers and PTR Development Services
aggregated $127.3 million and $18.8 million, respectively. The activities of
third-party owner/developers and PTR Development Services are consolidated with
PTR's activities and all intercompany transactions have been eliminated in
consolidation.
Gains and Provision for Loss on Real Estate and Investments
Each year, REIT Management formulates operating and capital plans based on an
ongoing active review of PTR's portfolio. Based in part upon the market
research provided by Security Capital Investment Research Incorporated and in
an effort to optimize its portfolio composition, PTR may from time to time seek
to dispose of assets that in management's view no longer meet PTR's long-term
investment objectives. The proceeds from these selected dispositions will be
redeployed, typically through tax-deferred exchanges, into assets that in PTR's
view offer better long-term cash flow growth prospects. As a result of this
asset optimization strategy, PTR disposed of 22 multifamily communities and one
industrial building during 1996, representing aggregate net proceeds of $291.1
million, and disposed of one multifamily property in the fourth quarter of
1995, representing net proceeds of $8.8 million. For federal income tax
purposes, the majority of the dispositions were structured as tax-deferred
exchanges which deferred gain recognition. For financial reporting purposes,
however, the transactions qualified for profit recognition and aggregate gains
of $37.5 million and $2.6 million were recorded for 1996 and 1995,
respectively.
Statement of Financial Accounting Standards No. 121, Accounting For The
Impairment Of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of
("SFAS No. 121"), adopted by PTR effective January 1, 1996, establishes
accounting standards for the review of long-lived assets to be held and used
for impairment whenever the carrying amount of an asset may not be recoverable.
SFAS No. 121 also requires that certain long-lived assets to be disposed of be
reported at the lower of carrying amount or fair value less cost to sell, PTR
did not recognize any losses on the date it adopted SFAS No. 121.
As part of PTR's asset optimization strategy, 19 communities and two non-
multifamily properties were held for disposition as of December 31, 1996. The
aggregate carrying value of properties held for disposition was $178.9 million
at December 31, 1996. Each property's carrying value is less than or equal to
its estimated fair market
F-53
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
value, net of estimated costs to sell. Such properties are not depreciated
during the period for which they are determined to be held for disposition.
Subject to normal closing risks, PTR expects to complete the disposition of all
properties during 1997 and redeploy the net proceeds from such dispositions
through tax-deferred exchanges into the acquisition of multifamily communities.
The earnings from operations for properties held for dispositions which are
included in PTR's earnings from operations for 1996, 1995 and 1994 were $15.8
million, $15.3 million and $10.5 million, respectively.
PTR's other real estate investments are periodically evaluated for impairment
and provisions for possible losses are made if required. As a result of such
evaluation, PTR recorded a provision for possible loss of $220,000 and
$1,600,000 during 1995 and 1994, respectively, relating to a non-multifamily
investment which was subsequently sold in October 1995. Also, during 1995 it
was determined that PTR could potentially be liable for certain maintenance
items under the terms of a 1993 master lease agreement on a non-multifamily
property which resulted in the recording of an estimated provision for loss of
$200,000. The recording of a provision for loss has no impact on cash flow from
operating activities. As of December 31, 1996, PTR's real estate investments
were carried at depreciated cost, which is not in excess of estimated fair
market value.
(5) MORTGAGE NOTES RECEIVABLE
Homestead Convertible Mortgage Notes
In connection with the Homestead transaction described in Note 2 and pursuant
to fundings which have occurred under the funding commitment agreement, PTR
holds Homestead Notes. The Homestead Notes were created under a master facility
providing for aggregate fundings of up to $198.8 million in exchange for
Homestead Notes with a face amount of up to $221.3 million. Under the terms of
the funding commitment agreement, PTR receives approximately $1.00 in principal
amount of Homestead Notes for every $.90 funded (i.e., the Homestead Notes are
issued at a discount). The discount is amortized into interest income over the
term of the Homestead Notes using a method which approximates the effective
interest method. Maximum fundings are established for each individual
development project and specific liens are recorded to secure payment. The
Homestead Notes are cross-collateralized, which enables PTR to foreclose or
take possession of any one or more of the underlying properties upon the
occurrence of an event of default. The Homestead Notes require semi-annual
interest-only payments at 9% per annum of the face amount of the Homestead
Notes outstanding, are callable at the option of Homestead after 5 years and
mature on October 31, 2006.
The Homestead Notes are convertible into Homestead common stock after March 31,
1997 on the basis of one share of Homestead common stock for every $11.50 of
principal amount outstanding, subject to adjustment. The initial value
attributed to the conversion feature has been recorded as an additional
component of the Homestead Notes' balance and the corresponding discount is
being amortized into interest income over the term of the Homestead Notes using
a method which approximates the effective interest method. The difference
between the fair value of the Homestead Notes (assuming conversion), based upon
the trading price of Homestead's common stock on the American Stock Exchange at
December 31, 1996, ($18.00) and the amortized cost of the Homestead Notes is
reflected as an additional component of the Homestead Notes' balance and as an
unrealized holding gain in Shareholders' Equity.
As described in Note 2, PTR also received Homestead warrants in exchange for
entering into the funding commitment agreement. The warrants were distributed
to PTR shareholders with the Homestead common stock. The value associated with
the receipt of the Homestead warrants has been recorded as deferred revenue
which is included in accrued expenses and other liabilities in the accompanying
1996 Balance Sheet and is being amortized into interest income using a method
which approximates the effective interest method over the term of the Homestead
Notes.
The effective interest rate on the Homestead Notes as a percentage of the
"funded" balance, including amortization of discount and deferred revenue, is
approximately 12.4% per annum (10.7% excluding conversion feature and warrant-
related amortization).
F-54
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Following is a reconciliation of the Homestead Notes' components described
above to the amount reflected in the accompanying 1996 Balance Sheet (in
thousands).
<TABLE>
<S> <C>
Face amount of Homestead Notes $ 112,639
Original issue discount (11,451)
---------
Amount funded 101,188
Amortization of original issue discount 121
Conversion feature--initial value 7,933
Unamortized discount on conversion feature (7,861)
Fair value adjustment 74,923
---------
Carrying value at December 31, 1996 $ 176,304
=========
</TABLE>
As of December 31, 1996, PTR had funded $101.2 million of its funding
commitment. This leaves a remaining commitment under the funding commitment
agreement of approximately $97.6 million, which will be provided to Homestead
to fund developments as needed on development properties contributed by PTR.
Other Mortgage Notes Receivable
The change in investments in other mortgage notes receivable which primarily
originated in connection with PTR's sale of non-multifamily communities
consisted of the following (in thousands):
----------------------------
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Balances at January 1 $ 15,844 $ 22,597 $ 22,624
Notes originated - 1,538 162
Reduction of principal (2,319) (8,291) (189)
--------- --------- ---------
Balances at December 31 $ 13,525 $ 15,844 $ 22,597
========= ========= =========
</TABLE>
Interest rates on mortgage notes receivable range from 7.00% to 10.00% with a
weighted-average rate of 8.4%. Maturity dates on mortgage notes receivable
range from 1998 to 2008.
(6) BORROWINGS
Credit Facilities
PTR has a $350 million unsecured revolving line of credit with Texas Commerce
Bank, National Association ("TCB"), as agent for a group of financial
institutions (collectively, the "Lenders"). The line matures August 1998 and
may be extended annually for an additional year with the approval of the
Lenders. The line of credit bears interest at the greater of prime (8.25% at
December 31, 1996) or the federal funds rate plus 0.50% or at PTR's option,
LIBOR (5.50% at December 31, 1996) plus 1.125% (6.625% at December 31, 1996).
The spread over LIBOR can vary from LIBOR plus 0.75% to LIBOR plus 1.50% based
upon the rating of PTR's senior unsecured debt. Additionally, there is a
commitment fee on the average unfunded line of credit balance. The commitment
fee was $396,000, $502,000 and $224,000 for 1996, 1995 and 1994, respectively.
A summary of PTR's line of credit borrowings is as follows (dollars in
thousands):
----------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Total line of credit $ 350,000 $ 350,000 $ 275,000
Borrowings outstanding at December 31 99,750 129,000 102,000
Weighted-average daily borrowings 112,248 51,858 59,890
Maximum borrowings outstanding at any
month end 188,750 138,000 124,000
Weighted-average daily nominal interest
rate 7.3% 8.0% 7.0%
Weighted-average daily effective
interest rate 8.8% 11.1% 10.6%
Weighted-average nominal interest rate
at
December 31 6.6% 7.3% 7.8%
</TABLE>
F-55
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
On September 9, 1996, PTR entered into a short-term, unsecured, borrowing
agreement with TCB. The loan matures September 9, 1997 and bears interest at
an overnight rate, which has ranged from 5.80% to 7.50%. At December 31, 1996,
there was $10.5 million of borrowings outstanding under this agreement.
Long-Term Debt
As of December 31, 1996, PTR has issued a total of $580 million of long-term
unsecured senior notes ("Notes"), which bear interest at specified rates per
annum, payable semi-annually. Funds from such issuances were used primarily
for acquisition, development and renovation of multifamily communities and to
repay revolving credit balances incurred for such purposes. The following
table summarizes the Notes:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUANCE AVERAGE EFFECTIVE
AND INTEREST RATE,
OUTSTANDING INCLUDING OFFERING ORIGINAL PRINCIPAL
PRINCIPAL COUPON DISCOUNTS AND MATURITY LIFE PAYMENT
DATE OF ISSUANCE AMOUNT RATE ISSUANCE COSTS DATE (YEARS) REQUIREMENT
- ---------------- ------------ ------ ------------------ -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
10/21/96 $ 15 million 6.600% 7.030% 10/15/99 3.00 (1)
10/21/96 20 million 6.950 7.400 10/15/02 6.00 (1)
10/21/96 20 million 7.150 7.500 10/15/03 7.00 (1)
10/21/96 20 million 7.250 7.630 10/15/04 8.00 (1)
10/21/96 20 million 7.300 7.640 10/15/05 9.00 (1)
10/21/96 20 million 7.375 7.685 10/15/06 10.00 (1)
10/21/96 15 million 6.500 6.750 10/15/26 30.00 (1)
------------ ------ ------ -----
Subtotal/Average $130 million 7.350% 7.500% 6.85
------------ ------ ------ -----
8/6/96 $ 20 million 7.550% 7.680% 8/1/08 12.00 (1)
8/6/96 20 million 7.625 7.730 8/1/09 13.00 (1)
8/6/96 20 million 7.650 7.770 8/1/10 14.00 (1)
8/6/96 20 million 8.100 8.210 8/1/15 19.00 (1)
8/6/96 20 million 8.150 8.250 8/1/16 20.00 (1)
------------ ------ ------ -----
Subtotal/Average $100 million 7.840% 7.950% 15.60
------------ ------ ------ -----
2/23/96 $ 50 million 7.150% 7.300% 2/15/10 10.50 (2)
2/23/96 100 million 7.900 8.030 2/15/16 18.00 (3)
------------ ------ ------ -----
Subtotal/Average $150 million 7.710% 7.840% 15.50
------------ ------ ------ -----
2/8/94 $100 million 6.875% 6.978% 2/15/08 10.50 (4)
2/8/94 100 million 7.500 7.653 2/15/14 18.00 (5)
------------ ------ ------ -----
Total/Average $200 million 7.240% 7.370% 14.25
------------ ------ ------ -----
Grand
Total/Average $580 million 7.500% 7.620% 12.03
============ ====== ====== =====
</TABLE>
- --------
(1) Entire principal amount due at maturity.
(2) These Notes require aggregate annual principal payments of $6.25 million
commencing in 2003.
(3) These Notes require aggregate annual principal payments of $10 million in
2011, $12.5 million in 2012, $15 million in 2013, $17.5 million in 2014, $20
million in 2015 and $25 million in 2016.
(4) These Notes require annual principal payments of $12.5 million commencing
in 2001.
(5) These Notes require aggregate annual principal payments of $10 million in
2009, $12.5 million in 2010, $15 million in 2011, $17.5 million in 2012, $20
million in 2013, and $25 million in 2014.
The Notes, other than the $15 million of 6.500% Notes issued October 21, 1996
and due 2026 (the "6.500% Notes"), are redeemable any time at the option of
PTR, in whole or in part, at a redemption price equal to the sum of the
principal amount of the Notes being redeemed plus accrued interest thereon to
the redemption date plus an adjustment, if any, based on the yield to maturity
relating to market yields available at redemption. The 6.500% Notes may be
repaid on October 15, 1999 at the option of the holders at their full
principal amount together with accrued interest. If the holders do not
exercise their right to require PTR to repay the 6.500% Notes on October 15,
F-56
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1999, they may be repaid at the option of PTR, in whole or in part, at a
redemption price equal to the sum of the principal amount of the Notes being
redeemed plus accrued interest thereon to the redemption date plus an
adjustment, if any, based on the yield to maturity relating to market yields
available at redemption. The Notes are governed by the terms and provisions of
an indenture agreement.
Mortgages Payable
Mortgages payable at December 31, 1996 consisted of the following (dollar
amounts in thousands):
----------------------------------------------------------
<TABLE>
<CAPTION>
BALLOON PRINCIPAL PRINCIPAL
EFFECTIVE SCHEDULED PERIODIC PAYMENT BALANCE AT BALANCE AT
INTEREST MATURITY PAYMENT DUE AT DECEMBER 31, DECEMBER 31,
COMMUNITY RATE(1) DATE TERMS MATURITY 1996 1995
--------- --------- --------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
CONVENTIONAL FIXED RATE:
Knight's Castle N/A 10/01/96 (7) N/A $ - $ 7,609
Tigua Village 9.90% 05/01/97 (2) 677 683 694
Chasewood N/A 06/01/97 (7) N/A - 9,485
Presidio at South
Mountain N/A 10/01/97 (7) N/A - 14,593
Silvercliff 7.66 11/10/97 (2) 7,304 7,382 7,469
Braeswood Park 7.51 01/01/98 (2) 6,635 6,761 6,889
Seahawk 8.05 01/10/98 (2) 5,350 5,427 5,505
La Tierra at the Lakes 7.89 12/01/98 (2) 25,105 26,019 26,444
Windsail 8.88 02/01/99 (2) 4,675 4,798 4,843
Clubhouse 8.75 12/01/99 (2) 5,501 5,831 -
Greenpointe 8.50 03/01/00 (3) 3,410 3,638 3,696
Mountain Shadow 8.50 03/01/00 (3) 3,130 3,340 3,394
Sunterra 8.25 03/01/00 (3) 7,612 8,138 8,274
Brompton Court 8.39 09/01/00 (2) 13,340 14,318 14,543
Spring Park N/A 09/27/00 (7) N/A - 4,293
Park Place I N/A 11/01/00 (7) N/A - 3,515
Park Place II N/A 11/01/00 (7) N/A - 3,517
Treat Commons 7.50 09/14/01 (2) 6,578 7,192 7,296
El Dorado 7.59 10/01/02 (2) 15,527 16,718 -
Ashton Place 7.75 10/01/23 (3) N/A 47,342 -
Double Tree II 8.25 05/01/33 (3) N/A 4,750 4,770
--------- ---------
162,337 136,829
TAX-EXEMPT FIXED RATE(4):
Cherry Creek 8.11 11/01/01 (2) 2,630 4,000 4,210
Fox Creek 8.71 05/01/97 (2) 4,246 4,236 -
Summertree 6.65 12/15/18 (2) 4,435 4,435 -
Redwood Shores 5.53 10/01/08 (2) 16,820 25,220 -
--------- ---------
37,891 4,210
TAX-EXEMPT FLOATING
RATE(4):
Apple Creek 6.48 09/01/07 (5) 11,100 11,100 11,100
COMBINED(6):
Las Flores 8.42 06/01/24 (3) N/A 5,860 5,915
--------- ---------
Total/Average Mortgage
Debt 7.60% $217,188 $158,054
==== ========= =========
</TABLE>
F-57
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------
(1) Represents the effective interest rate, including loan cost amortization
and other ongoing fees and expenses, as of December 31, 1996.
(2) Amortizing monthly with a balloon payment due at maturity.
(3) Fully amortizing.
(4) Tax-exempt rates include credit enhancement and other bond-related costs,
where applicable.
(5) Monthly payments are interest only until maturity and the interest rate is
adjusted weekly by the remarketing agent. Weighted-average daily interest rate
was 5.97% for 1996. Mortgage is secured by a letter of credit of $11.4 million.
The fee for this letter of credit is 5.05% per annum of the outstanding
mortgage payable balance.
(6) In 1990, the Las Flores apartments were refinanced pursuant to multifamily
bonds aggregating $6.2 million. The bonds consist of $4.5 million Series A tax
exempt fixed rate bonds and $1.7 million Series B taxable fixed rate bonds. The
bonds are guaranteed by the GNMA mortgage-backed securities program.
(7) Mortgage was prepaid during 1996.
The changes in mortgages payable during the past three years consisted of the
following (in thousands):
----------------------------
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Balances at January 1 $158,054 $ 93,624 $48,872
Notes originated or assumed 104,176 66,481 56,624
Principal payments and prepayments (45,042) (2,051) (11,872)
--------- --------- ---------
Balances at December 31 $217,188 $158,054 $93,624
========= ========= =========
</TABLE>
Scheduled Debt Maturities
Approximate principal payments due during each of the years in the 20-year
period ending December 31, 2016 are as follows (in thousands):
------------------------------------------------
<TABLE>
<CAPTION>
UNSECURED SHORT TERM
LONG-TERM UNSECURED BORROWING
MORTGAGES DEBT LINE OF CREDIT AGREEMENT TOTAL
--------- --------- -------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1997 $ 15,266 $ - $ - $10,450 $ 25,716
1998 40,012 - 99,750 - 139,762
1999 12,790 30,000 - - 42,790
2000 29,799 - - - 29,799
2001 11,280 12,500 - - 23,780
2002 17,348 32,500 - - 49,848
2003 1,752 38,750 - - 40,502
2004 1,903 38,750 - - 40,653
2005 2,066 38,750 - - 40,816
2006 2,241 38,750 - - 40,991
2007 13,528 18,750 - - 32,278
2008 18,863 38,750 - - 57,613
2009 1,603 36,250 - - 37,853
2010 1,732 38,750 - - 40,482
2011 1,871 25,000 - - 26,871
2012 2,022 30,000 - - 32,022
2013 2,185 35,000 - - 37,185
2014 2,361 42,500 - - 44,861
2015 2,551 40,000 - - 42,551
2016 2,756 45,000 - - 47,756
Thereafter 33,259 - - - 33,259
--------- --------- --------- --------- ---------
Total: $217,188 $580,000 $99,750 $10,450 $907,388
========= ========= ========= ========= =========
</TABLE>
F-58
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Covenants
PTR's debt instruments generally contain certain covenants common to the type
of facility or borrowing, including financial covenants establishing minimum
debt service coverage ratios and maximum loan to value ratios. PTR was in
compliance with all covenants pertaining to its debt instruments at December
31, 1996.
(7) DISTRIBUTIONS
PTR's distribution strategy is to distribute what it believes is a conservative
percentage of cash flow while maintaining its status as a REIT which generally
requires annual distributions of at least 95% of PTR's taxable income.
PTR announces the following year's projected annual distribution level after
the Board's annual budget review and approval in December of each year. At its
December 10, 1996 Board meeting, the Board announced an increase in the annual
distribution level from $1.24 to $1.30 per Common Share and declared the first
quarter 1997 distribution of $0.325 per Common Share. The first quarter
distribution was paid on February 20, 1997 to shareholders of record on
February 7, 1997. The payment of distributions is subject to the discretion of
the Board and is dependent upon the financial condition and operating results
of PTR.
Pursuant to the terms of the Preferred Shares, PTR is restricted from declaring
or paying any distribution with respect to its Common Shares unless all
cumulative distributions with respect to the Preferred Shares have been paid
and sufficient funds have been set aside for Preferred Share distributions that
have been declared.
PTR made total cash distributions of $1.24 per Common Share in 1996, $1.15 per
Common Share in 1995 and $1.00 per Common Share in 1994. In addition, on
November 12, 1996, PTR distributed 0.125694 shares of Homestead common stock
and warrants to purchase 0.084326 shares of Homestead common stock per Common
Share in the Homestead Distribution to each holder of record of Common Shares
on October 29, 1996.
For federal income tax purposes, the following summarizes the taxability of
cash distributions paid on the Common Shares in 1995 and 1994 and the estimated
taxability for 1996:
----------------------------
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Per Common Share
Ordinary income $0.61 $0.92 $0.68
Capital gains 0.11 - -
Return of capital 0.52 0.23 0.32
--------- --------- ---------
Total $1.24 $1.15 $1.00
========= ========= =========
</TABLE>
The Homestead securities distributed by PTR to each holder of Common Shares in
the Homestead Distribution were valued at $2.16 per PTR Common Share for
federal income tax purposes, of which $1.06 was taxable as ordinary income,
$0.19 was taxable as a capital gain and $0.91 was treated as a return of
capital.
On July 21, 1994, in addition to the normal Common Share distributions paid,
PTR redeemed the shareholder purchase rights issued pursuant to the Rights
Agreement dated as of February 23, 1990, as amended. Pursuant to the
redemption, each holder of record at the close of business on July 21, 1994 was
entitled to receive $0.01 per shareholder purchase right. The redemption price
was paid on August 12, 1994 and was taxable as ordinary income for federal
income tax purposes.
F-59
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For federal income tax purposes, the following summaries reflect the taxability
of dividends paid on Series A Preferred Shares and Series B Cumulative
Redeemable Preferred Shares ("Series B Preferred Shares"), respectively, for
periods prior to 1996 and the estimated taxability for 1996. The Series A and
Series B Preferred Shares are discussed in Note 8.
----------------------------
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Per Series A Preferred Share:
Ordinary income $1.47 $1.75 $1.75
Capital gains 0.28 - -
Return of capital - - -
--------- --------- ---------
Total $1.75 $1.75 $1.75
========= ========= =========
<CAPTION>
DATE OF
ISSUANCE
TO
1996 12/31/95
--------- ---------
<S> <C> <C> <C>
Per Series B Preferred Share:
Ordinary income $1.89 $1.3625
Capital gains 0.36 -
--------- ---------
Total $2.25 $1.3625
========= =========
</TABLE>
Due to the increase in the conversion ratio (Note 8) resulting from the
Homestead Distribution to holders of Common Shares, holders of Series A
Preferred Shares were deemed to have received a distribution of $2.43 on
November 12, 1996 for federal income tax purposes. Of this amount, $1.19 was
taxable as ordinary income, $0.22 was taxable as a capital gain and $1.02 was
treated as a return of capital.
PTR's tax return for the year ended December 31, 1996 has not been filed, and
the taxability information for 1996 is based upon the best available data.
PTR's tax returns for prior years have not been examined by the Internal
Revenue Service and, therefore, the taxability of the dividends is subject to
change.
(8) SHAREHOLDERS' EQUITY
Shares of Beneficial Interest
At December 31, 1996, 150,000,000 shares of beneficial interest, par value
$1.00 per share, were authorized. The Board is authorized to issue, from the
authorized but unissued shares of PTR, preferred shares in series and to
establish from time to time the number of preferred shares to be included in
such series and to fix the designation and any preferences, conversion and
other rights, voting powers, restrictions, limitations as to distributions,
qualifications and terms and conditions of redemption of the shares of each
series.
Series A Preferred Shares
The Series A Preferred Shares issued in November 1993 have a liquidation
preference of $25.00 per share for an aggregate liquidation preference at
December 31, 1996 of $162.4 million plus any accrued but unpaid distributions.
Holders of the Series A Preferred Shares are entitled only to limited voting
rights under certain conditions. During 1996, 2,705,000 of PTR's Series A
Preferred Shares were converted, at the option of the holders, into 3,294,000
Common Shares (an implied conversion ratio of 1.2178 Common Shares for each
Series A Preferred Share, which is a combination of the original conversion
ratio of 1.2162 and the adjusted ratio discussed below).
As a result of the Homestead Distribution, PTR adjusted the conversion price of
its Series A Preferred Shares, effective as of the opening of business on
October 30, 1996, from $20.556 to $18.561 per Common Share (a conversion ratio
of 1.3469 Common Shares for each Series A Preferred Share), as required by the
Articles Supplementary governing the Series A Preferred Shares. Distributions
on the Series A Preferred Shares are cumulative in an amount per share equal to
the greater of $1.75 per annum or the annualized quarterly PTR distribution
rate on the Common Shares into which the Series A Preferred Shares are
convertible. The Series A Preferred Share dividends are payable quarterly in
arrears on the last day of March, June, September and December
F-60
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
of each year. Based on the projected 1997 distribution level of $1.30 per
Common Share, the projected 1997 dividend on the Series A Preferred Shares is
$1.751 per share. The Series A Preferred Shares are redeemable at the option of
PTR after November 30, 2003.
Series B Preferred Shares
The Series B Preferred Shares issued in May 1995 have a liquidation preference
of $25.00 per share for an aggregate liquidation preference of $105.0 million
plus any accrued but unpaid distributions. The net proceeds (after underwriting
commissions and other offering costs) to PTR from the sale of the Series B
Preferred Shares were $101.4 million. On and after May 24, 2000, the Series B
Preferred Shares may be redeemed for cash at the option of PTR, in whole or in
part, at a redemption price of $25.00 per share plus accrued and unpaid
distributions, if any, to the redemption date. The redemption price (other than
the portion thereof consisting of accrued and unpaid distributions) is payable
solely out of the sale proceeds of other capital shares of PTR, which may
include shares of other series of preferred shares. The holders of the Series B
Preferred Shares have no preemptive rights with respect to any shares of the
capital securities of PTR or any other securities of PTR convertible into or
carrying rights or options to purchase any such shares. The Series B Preferred
Shares have no stated maturity and are not subject to any sinking fund or other
obligation of PTR to redeem or retire the Series B Preferred Shares and are not
convertible into any other securities of PTR. In addition, holders of the
Series B Preferred Shares are entitled to receive, when and as declared by the
Board, out of funds legally available for the payment of distributions,
cumulative preferential cash distributions at the rate of 9% of the liquidation
preference per annum (equivalent to $2.25 per share). Such distributions are
cumulative from the date of original issue and are payable quarterly in arrears
on the last day of each March, June, September and December.
Series A Preferred Shares and Series B Preferred Shares are collectively
referred to as "Preferred Shares." The net proceeds from the sale of Preferred
Shares were used primarily for the acquisition, development and renovation of
multifamily communities, and to repay revolving credit balances incurred for
such purposes.
Both series of Preferred Shares rank on a parity as to distributions and
liquidation proceeds.
All dividends due and payable on Preferred Shares have been accrued and paid as
of the end of each fiscal year and, accordingly, are reflected in the
accompanying financial statements.
Option Plan
In January 1987, PTR adopted its Share Option Plan for Outside Trustees (the
"1987 Plan"). There are 200,000 Common Shares reserved for issuance upon
exercise of options which could have been granted to independent Trustees under
the 1987 Plan. All options granted are for a term of five years and are
exercisable in whole or in part. The exercise price of the options granted may
not be less than the fair market value on the date of grant. At December 31,
1996, there were 32,000 options for Common Shares outstanding and exercisable
under the 1987 Plan at exercise prices ranging from $10.625 to $21.50 per
Common Share. No further options may be granted under the 1987 Plan.
Outstanding Warrants
As a result of the Merger discussed in Note 3, warrants to acquire 140,530
Common Shares at an exercise price of $14.21 per share were outstanding as of
December 31, 1996. These warrants are subject to adjustment to prevent dilution
and expire on November 8, 1999.
Ownership Restrictions and Significant Shareholder
PTR's Restated Declaration of Trust and the Articles Supplementary governing
the Preferred Shares restrict beneficial ownership (or ownership generally
attributed to a person under the REIT tax rules) of PTR's outstanding shares by
a single person, or persons acting as a group, to 9.8% of the Common Shares and
25% of each series of Preferred Shares. The purpose of these provisions are to
assist in protecting and preserving PTR's REIT status and to protect the
interests of shareholders in takeover transactions by preventing the
acquisition of a substantial block of shares unless the acquiror makes a cash
tender offer for all outstanding shares. For PTR to qualify as a REIT under the
Internal Revenue Code of 1986, as amended, not more than 50% in value of its
outstanding capital shares
F-61
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
may be owned by five or fewer individuals at any time during the last half of
PTR's taxable year. The provision permits five persons to acquire up to a
maximum of 9.8% each of the Common Shares, or an aggregate of 49% of the
outstanding Common Shares, and thus assists the Trustees in protecting and
preserving PTR's REIT status for tax purposes.
Common Shares owned by a person or group of persons in excess of the 9.8% limit
are subject to redemption by PTR. The provision does not apply where a majority
of the Board, in its sole and absolute discretion, waives such limit after
determining that the eligibility of PTR to qualify as a REIT for federal income
tax purposes will not be jeopardized or the disqualification of PTR as a REIT
is advantageous to the shareholders.
The Board has permitted Security Capital, the owner of the REIT Manager (see
Note 9), to acquire up to 49% of PTR's fully converted Common Shares. Security
Capital Group's ownership of Common Shares is attributed for tax purposes to
its shareholders. Security Capital Group owned 36.3% of PTR's total outstanding
Common Shares at December 31, 1996. Pursuant to an agreement between Security
Capital Group and PTR, Security Capital Group has agreed to acquire no more
than 49% of the fully converted Common Shares except pursuant to an all-cash
tender offer for all Common Shares held open for 90 days. Security Capital
Group would have no limitation on making a tender offer if an unrelated third
party commences such a tender offer.
Purchase Rights
In 1994, the Board authorized the distribution of one preferred share purchase
right (a "Purchase Right") for each Common Share outstanding at the close of
business on July 21, 1994. Holders of additional Common Shares issued after
July 21, 1994 and prior to the expiration of the Purchase Rights on July 21,
2004 will be entitled to one Purchase Right for each additional Common Share.
Each Purchase Right entitles the holder under certain circumstances to purchase
from PTR one one-hundredth of a share of a series of Junior Participating
Preferred Shares, par value $1.00 per share (the "Participating Preferred
Shares"), at a price of $60.00 per one-hundredth of a Participating Preferred
Share, subject to adjustment. Purchase Rights are exercisable when a person or
group of persons acquires beneficial ownership of 20% or more of the fully
converted Common Shares (49% in the case of Security Capital Group and certain
defined affiliates), commences or announces a tender offer or exchange offer
which would result in the beneficial ownership by a person or group of persons
of 25% or more of the outstanding Common Shares (49% in the case of Security
Capital Group and certain defined affiliates) or files or announces their
intention to file with any regulatory authority an application seeking approval
of any transaction which would result in the beneficial ownership by a person
of 25% or more of the outstanding Common Shares (49% in the case of Security
Capital Group and certain defined affiliates). Under certain circumstances,
each Purchase Right entitles the holder to purchase, at the Purchase Right's
then current exercise price, a number of Common Shares having a market value of
twice the Purchase Right's exercise price. The acquisition of PTR pursuant to
certain mergers or other business transactions would entitle each holder to
purchase, at the Purchase Right's then current exercise price, a number of the
acquiring company's common shares having a market value at that time equal to
twice the Purchase Right's exercise price. The Purchase Rights will expire in
July 2004 and are subject to redemption in whole, but not in part, at a price
of $0.01 per Purchase Right payable in cash, shares of PTR or any other form of
consideration determined by the Board.
Shelf Registration
On September 27, 1996, PTR filed a $300 million shelf registration statement
with the Securities and Exchange Commission. These securities can be issued in
the form of unsecured debt and preferred shares of beneficial interest on an
as-needed basis, subject to PTR's ability to effect an offering on satisfactory
terms. As of December 31, 1996, $170 million in securities were available to be
issued under this shelf registration.
F-62
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(9) REIT MANAGEMENT AND PROPERTY MANAGEMENT AGREEMENTS
Effective March 1, 1991, PTR entered into a REIT management agreement (the
"REIT Management Agreement") with Security Capital Pacific Incorporated (the
"REIT Manager"), pursuant to which the REIT Manager assumed day-to-day
management of PTR. All officers of PTR are employees of the REIT Manager and
PTR currently has no employees. The REIT Manager provides both strategic and
day-to-day management services to PTR, including research, investment analysis,
acquisition, development, dispositions, property management, capital markets,
legal, accounting and other administrative services. The REIT Manager is a
wholly owned subsidiary of Security Capital Group (see Note 8).
The REIT Management Agreement requires PTR to pay a base annual fee of $855,000
plus 16% of cash flow as defined in the REIT Management Agreement in excess of
$4,837,000, payable monthly. In the REIT Management Agreement, cash flow is
calculated by reference to PTR's cash flow from operations plus (i) fees paid
to the REIT Manager, (ii) extraordinary expenses incurred at the request of the
independent Trustees of PTR and (iii) 33% of any interest paid by PTR on
convertible subordinated debentures (of which there has been none since
inception of the REIT Management Agreement); and after deducting (i) regularly
scheduled principal payments (excluding prepayments or balloon payments) for
debt with commercially reasonable amortization schedules, (ii) actual or
assumed principal and interest payments on long-term debt, (iii) interest
income received in connection with the Homestead Notes resulting from the
Homestead transaction discussed in Notes 2 and 5 and (iv) distributions
actually paid with respect to any nonconvertible preferred shares of beneficial
interest of PTR. The REIT Management Agreement provides that the long-term
unsecured debt described in Note 6 is treated as if it had regularly scheduled
principal and interest payments similar to a 20-year, level monthly payment,
fully amortizing mortgage, and the assumed principal and interest payments are
deducted from cash flow in determining the fee. Cash flow does not include
dividend and interest income from PTR Development Services, realized gains or
losses from dispositions of investments or income from cash equivalent
investments. The REIT Manager also receives a fee of 0.25% per year on the
average daily balance of cash equivalent investments.
PTR is obligated to reimburse the REIT Manager for certain expenses incurred by
the REIT Manager on behalf of PTR relating to PTR's operations, consisting
primarily of external professional fees, offering costs and travel expenses.
The REIT Management Agreement is renewable by PTR annually, subject to a
determination by the independent Trustees (who receive performance benchmark
information verified by an independent third party) that the REIT Manager's
performance has been satisfactory and that the compensation payable to the REIT
Manager is fair. Each of PTR and the REIT Manager may terminate the REIT
Management Agreement on 60 days' notice.
SCG Realty Services Incorporated ("SCG Realty Services"), a subsidiary of
Security Capital, has managed and currently manages a substantial majority of
PTR's operating multifamily communities (91.3% as of January 29, 1997, based on
total expected investment). Homestead Realty Services Incorporated ("Homestead
Realty Services"), a subsidiary of Security Capital, managed all of PTR's
operating Homestead Village(R) extended-stay lodging assets through October 17,
1996 (See Note 2).
PTR recently announced that it received a proposal from Security Capital to
exchange the REIT Manager and SCG Realty Services for Common Shares. As a
result of the proposed transaction, PTR would become an internally managed REIT
and Security Capital would remain PTR's largest shareholder. The Board has
formed a special committee comprised of independent Trustees to review the
proposed transaction. The proposed transaction is subject to approval by both
the special committee and the full Board. If the Board approves the
transaction, a proxy statement, subject to review by the Securities and
Exchange Commission, will be mailed to PTR's common shareholders prior to a
shareholder vote on the proposed transaction.
F-63
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(10) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data (in thousands except per share amounts) for
1996 and 1995 is as follows:
------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR
------------------------------------------- ENDED
3-31 6-30 9-30 12-31 12-31
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1996:
Rental income $75,809 $79,491 $84,802 $81,944 $322,046
========= ========= ========= ========= =========
Earnings from
operations $22,920 $24,462 $24,718 $21,989 $ 94,089
Gain on sale of
investments, net 2,923 5,160 25,257 4,152 37,492
Less extraordinary
item--loss on early
extinguishment of
debt - 870 - - 870
Less preferred share
dividends 6,388 6,386 6,182 5,211 24,167
--------- --------- --------- --------- ---------
Net earnings
attributable to
Common Shares $19,455 $22,366 $43,793 $20,930 $106,544
========= ========= ========= ========= =========
Net earnings per
Common Share:
Primary $ 0.27 $ 0.31 $ 0.60 $ 0.28 $ 1.46
========= ========= ========= ========= =========
Fully-diluted $ - $ - $ .57 $ - $ -
========= ========= ========= ========= =========
Weighted-average
Common Shares:
Primary 72,211 72,223 72,628 75,147 73,057
========= ========= ========= ========= =========
Fully-diluted - - 83,217 - -
========= ========= ========= ========= =========
1995:
Rental income $53,518 $65,719 $70,176 $73,060 $262,473
========= ========= ========= ========= =========
Earnings from
operations $14,540 $20,806 $23,203 $23,147 $ 81,696
Gain on sale of
investments, net - - - 2,623 2,623
Less preferred share
dividends 4,025 5,023 6,387 6,388 21,823
--------- --------- --------- --------- ---------
Net earnings
attributable to
Common Shares $10,515 $15,783 $16,816 $19,382 $ 62,496
========= ========= ========= ========= =========
Primary and fully-
diluted net earnings
per Common Shares $ 0.20 $ 0.22 $ 0.23 $ 0.27 $ 0.93
========= ========= ========= ========= =========
Weighted-average
Common Shares
outstanding 51,485 72,027 72,211 72,211 67,052
========= ========= ========= ========= =========
</TABLE>
(11) COMMITMENTS AND CONTINGENCIES
PTR is a party to various claims and routine litigation arising in the ordinary
course of business. PTR does not believe that the results of any of such claims
and litigation, individually or in the aggregate, will have a material adverse
effect on its business, financial position or results of operations.
PTR is subject to environmental regulations related to the ownership,
operation, development and acquisition of real estate. As part of its due
diligence investigation procedures, PTR has conducted Phase I environmental
assessments on each property prior to acquisition since 1984. The cost of
complying with environmental regulations was not material to PTR's results of
operations for any of the years in the three-year period ended December 31,
1996. PTR is not aware of any environmental condition on any of its communities
which is likely to have a material adverse effect on PTR's financial condition
or results of operations.
See Notes 4 and 5 for development and acquisition commitments.
F-64
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(12) FAIR VALUES OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair value of financial instruments was
determined by PTR based on available market information and valuation
methodologies believed to be appropriate for these purposes. Considerable
judgment and a high degree of subjectivity are involved in developing these
estimates and, accordingly, they are not necessarily indicative of amounts that
PTR could realize upon disposition.
As of December 31, 1996 and 1995, the carrying amount of certain financial
instruments employed by PTR, including cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses were representative of their
fair values because of the short-term maturity of these instruments. Similarly,
the carrying value of lines of credit balances approximates fair value as of
those dates since the interest rate fluctuates based on published market rates.
As discussed in Note 5, the Homestead Notes outstanding at December 31, 1996
are reflected at fair value in the accompanying balance sheet. PTR believes the
carrying value of the other mortgage notes receivable approximates fair value.
As of December 31, 1996 and 1995, based on the borrowings available to PTR, the
carrying value of the long-term debt and mortgages was a reasonable estimation
of their fair values.
Derivative Financial Instruments
PTR has only limited involvement with derivative financial instruments and does
not use them for trading purposes. PTR occasionally utilizes derivative
financial instruments as hedges in anticipation of future transactions to
manage well-defined interest rate risk.
In anticipation of a 1997 debt offering, PTR entered into interest rate
contracts in 1996 with notional amounts aggregating $50 million which PTR plans
to terminate when the anticipated offering is completed. As of December 31,
1996, the fair value of these interest rate contracts was an unrealized loss of
approximately $831,000 (approximately $69,250 as of March 10, 1997) based on
quoted market prices or estimates obtained from brokers. There were no
derivative financial instruments outstanding as of December 31, 1995.
(13) SUBSEQUENT EVENT
On March 10, 1997, PTR borrowed $60 million under a short-term borrowing
agreement with a financial institution. The loan matures on September 10, 1997,
but provides for early repayment at PTR's option on the 10th day of each month
during the term. Interest is payable monthly at an annual rate of LIBOR plus
0.60% (6.0375% at March 10, 1997). These proceeds were used to pay down PTR's
$350 million line of credit which had an outstanding balance of $151.5 million
after the paydown on March 10, 1997.
F-65
<PAGE>
SCHEDULE III
SECURITY CAPITAL PACIFIC TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
--------------------------------------------------------------
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH
CARRIED AT DECEMBER 31,
INITIAL COST TO PTR COSTS 1996
------------------- CAPITALIZED ---------------------------
BUILDINGS SUBSE- BUILDINGS ACCUMU- CON-
ENCUM- AND QUENT TO AND LATED DE- STRUCTION YEAR
PROPERTIES BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTALS PRECIATION YEAR ACQUIRED
---------- ------- ------ ------------ ----------- ------ ------------ ------- ---------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MULTIFAMILY:
Albuquerque, New
Mexico:
Commanche Wells $ - $ 719 $ 4,072 $ 374 $ 719 $ 4,445 $ 5,164 $ 331 1985 1994
Corrales Pointe - 944 5,351 516 944 5,867 6,811 507 1986 1993
Entrada Pointe - 1,014 5,744 918 1,014 6,662 7,676 518 1986 1994
La Paloma - 4,135 - 19,039 4,135 19,039 23,174 1,073 1996 1993
La Ventana - 2,210 - 13,117 2,657 12,670 15,327 387 1996 1994
Pavilions - 2,182 7,624 5,632 2,182 13,256 15,438 1,864 (a) (a)
Sandia Ridge - 1,339 5,358 959 1,339 6,317 7,656 898 1986 1992
Vistas at Seven Bar
Ranch (g) - 2,597 - 19,277 2,597 19,277 21,874 243 1996 1994
Vista Del Sol - 1,105 4,419 544 1,105 4,963 6,068 165 1987 1993
Wellington Place - 1,881 7,523 1,052 1,881 8,575 10,456 701 1981 1993
Telegraph Hill - 1,216 6,889 140 1,216 7,029 8,245 48 1986 1996
Austin, Texas:
Anderson Mill Oaks - 1,794 10,165 600 1,794 10,764 12,558 912 1984 1993
Cannon Place - 1,220 4,879 747 1,220 5,626 6,846 459 1984 1993
Estates of Gracy
Farms (g) - 788 - 453 788 453 1,241 (b) (b) 1993
Hunters' Run - 1,400 - 10,080 1,400 10,080 11,480 516 1995 1993
Hunters' Run II - 797 - 7,479 797 7,479 8,276 115 1996 1995
Monterey Ranch
Village II - 1,151 - 22,889 1,151 22,889 24,040 291 1996 1993
The Ridge - 1,669 6,675 2,296 1,669 8,971 10,640 826 1978 1993
Rock Creek - 1,311 7,431 1,504 1,311 8,935 10,246 741 1979 1993
Saddlebrook - 800 - 12,521 800 12,521 13,321 1,184 1994 1992
Shadowood - 1,197 4,787 638 1,197 5,425 6,622 476 1985 1993
Dallas, Texas:
Apple Ridge - 1,986 7,942 1,223 1,986 9,165 11,151 736 1984 1993
Custer Crossing - 1,532 8,683 340 1,532 9,023 10,555 758 1985 1993
Park Meadows (g) - 1,373 - 4,625 1,373 4,624 5,997 (b) (b) 1996
Post Oak Ridge - 2,137 12,111 1,024 2,137 13,135 15,272 1,096 1983 1993
Quail Run - 1,613 9,140 459 1,613 9,599 11,212 801 1983 1993
Summerstone - 1,028 5,823 251 1,028 6,074 7,102 516 1983 1993
Timber Ridge - 997 5,651 470 997 6,121 7,118 363 1984 1994
Timber Ridge II (g) - 675 - 567 675 567 1,242 (b) (b) 1996
Woodland Park - 1,386 5,543 435 1,386 5,978 7,364 482 1986 1993
Denver, Colorado:
Cambrian - 2,256 9,026 877 2,256 9,903 12,159 909 1983 1993
The Cedars - 3,128 12,512 1,785 3,128 14,297 17,425 1,330 1984 1993
Fox Creek I - 1,167 4,669 615 1,167 5,284 6,451 423 1984 1993
Fox Creek II - - - 217 - 217 217 (b) (b) 1995
Hickory Ridge - 4,402 17,607 1,578 4,402 19,185 23,587 2,112 1984 1992
Reflections I - 1,591 6,362 940 1,591 7,301 8,892 675 1980 1993
Reflections II - 805 - 11,530 805 11,530 12,335 335 1996 1993
Silvercliff 7,382 2,410 13,656 332 2,410 13,988 16,398 1,031 1991 1994
Sunwood - 1,030 4,596 606 1,030 5,202 6,232 570 1981 1992
El Paso, Texas:
Acacia Park - 1,130 - 13,151 1,130 13,151 14,281 760 1995 1993
Cielo Vista - 1,111 4,445 3,368 1,111 7,813 8,924 519 1962 1993
The Crest at Shadow
Mountain - 865 - 7,152 865 7,152 8,017 1,106 1991 1992
Double Tree - 1,106 4,423 708 1,106 5,130 6,236 488 1980 1993
Las Flores 5,860 625 6,624 1,253 625 7,877 8,502 3,368 (c) (c)
Mountain Village - 1,203 4,824 1,410 1,203 6,234 7,437 991 1982 1992
The Patriot - 1,027 - 11,204 1,027 11,204 12,231 485 1996 1993
</TABLE>
F-66
<PAGE>
---------------------------------------------------------------
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH
INITIAL COST TO PTR COSTS CARRIED AT DECEMBER 31, 1996
-------------------- CAPITALIZED ----------------------------
BUILDINGS SUBSE- BUILDINGS ACCUMU- CON-
ENCUM- AND QUENT TO AND LATED DE- STRUCTION YEAR
PROPERTIES BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTALS PRECIATION YEAR ACQUIRED
---------- ------- ------- ------------ ----------- ------- ------------ ------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Park Place $ - $ 992 $ 7,409 $ 416 $ 992 $ 7,825 $ 8,817 $1,708 (d) (d)
The Phoenix - 454 - 10,234 454 10,234 10,688 1,136 1993 1993
Shadow Ridge - 1,524 3,993 6,864 1,524 10,857 12,381 1,190 (e) (e)
Tigua Village 683 161 146 2,109 161 2,255 2,416 1,228 (f) (f)
Houston, Texas:
American Rice - 13,162 - 254 13,162 254 13,416 (b) (b) 1996
Beverly Palms - 1,393 7,893 919 1,393 8,812 10,205 647 1970 1994
Braeswood Park 6,761 1,861 10,548 195 1,861 10,743 12,604 912 1984 1993
Brompton Court 14,318 4,058 22,993 4,393 4,058 27,386 31,444 1,830 1972 1994
Cranbrook Forest - 1,326 5,302 329 1,326 5,631 6,957 463 1984 1993
Memorial Heights I - 3,169 - 15,273 3,169 15,273 18,442 290 1996 1996
Memorial Heights
II - 9,164 - 475 9,164 475 9,639 (b) (b) 1996
Oaks at Medical
Center I - 4,210 - 14,201 4,210 14,201 18,411 347 (b) 1994
Oaks at Medical
Center II - 3,368 - 2,044 3,368 2,044 5,412 (b) (b) 1994
Pineloch - 1,980 11,221 558 1,980 11,779 13,759 988 1984 1993
Plaza Del Oro - 1,713 9,706 658 1,713 10,364 12,077 710 1984 1994
Seahawk 5,427 1,258 7,125 362 1,258 7,487 8,745 542 1984 1994
Sacks - 2,812 - - 2,812 - 2,812 (b) (b) 1996
Weslayan Oaks - 581 3,293 124 581 3,417 3,998 294 1984 1993
Inland Empire,
California:
The Crossing - 2,227 12,622 560 2,227 13,182 15,409 232 1989 1996
Miramonte - 2,357 13,364 614 2,357 13,978 16,335 374 1989 1995
Mission Springs &
Villas - 5,780 32,757 758 5,780 33,515 39,295 506 1988 1996
Westcourt Village - 1,909 10,817 2,607 1,909 13,424 15,333 273 1986 1996
Woodsong Village - 1,846 10,469 177 1,846 10,646 12,492 97 1985 1996
Kansas City,
Kansas:
SWC 119th &
Quivira - 1,565 - 368 1,565 367 1,932 (b) (b) 1996
NEC 119th &
Quivira - 1,540 - 470 1,540 470 2,010 (b) (b) 1996
Las Vegas, Nevada:
The Hamptons - 2,959 16,790 1,381 2,959 18,171 21,130 799 1989 1995
Horizons at
Peccole Ranch - 3,173 18,048 509 3,173 18,557 21,730 851 1990 1995
King's Crossing - 2,860 16,272 269 2,860 16,541 19,401 764 1991 1995
La Tierra at the
Lakes 26,019 5,904 33,561 2,792 5,904 36,353 42,257 1,676 1986 1995
Sunterra 8,138 2,086 11,867 301 2,086 12,168 14,254 561 1986 1995
Omaha, Nebraska:
Apple Creek 11,100 1,953 11,069 773 1,953 11,842 13,795 787 1987 1994
Oakbrook - 1,108 6,307 121 1,108 6,428 7,536 296 1994 1995
Orange County,
California:
Aliso Viejo - 4,872 - 883 4,872 883 5,755 (b) (b) 1996
Las Flores
Apartment Homes - 4,190 - 4,044 4,190 4,044 8,234 (b) (b) 1996
Newpointe - 1,403 7,981 100 1,403 8,081 9,484 109 1987 1996
Villa Marseilles - 1,970 11,162 255 1,970 11,417 13,387 26 1991 1996
Phoenix, Arizona:
Arrowhead I (g) - 2,019 - 370 2,019 370 2,389 (b) (b) 1995
Bay Club - 2,797 11,188 1,122 2,797 12,310 15,107 1,037 1985 1993
Foxfire - 1,055 5,976 326 1,055 6,302 7,357 465 1985 1994
Miralago I (g) - 2,743 - 16,697 2,743 16,697 19,440 6 1996 1995
Moorings at Mesa
Cove - 3,261 13,045 1,066 3,261 14,111 17,372 1,464 1985 1992
North Mountain
Village - 2,704 15,323 432 2,704 15,755 18,459 1,199 1986 1994
Peaks at Papago
Park I - 4,131 23,408 1,732 4,131 25,140 29,271 1,843 1988 1994
Peaks at Papago
Park II - 1,000 - 6,188 1,000 6,188 7,188 101 1996 1994
The Ridge--Phoenix - 1,852 10,492 411 1,852 10,903 12,755 918 1987 1993
San Antigua - 4,200 - 19,589 4,200 19,589 23,789 1,732 1994 1991
San Marina - 1,208 4,831 911 1,208 5,742 6,950 1,044 1986 1992
San Marquis North - 1,215 - 9,535 1,215 9,535 10,750 608 1994 1993
San Marquis South - 2,312 - 11,167 2,312 11,167 13,479 968 1994 1993
San Palmera (g) - 3,515 - 17,534 3,515 17,534 21,049 7 1996 1995
San Valiente I (g) - 3,062 - 13,851 3,062 13,851 16,913 (b) (b) 1995
Scottsdale Greens - 3,489 19,774 5,035 3,489 24,809 28,298 1,629 1980 1994
Superstition Park - 2,340 9,362 991 2,340 10,353 12,693 1,069 1985 1992
Portland, Oregon:
Arbor Heights - 2,669 - 6,135 2,669 6,135 8,804 (b) (b) 1996
</TABLE>
F-67
<PAGE>
---------------------------------------------------------------
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH
CARRIED AT DECEMBER 31,
INITIAL COST TO PTR COSTS 1996
------------------- CAPITALIZED ---------------------------
BUILDINGS SUBSE- BUILDINGS ACCUMU- CON-
ENCUM- AND QUENT TO AND LATED DE- STRUCTION YEAR
PROPERTIES BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTALS PRECIATION YEAR ACQUIRED
---------- ------- ------ ------------ ----------- ------ ------------ ------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Brighton $ - $1,675 $ 9,532 $ 270 $1,675 $ 9,801 $11,476 $ 90 1985 1996
Cambridge Crossing - 2,260 - 3,574 2,260 3,574 5,834 (b) (b) 1996
Club at the Green - 1,640 9,327 184 1,640 9,511 11,151 453 1991 1995
Double Tree I - 1,548 8,810 157 1,548 8,967 10,515 416 1990 1995
Double Tree II 4,750 991 5,611 79 991 5,690 6,681 252 1994 1995
Knight's Castle - 1,963 11,164 55 1,963 11,219 13,182 524 1989 1995
Meridian at
Murrayhill - 2,517 14,320 420 2,517 14,739 17,256 680 1990 1995
Preston's Crossing
(g) - 851 - 12,015 851 12,015 12,866 125 1996 1995
Riverwood Heights - 1,479 8,410 274 1,479 8,684 10,163 399 1990 1995
Squire's Court - 1,630 9,249 101 1,630 9,350 10,980 435 1989 1995
Timberline - 1,058 5,995 282 1,058 6,277 7,335 114 1990 1996
Reno, Nevada:
Meadowview I & II - 3,485 - 735 3,485 735 4,220 (b) (b) 1996
Vista Ridge - 2,002 - 15,593 2,002 15,593 17,595 (b) (b) 1995
Salt Lake City, Utah:
Brighton Place - 2,091 11,892 1,300 2,091 13,191 15,282 582 1979 1995
Cherry Creek 4,000 1,290 7,330 362 1,290 7,692 8,982 344 1986 1995
Fox Creek 4,236 1,172 6,641 123 1,172 6,764 7,936 - 1985 1996
Greenpointe 3,638 891 5,050 67 891 5,117 6,008 238 1985 1995
Greenpointe Expan-
sion - 32 - 124 32 124 156 (b) (b) 1996
Mountain Shadow 3,340 832 4,730 125 832 4,855 5,687 222 1985 1995
Mountain Shadow
Expansion - 95 - 239 95 239 334 (b) (b) 1996
Remington - 2,324 - 13,765 2,324 13,765 16,089 76 1996 1995
Riverview - 4,636 - 6,329 4,636 6,329 10,965 (b) (b) 1996
Summertree 4,435 1,521 8,619 43 1,521 8,662 10,183 39 1986 1996
San Antonio, Texas:
Applegate - 1,455 8,248 522 1,455 8,770 10,225 737 1983 1993
Austin Point - 1,728 9,725 615 1,728 10,340 12,068 870 1982 1993
Camino Real - 1,084 4,338 859 1,084 5,197 6,281 529 1979 1993
Cobblestone Village - 786 3,120 691 786 3,811 4,597 658 1984 1992
Contour Place - 456 1,829 339 456 2,168 2,624 427 1984 1992
The Crescent - 1,145 - 14,545 1,145 14,545 15,690 1,384 1994 1992
Dymaxion I - 683 3,740 231 683 3,971 4,654 228 1984 1994
The Gables - 1,025 5,809 554 1,025 6,363 7,388 521 1983 1993
Marbach Park - 1,122 6,361 651 1,122 7,012 8,134 605 1985 1993
Palisades Park - 1,167 6,613 481 1,167 7,094 8,261 598 1983 1993
Panther Springs - 585 3,317 145 585 3,462 4,047 294 1985 1993
Rancho Mirage - 724 2,971 1,437 724 4,407 5,131 368 1974 1993
Stanford Heights - 1,631 - 11,703 1,631 11,703 13,334 399 1996 1993
Sterling Heights - 1,644 - 10,460 1,644 10,460 12,104 558 1995 1993
St. Tropez I - 2,013 8,054 971 2,013 9,025 11,038 983 1982 1992
St. Tropez II - 605 - 554 605 554 1,159 (b) (b) 1994
Towne East Village - 350 1,985 236 350 2,221 2,571 182 1983 1993
Villas of Castle
Hills - 1,037 4,148 746 1,037 4,894 5,931 424 1971 1993
Waters of Northern
Hills - 1,251 7,105 785 1,251 7,890 9,141 604 1982 1994
San Diego, Califor-
nia:
Club Pacifica - 2,141 12,132 343 2,141 12,474 14,615 227 1987 1996
El Dorado Hills 16,718 4,418 25,084 713 4,418 25,797 30,215 237 1983 1996
Ocean Crest - 2,369 13,427 447 2,369 13,874 16,243 280 1993 1996
Scripps Landing - 1,332 7,550 318 1,332 7,868 9,200 646 1985 1994
The Palisades - 4,741 26,866 31 4,741 26,897 31,638 59 1991 1996
Tierrasanta Ridge - 2,859 16,130 695 2,859 16,825 19,684 1,340 1994 1994
San Francisco (Bay
Area), California:
Harborside - 3,213 18,210 - 3,213 18,210 21,423 (b) (b) 1996
Ashton Place 47,342 9,782 55,429 687 9,782 56,116 65,898 385 1970 1996
Quail Ridge - 2,633 14,923 587 2,633 15,508 18,141 246 1986 1996
Redwood Shores 25,220 5,608 31,778 263 5,608 32,046 37,654 215 1986 1996
Treat Commons 7,192 5,788 32,802 316 5,788 33,118 38,906 884 1988 1995
Santa Fe, New Mexico:
Foothills of Santa
Fe Phase I - 1,396 - 1,098 1,396 1,098 2,494 (b) (b) 1995
The Meadows of Santa
Fe - 760 - 11,672 760 11,672 12,432 1,220 1994 1993
</TABLE>
F-68
<PAGE>
------------------------------------------------------------------
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH CARRIED AT
INITIAL COST TO PTR COSTS DECEMBER 31, 1996
--------------------- CAPITALIZED --------------------------------
BUILDINGS SUBSE- BUILDINGS ACCUMU- CON-
ENCUM- AND QUENT TO AND LATED DE- STRUCTION YEAR
PROPERTIES BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTALS PRECIATION YEAR ACQUIRED
---------- -------- -------- ------------ ----------- -------- ------------ ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Seattle, Wash-
ington:
Canyon Creek $ - $ 5,250 $ - $ 9,393 $ 5,250 $ 9,393 $ 14,643 $ (b) (b)
Canyon Crown - 4,370 - 231 4,370 231 4,601 (b) (b)
Clubhouse 5,831 1,223 6,928 20 1,223 6,948 8,171 - 1982 1996
Forrest Creste - 1,681 - 312 1,681 312 1,993 (b) (b) 1996
Harbour Pointe - 2,027 - 2,865 2,027 2,865 4,892 (b) (b) 1996
Logan's Ridge - 1,950 11,118 278 1,950 11,395 13,345 524 1987 1995
Matanza Creek - 1,016 5,814 267 1,016 6,081 7,097 276 1991 1995
Millwood Es-
tates - 1,593 9,200 608 1,593 9,808 11,401 440 1987 1995
Pebble Cove - 1,895 - 15,084 1,895 15,084 16,979 148 1996 1995
Remington Park - 2,795 15,593 732 2,795 16,325 19,120 684 1990 1995
Walden Pond - 2,033 11,535 336 2,033 11,871 13,904 545 1990 1995
Tucson, Arizona:
Cobble Creek - 1,422 5,690 777 1,422 6,477 7,899 1,041 1980 1992
Craycroft Gar-
dens - 348 1,392 234 348 1,626 1,974 235 1963 1992
San Ventana (g) - 3,177 - 20,561 3,177 20,560 23,737 89 1996 1993
Tierra Antigua - 992 3,967 527 992 4,494 5,486 669 1979 1992
Villa Caprice - 1,279 7,248 319 1,279 7,567 8,846 641 1972 1993
Windsail 4,798 1,852 7,407 718 1,852 8,124 9,976 770 1986 1993
Tulsa, Oklahoma:
Southern Slope - 779 4,413 170 779 4,584 5,363 392 1982 1993
-------- -------- ---------- -------- -------- ---------- ---------- ------ ---- ----
Total Multifam-
ily 217,188 357,708 1,189,347 549,720 358,155 1,738,620 2,096,775 93,386
-------- -------- ---------- -------- -------- ---------- ---------- ------ ---- ----
LAND HELD FOR
FUTURE MULTI-
FAMILY DEVELOP-
MENT:
Austin, Texas:
Monterey Ranch
Village I (h) - 424 - 1,887 424 1,887 2,311 (b) (b) 1993
Monterey Ranch
Village III
(i) - 1,131 - 6,036 1,131 6,036 7,167 (b) (b) 1993
Monterey Ranch
IV (j) - 920 - - 920 - 920 - N/A 1993
El Paso, Texas:
West Ten (k) - 1,523 - 83 1,523 83 1,606 - N/A 1994
Houston, Texas:
SPCA Tract (l) - 563 - - 563 - 563 (b) (b) 1996
North Arlington,
Texas:
Cracker Barrel - 245 - - 245 - 245 -
Phoenix, Arizo-
na:
San Valiente
(m) - 1,647 - 540 1,647 540 2,187 - N/A 1995
Arrowhead II
(n) - 1,601 - 128 1,601 128 1,729 - N/A 1995
Miralago II - 1,801 33 33 1,801 66 1,867 -
San Antonio,
Texas:
Dymaxion II (o) - 545 - 18 545 18 563 - N/A 1994
Indian Trails
II (p) - 864 - 43 864 43 907 - N/A 1994
Walker Ranch
I (q) - 2,230 - 1,282 2,230 1,282 3,512 (b) (b) 1994
Walker Ranch
II (r) - 1,481 - 579 1,481 579 2,060 (b) (b) 1994
Walker Ranch
III (s) - 555 - 258 555 258 813 (b) (b) 1994
Santa Fe, New
Mexico:
Foothills of
Santa Fe II
(t) - 1,114 - 147 1,115 146 1,261 (b) (b) 1995
St. Francis (u) - 1,941 - 391 941 391 2,332 - N/A 1994
-------- ---------- -------- -------- ---------- ---------- ------
Total Develop-
ment Land 18,585 33 11,425 18,586 11,457 30,043
-------- ---------- -------- -------- ---------- ---------- ------
HOTEL:
San Francisco,
California:
Wharf Holiday
Inn (v) - 12,861 1,935 8,075 12,861 10,009 22,870 3,440 1972 1971
-------- ---------- -------- -------- ---------- ---------- ------
</TABLE>
F-69
<PAGE>
-------------------------------------------------------------------
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH CARRIED AT
INITIAL COST TO PTR COSTS DECEMBER 31, 1996
--------------------- CAPITALIZED --------------------------------
BUILDINGS SUBSE- BUILDINGS ACCUMU- CON-
ENCUM- AND QUENT TO AND LATED DE- STRUCTION YEAR
PROPERTIES BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTALS PRECIATION YEAR ACQUIRED
---------- -------- -------- ------------ ----------- -------- ------------ ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OFFICE/INDUSTRIAL:
Dallas, Texas:
Irving Blvd. $ - $ 109 $ 303 $ 128 $ 109 $ 431 $ 540 $ 249 1968 1977
El Paso, Texas:
Vista Industrial - 567 2,504 63 567 2,568 3,135 499 1987 1987
-------- -------- ---------- -------- -------- ---------- ---------- -------
TOTAL OFFICE/
INDUSTRIAL - 676 2,807 191 676 2,999 3,675 748
-------- -------- ---------- -------- -------- ---------- ---------- -------
TOTAL $217,188 $389,830 $1,194,122 $569,411 $390,278 $1,763,085 $2,153,363 $97,574
======== ======== ========== ======== ======== ========== ========== =======
</TABLE>
- -------
(a) Phase I (118 units) was acquired in 1991 and Phase II (122 units) was
developed in 1992.
(b) As of December 31, 1996, property was undergoing development.
(c) Phase I (120 units) was developed in 1980, Phase II (60 units) was
developed in 1981 and Phase III (288 units) was developed in 1983.
(d) Phase I (160 units) was developed in 1989 and Phase II (132 units) was
developed in 1991.
(e) Phase I (208 units) was acquired in 1991 and Phase II (144 units) was
developed in 1994.
(f) Phase I (84 units) was developed in 1970 and Phase II (100 units) was
developed in 1978.
(g) Represents properties owned by third party developers that are subject to
presale agreements to PTR to acquire such properties. PTR's investment as of
December 31, 1996 represents development loans made by PTR to such developers.
(h) 19.9 acres of undeveloped land.
(i) 53.1 acres of undeveloped land.
(j) 11.01 acres of undeveloped land.
(k) 25.30 acres of undeveloped land.
(l) .05 acres of undeveloped land.
(m) 7.6 acres of undeveloped land.
(n) 11.60 acres of undeveloped land.
(o) 18.0 acres of undeveloped land.
(p) 25.6 acres of undeveloped land.
(q) 38.7 acres of undeveloped land.
(r) 30.5 acres of undeveloped land.
(s) 10.3 acres of undeveloped land.
(t) 19.2 acres of undeveloped land.
(u) 10.4 acres of undeveloped land.
(v) PTR owns the building and land leased to hold Holiday Inns of America, Inc.
at Fisherman's Wharf in San Francisco.
The lease with Holiday Inns expires in 2018.
F-70
<PAGE>
The following is a reconciliation of the carrying amount and related
accumulated depreciation of PTR's investment in real estate, at cost (in
thousands):
----------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
CARRYING AMOUNTS 1996 1995 1994
---------------- ---------- ---------- ----------
<S> <C> <C> <C>
Balance at January 1 $1,855,866 $1,296,288 $ 872,610
Multifamily:
Acquisitions and renovations
expenditures 463,935 385,356 270,024
Development expenditures, excluding
land acquisition 187,377 117,980 111,184
Acquisition and improvements of land
held for current and future
development 20,880 11,255 16,789
Recurring capital expenditures 7,992 5,119 3,746
Dispositions (269,693) (6,166) (11,902)
---------- ---------- ----------
Net multifamily activity subtotal $ 410,491 $ 513,544 $ 389,841
---------- ---------- ----------
Non-multifamily:
Homestead development expenditure,
including land acquisitions $ 54,883 $ 48,247 $ 35,943
Contribution of Homestead Assets (161,370) - -
Non-multifamily dispositions (6,527) (2,235) (331)
Provision for possible loss - (220) (1,600)
Other 20 242 (175)
---------- ---------- ----------
Balance at December 31 $2,153,363 $1,855,866 $1,296,288
========== ========== ==========
-------------------------
<CAPTION>
DECEMBER
31,
----------------------------------
ACCUMULATED DEPRECIATION 1996 1995 1994
------------------------ ---------- ---------- ----------
<S> <C> <C> <C>
Balance at January 1 $ 81,979 $ 46,199 $ 22,022
Depreciation for the year 44,887 36,685 24,614
Accumulated depreciation of real estate
sold (22,653) (646) (151)
Contribution of Homestead Assets (6,639) - -
Other - (259) (286)
---------- ---------- ----------
Balance at December 31 $ 97,574 $ 81,979 $ 46,199
========== ========== ==========
</TABLE>
F-71
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Trustees and Shareholders of
Security Capital Industrial Trust:
We have audited the accompanying consolidated balance sheets of Security
Capital Industrial Trust and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Trust's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Security Capital Industrial
Trust and subsidiaries as of December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Chicago, Illinois
February 10, 1997
F-72
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
------------------
<TABLE>
<CAPTION>
DECEMBER 31,
ASSETS 1996 1995
------ ---------- ----------
<S> <C> <C>
Real Estate $2,508,747 $1,827,670
Less accumulated depreciation 109,147 56,406
---------- ----------
2,399,600 1,771,264
Cash and Cash Equivalents 4,770 22,235
Accounts Receivable 5,397 5,764
Other Assets 52,539 34,709
---------- ----------
Total assets $2,462,306 $1,833,972
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Line of credit $ 38,600 $ 81,000
Long-term debt 524,191 324,527
Mortgage notes payable 91,757 96,013
Securitized debt 36,025 38,090
Assessment bonds payable 12,170 11,173
Accounts payable and accrued expenses 35,357 32,826
Construction payable 24,645 20,437
Distributions payable 25,058 20,558
Other liabilities 18,130 14,416
---------- ----------
Total liabilities 805,933 639,040
---------- ----------
Commitments and Contingencies
Minority Interest 56,984 58,741
Shareholders' Equity:
Series A Preferred Shares; $0.01 par value: 5,400,000
shares issued and outstanding at December 31, 1996
and 1995; stated liquidation preference of $25 per
share 135,000 135,000
Series B Convertible Preferred Shares; $0.01 par
value; 8,050,000 shares issued and outstanding at
December 31, 1996; stated liquidation preference of
$25 per share 201,250 -
Series C Preferred Shares; $0.01 par value; 2,000,000
shares issued and outstanding at December 31, 1996;
stated liquidation preference of $50 per share 100,000 -
Common Shares of beneficial interest, $0.01 par
value; 93,676,546 shares issued and outstanding at
December 31, 1996 and 81,416,451 shares issued and
outstanding at December 31, 1995 937 814
Additional paid-in capital 1,257,347 1,059,142
Accumulated undistributed net realized gain on
disposition of real estate - -
Distributions in excess of net earnings (95,145) (58,765)
---------- ----------
Total shareholders' equity 1,599,389 1,136,191
---------- ----------
Total liabilities and shareholders' equity $2,462,306 $1,833,972
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-73
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
----------------------------
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Income:
Rental income $227,000 $153,879 $70,609
Other real estate income 5,342 2,899 -
Interest income 1,121 1,725 1,093
--------- --------- ---------
Total income 233,463 158,503 71,702
--------- --------- ---------
Expenses:
Rental expenses, net of recoveries of
$33,677 in 1996, $20,139 in 1995 and
$10,490 in 1994 26,674 18,460 7,244
Depreciation and amortization 59,850 39,767 18,169
Interest expense 38,819 32,005 7,568
REIT management fee 21,472 14,207 8,673
General and administrative 1,025 839 770
Other expense 2,913 2,234 1,220
--------- --------- ---------
Total expenses 150,753 107,512 43,644
--------- --------- ---------
Net earnings before minority interest and
gain (loss) on disposition of real estate 82,710 50,991 28,058
Minority interest share in net earnings 3,326 3,331 2,992
--------- --------- ---------
Net earnings before gain (loss) on
disposition of real estate 79,384 47,660 25,066
Gain (loss) on disposition of real estate (29) 1,053 35
--------- --------- ---------
Net earnings 79,355 48,713 25,101
Less preferred share dividends 25,895 6,698 -
--------- --------- ---------
Net Earnings Attributable to Common Shares $ 53,460 $ 42,015 $25,101
========= ========= =========
Weighted Average Common Shares Outstanding 84,504 68,924 44,265
========= ========= =========
Per Share Net Earnings Attributable to
Common Shares $ 0.63 $ 0.61 $ 0.57
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-74
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
-------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATED
SERIES A SERIES B SERIES C UNDISTRIBUTED
PREFERRED PREFERRED PREFERRED NET REALIZED
COMMON SHARES SHARES AT SHARES AT SHARES AT GAIN ON
---------------- AGGREGATE AGGREGATE AGGREGATE ADDITIONAL DISTRIBUTIONS DISPOSITION
NUMBER OF PAR LIQUIDATION LIQUIDATION LIQUIDATION PAID-IN SUBSCRIPTIONS IN EXCESS OF OF REAL
SHARES VALUE PREFERENCE PREFERENCE PREFERENCE CAPITAL RECEIVABLE NET EARNINGS ESTATE
--------- ------ ----------- ----------- ----------- ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31,
1993............. 19,762 $364.0 $ - $ - $ - $ 402,179 $(189,912) $ (3,180) $ -
Subscriptions
receivable
collected....... 16,642 - - - - - 189,912 - -
Sale of common
shares.......... 310 3.1 - - - 3,407 - - -
Initial public
offering........ 3,261 32.6 - - - 37,467 - - -
Public rights
offering........ 6,612 66.1 - - - 99,934 - - -
Sale of common
shares.......... 18,000 180.0 - - - 274,320 - - -
Less costs of
raising capital. - - - - - (9,304) - - -
Net earnings
before gain on
disposition of
real estate..... - - - - - - - 25,066 -
Gain on
disposition of
real estate..... - - - - - - - - 35
Common share
distributions... - - - - - - - (37,663) (35)
Distributions
accrued......... - - - - - - - (15,097) -
------ ------ -------- -------- -------- ---------- --------- -------- ------
Balances at
December 31,
1994............. 64,587 645.8 - - - 808,003 - (30,874) -
Sale of common
shares.......... 16,260 162.6 - - - 249,837 - - -
Sale of
preferred
shares.......... - - 135,000 - - - - - -
Dividend
reinvestment and
share purchase
plan............ 13 0.1 - - - 217 - - -
Less cost of
raising capital. - - - - - (5,022) - - -
Limited
partnership
units converted
to common
shares.......... 556 5.6 - - - 6,107 - - -
Net earnings
before gain on
disposition of
real estate..... - - - - - - - 47,660 -
Gain on
disposition of
real estate..... - - - - - - - - 1,053
Common share
distributions... - - - - - - - (48,295) (1,053)
Series A
Preferred Share
dividends....... - - - - - - - (6,698) -
Distributions
accrued......... - - - - - - - (20,558) -
------ ------ -------- -------- -------- ---------- --------- -------- ------
Balances at
December 31,
1995............. 81,416 814.1 135,000 - - 1,059,142 - (58,765) -
Sale of common
shares.......... 12,218 122.5 - - - 210,639 - - -
Sales of
preferred
shares.......... - - - 201,250 100,000 - - - -
Dividend
reinvestment and
share purchase
plan............ 21 .2 - - - 356 - - -
Common shares
issued upon
exercise of
warrants........ 22 .2 - - - 218 - - -
Less cost of
raising capital. - - - - - (13,008) - - -
Net earnings
before loss on
disposition of
real estate..... - - - - - - - 79,384 -
Loss on
disposition of
real estate..... - - - - - - - - (29)
Common share
distributions... - - - - - - - (64,811) 29
Preferred share
dividends....... - - - - - - - (25,895) -
Distributions
accrued......... - - - - - - - (25,058) -
------ ------ -------- -------- -------- ---------- --------- -------- ------
Balances at
December 31,
1996............. 93,677 $937.0 $135,000 $201,250 $100,000 $1,257,347 $ - $(95,145) $ -
====== ====== ======== ======== ======== ========== ========= ======== ======
<CAPTION>
TOTAL
SHAREHOLDERS'
EQUITY
-------------
<S> <C>
Balances at
December 31,
1993............. $ 209,451
Subscriptions
receivable
collected....... 189,912
Sale of common
shares.......... 3,410
Initial public
offering........ 37,500
Public rights
offering........ 100,000
Sale of common
shares.......... 274,500
Less costs of
raising capital. (9,304)
Net earnings
before gain on
disposition of
real estate..... 25,066
Gain on
disposition of
real estate..... 35
Common share
distributions... (37,698)
Distributions
accrued......... (15,097)
-------------
Balances at
December 31,
1994............. 777,775
Sale of common
shares.......... 250,000
Sale of
preferred
shares.......... 135,000
Dividend
reinvestment and
share purchase
plan............ 217
Less cost of
raising capital. (5,022)
Limited
partnership
units converted
to common
shares.......... 6,112
Net earnings
before gain on
disposition of
real estate..... 47,660
Gain on
disposition of
real estate..... 1,053
Common share
distributions... (49,348)
Series A
Preferred Share
dividends....... (6,698)
Distributions
accrued......... (20,558)
-------------
Balances at
December 31,
1995............. 1,136,191
Sale of common
shares.......... 210,762
Sales of
preferred
shares.......... 301,250
Dividend
reinvestment and
share purchase
plan............ 356
Common shares
issued upon
exercise of
warrants........ 218
Less cost of
raising capital. (13,008)
Net earnings
before loss on
disposition of
real estate..... 79,384
Loss on
disposition of
real estate..... (29)
Common share
distributions... (64,782)
Preferred share
dividends....... (25,895)
Distributions
accrued......... (25,058)
-------------
Balances at
December 31,
1996............. $1,599,389
=============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-75
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
----------------------------
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Operating Activities:
Net earnings $ 79,355 $ 48,713 $ 25,101
Minority interest 3,326 3,331 2,992
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation and amortization 59,850 39,767 18,169
(Gain)/Loss on disposition of real
estate 29 (1,053) (35)
Rent leveling (4,777) (4,364) (1,862)
Amortization of deferred financing
costs 2,339 2,092 1,023
Increase in accounts receivable and other
assets (10,166) (14,392) (10,994)
Increase in accounts payable and accrued
expenses 2,531 19,028 8,497
Increase in other liabilities 3,714 7,032 4,331
--------- --------- ---------
Net cash provided by operating
activities 136,201 100,154 47,222
--------- --------- ---------
Investing Activities:
Real estate investments (657,873) (633,251) (629,424)
Tenant improvements and lease commissions (14,806) (6,163) (2,425)
Recurring capital expenditures (2,851) (330) (22)
Proceeds from disposition of real estate 9,652 10,949 -
--------- --------- ---------
Net cash used in investing activities (665,878) (628,795) (631,871)
--------- --------- ---------
Financing Activities:
Proceeds from sale of shares, net of
expenses 434,587 279,977 283,703
Net proceeds from sale of shares to
Affiliates 64,416 100,001 312,315
Proceeds from dividend reinvestment,
share purchase plan and exercised
warrants 574 217 -
Proceeds from long-term debt offerings 199,632 324,455 -
Debt issuance costs (4,698) (6,194) (3,783)
Distributions paid to common shareholders (85,340) (64,445) (37,698)
Distributions paid to minority interest
holders (5,237) (5,033) (4,003)
Preferred share dividends (25,895) (6,698) -
Payments on note payable to Affiliates - - (8,000)
Proceeds from line of credit 411,200 361,100 424,720
Payments on line of credit (453,600) (440,100) (348,126)
Regularly scheduled principal payments on
mortgage notes payable (3,738) (3,491) (1,577)
Balloon principal payments made upon
maturity (19,689) (10,183) (18,169)
--------- --------- ---------
Net cash provided by financing
activities 512,212 529,606 599,382
--------- --------- ---------
Net Increase/(Decrease) in Cash and Cash
Equivalents (17,465) 965 14,733
Cash and Cash Equivalents, beginning of
period 22,235 21,270 6,537
--------- --------- ---------
Cash and Cash Equivalents, end of period $ 4,770 $ 22,235 $ 21,270
========= ========= =========
Supplemental Schedule of Noncash Investing
and Financing Activities:
In connection with formation of limited
partnerships, real estate was acquired
in exchange for the following:
Assumption of existing mortgage notes
payable, assessment bonds payable and
securitized debt $ - $ - $ 55,452
Minority ownership interest contributed - - 16,780
In conjunction with real estate acquired:
Assumption of existing mortgage notes
payable 18,103 14,688 68,447
Conversion of minority interest
partnership units into Common Shares - 6,112 -
--------- --------- ---------
Total $ 18,103 $ 20,800 $ 140,679
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-76
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. NATURE OF OPERATIONS:
Security Capital Industrial Trust ("SCI"), a Maryland real estate investment
trust ("REIT"), is a national operating company focused exclusively on meeting
the distribution space needs of national, regional and local industrial real
estate users through the SCI National Operating System(TM). SCI engages in the
acquisition, development, marketing, operation and long-term ownership of
distribution facilities, and the development of master-planned distribution
parks and build-to-suit facilities for its customers. SCI's operating strategy
is to provide an exceptional level of services to its existing and prospective
customers on a national, regional and local basis. SCI deploys capital in
markets with excellent long-term growth prospects where SCI can achieve a
strong market position through the acquisition and development of generic,
flexible facilities designed for both warehousing and light manufacturing uses.
As of December 31, 1996, SCI's portfolio contained 80.6 million square feet in
942 operating buildings and had an additional 5.9 million square feet under
development in 47 buildings for a total of 86.5 million square feet in 36
target market cities. SCI completed its initial public offering on March 31,
1994.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
REIT Organization Status
In January 1993, SCI was formed as a Maryland real estate investment trust. In
February 1993, Security Capital Industrial Investors Incorporated, a Delaware
corporation, was merged with and into SCI. SCI has made an election to be taxed
as a REIT under the Internal Revenue Code of 1986, as amended.
REITs are not required to pay federal income taxes if minimum distribution and
income, asset and shareholder tests are met. During 1996, 1995 and 1994, SCI
was in compliance with the REIT requirements. Thus, no federal income tax
provision has been reflected in the accompanying consolidated financial
statements.
Basis of Presentation
The accompanying consolidated financial statements include the results of SCI,
its subsidiaries and its majority-owned and controlled partnerships (SCI has no
unconsolidated subsidiaries or minority ownership interests). The effects of
intercompany transactions have been eliminated. Certain amounts included in the
consolidated financial statements for prior years have been reclassified to
conform with the 1996 financial statement presentation.
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.
Real Estate and Depreciation
Real estate is carried at cost. Costs directly related to the acquisition,
renovation or development of real estate are capitalized and are depreciated
over the following useful lives:
<TABLE>
<S> <C>
Tenant improvements 10 years
Acquired buildings 30 years
Developed buildings 40 years
</TABLE>
Depreciation is computed using a straight-line method. Certain real estate was
acquired through formation of partnerships (see Note 5) wherein SCI contributed
cash and the limited partners contributed real estate in exchange for
partnership units which are ultimately exchangeable for SCI's Common Shares of
beneficial interest, par value $0.01 per share (the "Common Shares"). In
consolidating the partnerships' assets, real estate cost includes the estimated
fair value attributable to the limited partners' interests at the acquisition
dates because (1) SCI's cash contributions constituted over 50% of the
acquisition prices, (2) the acquisitions were from unrelated third-parties and
(3) the limited partners were not considered "promoters" under SEC Staff
Accounting Bulletin 48. The limited partners' interests will be reflected as
minority interest in the consolidated financial statements until the units are
exchanged for SCI Common Shares. In management's opinion, real estate assets
are not carried at amounts in excess of their estimated net realizable values.
F-77
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Recent Accounting Pronouncement
Effective January 1, 1996, SCI adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," ("SFAS No. 121") which had no material
impact on its consolidated financial statements. SFAS No. 121 establishes
accounting standards for the review for impairment of long-lived assets to be
held and used, whenever the carrying amount of an asset may not be recoverable,
and requires that certain long-lived assets to be disposed of be reported at
the lower of carrying amount or fair value less cost to sell.
Capitalized Interest
SCI capitalizes interest costs incurred during the land development or
construction period of qualifying projects.
Deferred Loan Fees
Included in other assets as of December 31, 1996 and 1995 are costs of $9.2
million and $6.8 million, respectively, associated with obtaining financing
(see Note 4) which have been capitalized and are being amortized (to interest
expense or capitalized interest, as appropriate) over the life of the loan
using the effective interest rate method.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash in bank accounts and funds invested
in money market funds.
Minority Interest
Minority interest is carried at cost and represents limited partners' interests
in various real estate partnerships controlled by SCI. As discussed in Real
Estate and Depreciation, certain minority interests are carried at the pro rata
share of the estimated fair value of property at the acquisition dates. Common
Shares of SCI issued upon exchange of limited partnership units will be
accounted for at the cost of the minority interest surrendered.
Earnings per Share
Per share data is computed based on the weighted average number of Common
Shares outstanding during the period. Exercise of outstanding warrants and
options to acquire 29,764 Common Shares would not have a material dilutive
effect on earnings per share. The conversion of the limited partnership units
(see Note 5) and the Series B Cumulative Convertible Redeemable Preferred
Shares, par value $.01 per share ("Series B Preferred Shares"), into Common
Shares is not assumed since the effect would not be dilutive.
Interest Rate Contracts
SCI utilizes various interest rate contracts to hedge interest rate risk on
anticipated debt offerings. These anticipatory hedges are designated, and
effective, as hedges of identified debt issuances which have a high probability
of occurring. Gains and losses resulting from changes in the market value of
these contracts are deferred and amortized into interest expense over the life
of the related debt issuance.
F-78
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. REAL ESTATE:
Real estate investments are comprised of income producing distribution
facilities, construction in progress and land planned for distribution facility
development in the following markets:
------------------
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL COST
DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Atlanta, Georgia 7.99% 8.32%
Austin, Texas 3.32 3.26
Birmingham, Alabama 1.33 1.83
Charlotte, North Carolina 2.39 2.90
Chattanooga, Tennessee 0.60 0.83
Chicago, Illinois 3.80 0.83
Cincinnati, Ohio 2.57 2.48
Columbus, Ohio 2.16 2.26
Dallas/Fort Worth, Texas 4.79 3.17
Denver, Colorado 2.37 2.89
East Bay (San Francisco), California 4.49 5.91
El Paso, Texas 2.99 3.70
Fort Lauderdale/Miami, Florida 1.05 0.94
Houston, Texas 5.16 6.34
Indianapolis, Indiana 4.69 5.87
Kansas City, Kansas/Missouri 1.95 2.37
Las Vegas, Nevada 1.99 1.24
Los Angeles/Orange County, California 3.65 2.91
Louisville, Kentucky 0.46 0.22
Memphis, Tennessee 2.03 1.83
Nashville, Tennessee 1.87 2.13
New Jersey/I-95 Corridor 1.92 -
Oklahoma City, Oklahoma 0.56 0.74
Orlando, Florida 1.15 1.06
Phoenix, Arizona 1.69 1.81
Portland, Oregon 2.29 1.83
Reno, Nevada 2.01 2.36
Rio Grande Valley, Texas 0.89 1.04
Salt Lake City, Utah 2.35 2.29
San Antonio, Texas 4.56 4.78
San Diego, California 0.61 0.55
Seattle, Washington 1.57 1.46
South Bay (San Francisco), California 7.84 9.71
Tampa, Florida 4.53 5.94
Tulsa, Oklahoma 0.49 0.67
Washington, D.C./Baltimore 5.08 3.14
Other 0.81 0.39
------------ ------------
100.00% 100.00%
============ ============
</TABLE>
F-79
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following summarizes real estate investments as of December 31 (in
thousands):
------------------
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Land held for development $ 109,316 $ 60,363
Land under development 40,465 56,944
Improved land 356,428 242,015
Buildings and improvements 1,918,256 1,380,389
Construction in progress 77,506 80,958
Capitalized preacquisition costs 6,776 7,001
---------- ----------
Total real estate 2,508,747 1,827,670
Less accumulated depreciation 109,147 56,406
---------- ----------
Net real estate $2,399,600 $1,771,264
========== ==========
</TABLE>
Capitalized preacquisition costs include $1,634,000 and $2,137,000 of funds on
deposit with title companies as of December 31, 1996 and 1995, respectively,
for property acquisitions.
Other real estate income consists primarily of gains on disposition of
undepreciated property and fees and other income from build-to-suit customers
generated to a large extent by SCI Development Services Incorporated ("SCI
Development Services"). SCI Development Services develops build-to-suit
distribution space facilities or works on a fee basis for customers whose space
needs do not meet SCI's strict investment criteria for long-term ownership.
Through its preferred stock ownership, SCI will realize substantially all
economic benefits of SCI Development Services' activities. The activities of
SCI Development Services are consolidated with SCI and all intercompany
transactions have been eliminated. As of December 31, 1996, the outstanding
balances of development and mortgage loans made by SCI to SCI Development
Services for the purchase of distribution facilities and land for distribution
facility development aggregated $162.0 million. SCI Development Services pays
federal and state taxes at the applicable corporate rate.
The REIT Manager provides SCI Development Services with day-to-day management
for a fee based on 16% of SCI Development Services' pre-tax cash flow,
including gains and losses realized on property sales. The fee incurred for
1996 was approximately $1.3 million. Dividends and interest paid by SCI
Development Services to SCI are excluded from SCI's cash flow for determining
the REIT management fee paid by SCI.
SCI leases its properties to customers under agreements which are classified as
operating leases. The leases generally provide for payment of all or a portion
of utilities, property taxes and insurance by the customer. SCI's largest
customer accounted for less than 1.5% of SCI's 1996 rental income (on an
annualized basis), and the annualized base rent for SCI's 20 largest customers
accounted for less than 12.9% of SCI's 1996 rental income (on an annualized
basis). Minimum lease payments receivable on non-cancelable leases with lease
periods greater than one year are as follows (in thousands):
<TABLE>
<S> <C>
1997 $ 241,100
1998 202,698
1999 161,395
2000 119,975
2001 83,309
Thereafter 200,772
----------
$1,009,249
==========
</TABLE>
In addition to the December 31, 1996 construction payable accrual of $24.6
million, SCI had unfunded commitments on its contracts for developments under
construction totaling $106.6 million. These commitments relate to development
activity in Atlanta, Charlotte, Chicago, Cincinnati, Dallas, East Bay (San
Francisco), Houston, Indianapolis, Kansas City, Las Vegas, Nashville, Orange
County, CA, Orlando, Portland, Rio Grande Valley, Salt Lake City, San Antonio,
Seattle, Tampa, and Washington, D.C./Baltimore.
F-80
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. BORROWINGS:
Mortgage notes payable, assessment bonds payable and securitized debt consisted
of the following at December 31, 1996 (in thousands):
---------------------------------------------------------
<TABLE>
<CAPTION>
BALLOON
PERIODIC PAYMENT
INTEREST MATURITY PAYMENT PRINCIPAL DUE AT
DESCRIPTION MARKET RATE DATE DATE BALANCE MATURITY
----------- ----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Mortgage Notes Payable:
Charlotte Commerce Park
#4 Charlotte 9.250% 06/01/97 (1) $ 1,522 $ 1,511
DeSoto Business Park Baltimore 9.750 03/01/97 (1) 6,053 6,008
Downtown Distribution
Center San Antonio 9.375 07/01/97 (1) 1,186 1,169
Eigenbrodt Way Distri-
bution Center #1 East Bay 8.590 04/01/03 (1) 1,723 1,479
Gateway Corporate Cen-
ter #10 South Bay 8.590 04/01/03 (1) 2,094 1,361
Hayward Industrial Cen-
ter I & II East Bay 8.590 04/01/03 (1) 14,541 12,480
Landmark One Distribu-
tion
Center #1 San Antonio 9.250 06/01/97 (1) 1,886 1,872
Oxmoor Distribution
Center #1 Birmingham 8.390 04/01/99 (1) 4,131 3,895
Oxmoor Distribution
Center #2 Birmingham 8.100 05/01/99 (1) 1,521 1,439
Oxmoor Distribution
Center #3 Birmingham 8.100 05/01/99 (1) 1,511 1,426
Peter Cooper Distribu-
tion
Center #1 El Paso 10.625 06/01/99 (1) 2,664 2,619
Platte Valley Indus-
trial Center #1 Kansas City 9.750 03/01/00 (1) 524 256
Platte Valley Indus-
trial Center #3 Kansas City 9.750 06/01/98 (1) 1,168 1,091
Platte Valley Indus-
trial Center #4 Kansas City 10.100 11/01/21 (2) 2,100 -
Platte Valley Indus-
trial Center #5 Kansas City 9.500 07/01/97 (1) 2,911 2,795
Platte Valley Indus-
trial Center #8 Kansas City 8.750 08/01/04 (1) 2,000 1,488
Platte Valley Indus-
trial Center #9 Kansas City 8.100 04/01/17 (2) 3,477 -
Princeton Distribution
Center Cincinnati 9.250 02/19/99 (1) 1,247 1,300
Rio Grande Industrial
Center #1 Brownsville 8.875 09/01/01 (1) 3,368 2,544
Riverside Industrial
Center #3 Kansas City 8.750 08/01/04 (1) 1,571 1,170
Riverside Industrial
Center #4 Kansas City 8.750 08/01/04 (1) 4,246 3,161
Southwide Lamar Indus-
trial
Center #1 Memphis 7.670 05/01/24 (1) 421 674
Sullivan 75 Distribu-
tion
Center #1 Atlanta 9.960 04/01/04 (1) 1,857 1,663
Tampa West Distribution
Center #20 Tampa 9.125 11/30/00 (2) 203 -
Thorton Business Center
#1- #4 South Bay 8.590 04/01/03 (1) 9,537 8,185
Titusville Industrial
Center #1 Orlando 10.000 09/01/01 (1) 4,942 4,181
Vista Del Sol Indus-
trial
Center #1 El Paso 9.680 08/01/07 (2) 2,978 -
Vista Del Sol Indus-
trial
Center #3 El Paso 9.680 08/01/07 (2) 1,260 -
West One Business Cen-
ter #1 Las Vegas 8.250 09/01/00 (1) 4,584 4,252
West One Business Cen-
ter #3 Las Vegas 9.000 09/01/04 (1) 4,531 3,847
---------
8.99% Weighted-average rate $91,757
=========
Assessment Bonds Pay-
able:
City of Las Vegas Las Vegas 8.75% 10/01/13 (2) $ 312 $ -
City of Las Vegas Las Vegas 8.75 10/01/13 (2) 241 -
City of Hayward South Bay 7.00 03/01/98 (2) 7 -
City of Fremont South Bay 7.00 03/01/11 (2) 10,870 -
City of Wilsonville Portland 6.82 08/19/04 (2) 161 -
City of Kent Seattle 7.85 06/20/05 (2) 134 -
City of Kent Seattle 7.98 05/20/09 (2) 76 -
City of Portland Portland 7.25 11/07/15 (2) 113 -
City of Portland Portland 7.25 11/17/07 (2) 6 -
City of Portland Portland 7.25 09/15/16 (2) 250 -
---------
7.10% Weighted-average rate $12,170
=========
Securitized Debt:
Tranche A (3) 7.74% 02/01/04 (1) $27,686 $20,821
Tranche B (3) 9.94 02/01/04 (1) 8,339 7,215
---------
8.25% Weighted-average rate $36,025
=========
</TABLE>
- -------
(1) Amortizing monthly with a balloon payment due at maturity.
(2) Fully amortizing.
(3) Secured by real estate located primarily in Fort Lauderdale/Miami, Orlando
and Tampa.
F-81
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Mortgage notes payable are secured by real estate with an aggregate
undepreciated cost of $165.0 million at December 31, 1996. Assessment bonds
payable are secured by real estate with an aggregate undepreciated cost of
$219.6 million at December 31, 1996. Securitized debt is collateralized by real
estate with an aggregate undepreciated cost of $68.1 million at December 31,
1996.
Line of Credit
SCI has a $350.0 million unsecured revolving line of credit agreement with
NationsBank of Texas, N.A. (as agent for a bank group). Borrowings bear
interest at SCI's option, at either (a) the greater of the federal funds rate
plus 0.5% and the prime rate, or (b) LIBOR plus 1.25% based upon SCI's current
senior debt ratings. The prime rate was 8.25% and the 30 day LIBOR rate was
5.50% at December 31, 1996. Additionally, there is a commitment fee ranging
from .125% to .25% per annum of the unused line of credit balance. The line is
scheduled to mature in May 1998 and may be extended annually for an additional
year with the approval of NationsBank and the other participating lenders; if
not extended, at SCI's election, the facility will either (a) convert to a
three-year term note or (b) continue on a revolving basis with the remaining
one-year maturity. All debt incurrences are subject to a covenant that SCI
maintain a debt to tangible net worth ratio of not greater than 1 to 1.
Additionally, SCI is required to maintain an adjusted net worth (as defined) of
at least $1.0 billion, to maintain interest payment coverage of not less than 2
to 1 and to maintain a fixed charge coverage ratio of not less than 1.4 to 1.
SCI is in compliance with all covenants contained in the line of credit, and as
of February 10, 1997, no borrowings were outstanding on the line of credit.
A summary of SCI's line of credit borrowings is as follows for the years ended
December 31, (in thousands):
------------------
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Weighted-average daily interest rate 7.02% 8.0%
Borrowings outstanding at December 31 $ 38,600 $ 81,000
Weighted-average daily borrowings $ 44,268 $ 61,132
Maximum borrowings outstanding at any month end $124,200 $246,000
Total line of credit at December 31 $350,000 $350,000
</TABLE>
Long-Term Debt
------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
8.72% Senior Unsecured Notes, issued on March 2, 1995 in
an original principal amount of $150,000,000. Interest
is payable March 1 and September 1 of each year. The
Notes are payable in eight consecutive annual
installments of $18,750,000 commencing March 1, 2002
and maturing on March 1, 2009. $150,000 $150,000
9.34% Senior Unsecured Notes, issued on March 2, 1995 in
an original principal amount of $50,000,000. Interest
is payable March 1 and September 1 of each year. The
Notes are payable in six consecutive annual
installments ranging from $5,000,000 to $12,500,000
commencing on March 1, 2010 and maturing on March 1,
2015. 50,000 50,000
7.13% Senior Unsecured Notes due 1998, issued on May 16,
1995 in an original principal amount of $15,000,000,
net of original issue discount. Interest is payable May
15 and November 15 of each year. 14,993 14,990
7.25% Senior Unsecured Notes due 2000, issued on May 16,
1995 in an original principal amount of $17,500,000,
net of original issue discount. Interest is payable May
15 and November 15 of each year. 17,448 17,444
7.30% Senior Unsecured Notes due 2001, issued on May 16,
1995 in an original principal amount of $17,500,000,
net of original issue discount. Interest is payable May
15 and November 15 of each year. 17,435 17,429
</TABLE>
F-82
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
7.88% Senior Unsecured Notes, issued on May 16, 1995 in
an original principal amount of $75,000,000, net of
original issue discount. Interest is payable May 15 and
November 15 of each year. The Notes are payable in
eight annual installments of $9,375,000 beginning May
15, 2002 and maturing on May 15, 2009. 74,668 74,664
7.25% Senior Unsecured Notes, issued on May 17, 1996 in
an original principal amount of $50,000,000, net of
original issue discount. Interest is payable May 15 and
November 15 of each year. The Notes are payable in four
annual installments of $12,500,000 beginning May 15,
1999 and maturing on May 15, 2002. 49,951 -
7.95% Senior Unsecured Notes, issued on May 17, 1996 in
an original principal amount of $100,000,000, net of
original issue discount. Interest is payable May 15 and
November 15 of each year. The Notes are payable in four
annual installments of $25,000,000 beginning May 15,
2005 and maturing on May 15, 2008. 99,840 -
8.65% Senior Unsecured Notes, issued on May 17, 1996 in
an original principal amount of $50,000,000, net of
original issue discount. Interest is payable May 15 and
November 15 of each year. The Notes are payable in
seven annual installments ranging from $5,000,000 to
$12,500,000 beginning May 15, 2010 and maturing on May
15, 2016. 49,856 -
--------- ---------
Total long-term debt, net of original issue discount $524,191 $324,527
========= =========
</TABLE>
All of the foregoing Notes are redeemable at any time at the option of SCI, in
whole or in part, at a redemption price equal to the sum of the principal
amount of the Notes being redeemed plus accrued interest thereon to the
redemption date plus an adjustment, if any, based on the yield to maturity
relative to market yields available at redemption. The Notes are governed by
the terms and provisions of an indenture agreement (the "Indenture") between
SCI and State Street Bank and Trust Company, as trustee.
Under the terms of the Indenture, SCI can incur additional debt only if, after
giving effect to the debt being incurred and application of proceeds therefrom,
(i) the ratio of debt to total assets, as defined in the Indenture, does not
exceed 60%, (ii) the ratio of secured debt to total assets, as defined in the
Indenture, does not exceed 40% and (iii) SCI's pro forma interest coverage
ratio, as defined in the Indenture, for the four preceding fiscal quarters is
not less than 1.5:1. In addition, SCI may not at any time own total
unencumbered assets, as defined in the Indenture, equal to less than 150% of
the aggregate outstanding principal amount of SCI's unsecured debt. At December
31, 1996, SCI was in compliance with all debt covenants contained in the
Indenture.
Approximate principal payments due on long-term debt, mortgage notes payable,
assessment bonds payable and securitized debt during each of the years in the
five-year period ending December 31, 2001 and thereafter are as follows (in
thousands):
<TABLE>
<S> <C>
1997 $ 18,265
1998 19,782
1999 25,689
2000 38,429
2001 40,686
2002 and thereafter 522,101
---------
Total principal due 664,952
Less: Original issue discount (809)
---------
Total carrying value $664,143
=========
</TABLE>
F-83
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During 1996, 1995 and 1994, interest expense was $38,819,000, $32,005,000, and
$7,568,000, respectively, which was net of capitalized interest of $16,138,000,
$8,599,000 and $2,208,000, respectively. Total amortization of deferred loan
fees included in interest expense was $2,339,000, $2,092,000 and $1,023,000 for
the years ended December 31, 1996, 1995 and 1994, respectively. The total
interest paid in cash on all outstanding debt was $50,704,000, $33,634,000, and
$8,992,000 during 1996, 1995, and 1994, respectively.
5. MINORITY INTEREST:
Minority interest represents limited partners' interests in five real estate
partnerships controlled by SCI.
SCI owns a 70.0% general partnership interest in Red Mountain Joint Venture,
which owns approximately $3 million of property in Albuquerque, New Mexico.
On December 22, 1993, SCI acquired a 68.7% controlling general partnership
interest in SCI Limited Partnership-I, which owns distribution facilities
primarily in the San Francisco Bay area. Limited partners are entitled to
exchange each partnership unit for one Common Share and are entitled to receive
preferential cumulative quarterly distributions per unit equal to the quarterly
distribution in respect of Common Shares. At December 31, 1996, 4,520,533
limited partnership units were outstanding and no units had been exchanged.
During the first two quarters of 1994, SCI acquired an 81.2% controlling
general partnership interest in SCI Limited Partnership-II, which owns
distribution facilities primarily in Austin, Charlotte, Dallas, Denver, El Paso
and the San Francisco Bay area. Limited partners are entitled to exchange each
partnership unit for one Common Share and are entitled to receive preferential
cumulative quarterly distributions per unit equal to the quarterly distribution
in respect of Common Shares. During the third quarter of 1995, certain limited
partners in SCI Limited Partnership-II exercised their conversion rights to
exchange partnership units for Common Shares on a one for one basis. As a
result of these conversions, SCI's general partnership interest in SCI Limited
Partnership-II increased to 97.4%, and SCI's outstanding Common Shares
increased by 555,651 shares. As of December 31, 1996, there were 90,213 limited
partnership units outstanding in SCI Limited Partnership-II.
In October 1994, SCI acquired a 50.4% controlling general partnership interest
in SCI Limited Partnership-III, which owns distribution facilities primarily in
Tampa, Florida. During 1995, SCI contributed an additional $11.9 million to
this partnership for asset acquisitions which increased SCI's general
partnership interest to 71.8%. During 1996, SCI contributed $4.2 million for a
property acquisition in San Antonio, Texas which increased SCI's general
partnership interest from 71.8% to 75.6%. Limited partners are entitled to
exchange each partnership unit for one Common Share and are entitled to receive
preferential cumulative quarterly distributions per unit equal to the quarterly
distribution in respect of Common Shares. As of December 31, 1996, there were
514,900 limited partnership units outstanding in SCI Limited Partnership-III
and no units had been exchanged.
In October 1994, SCI IV, Inc., a wholly-owned subsidiary of SCI, made a $27.5
million cash contribution to SCI Limited Partnership-IV, a Delaware limited
partnership ("Partnership-IV"), in exchange for a 96.36% general partner
interest in Partnership-IV, and third party investors that were not affiliated
with SCI contributed an aggregate of $1.0 million in assets to Partnership-IV
in exchange for limited partner interests totalling 3.6% in Partnership-IV. SCI
contributed an additional $150,000 to the partnership in 1996 in conjunction
with a Section 1031 exchange transaction which increased SCI's interest from
96.36% to 96.38%. SCI IV, Inc., as general partner, manages the activities of
Partnership-IV and has fiduciary responsibilities to Partnership-IV and its
other partners.
Both Partnership-IV and SCI IV, Inc. are legal entities that are separate and
distinct from SCI, its affiliates and each other, and each has separate assets,
liabilities, business functions and operations. The assets owned by
Partnership-IV consist of income-producing, improved real property located in
Florida, Ohio and Oklahoma. The sole assets owned by SCI IV, Inc. are its
general partner advances to and interest in Partnership-IV. SCI and its
affiliates had no borrowings from Partnership-IV at December 31, 1996 and 1995.
Partnership-IV had $1,384,000 and $283,000 of borrowings from SCI IV, Inc. at
December 31, 1996 and 1995, respectively. SCI IV, Inc. had $1,384,000 and
$283,000 of borrowings from SCI and its affiliates at December 31, 1996 and
1995, respectively. For financial
F-84
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
reporting purposes, the assets, liabilities, results of operations and cash
flows of each of Partnership-IV and SCI IV, Inc. are included in SCI's
consolidated financial statements, and the third party investors' interests in
Partnership-IV are reflected as minority interest. Limited partners are
entitled to exchange each partnership unit for one Common Share and are
entitled to receive preferential cumulative quarterly distributions per unit
equal to the quarterly distribution in respect of Common Shares. At December
31, 1996, there were 68,612 limited partnership units outstanding in
Partnership-IV and no units had been exchanged.
6. SHAREHOLDERS' EQUITY:
On November 13, 1996, SCI issued 2,000,000 Series C Cumulative Redeemable
Preferred Shares (the "Series C Preferred Shares"). The Series C Preferred
Shares have a liquidation preference of $50.00 per share for an aggregate
liquidation preference of $100.0 million plus accrued and unpaid dividends. The
net proceeds (after underwriting commission and other offering costs) of the
Series C Preferred Shares issued were $97.1 million. Holders of the Series C
Preferred Shares are entitled to receive, when, as and if declared by SCI's
Board of Trustees (the "Board"), out of funds legally available for payment of
distributions, cumulative preferential cash distributions at a rate of 8.54% of
the liquidation preference per annum (equivalent to $4.27 per share). On or
after November 13, 2026, the Series C Preferred Shares may be redeemed for cash
at the option of SCI. The redemption price (other than the portion thereof
consisting of accrued and unpaid distributions) is payable solely out of the
sale proceeds of other capital shares of SCI, which may include shares of other
series of preferred shares.
On August 21, 1996, SCI commenced a rights offering to sell 6,787,806 Common
Shares at $17.25 per Common Share and also authorized an additional 3,393,903
Common Shares for oversubscriptions or third party subscribers. In September
1996, SCI issued 7,865,645 Common Shares of the 10,181,709 Common Shares
subscribed for and recorded subscriptions receivable of $40.0 million. In
October 1996, 2,316,064 Common Shares were issued and all subscriptions
receivable were collected. Gross proceeds from the offering totaled $175.6
million.
On September 24, 1996, SCI offered 2,036,342 Common Shares to third party
subscribers in the rights offering that were not accepted in whole or in part
due to demand in excess of the Common Shares offered. All of the Common Shares
were subscribed for as of September 30, 1996 and subscriptions receivable for
gross proceeds of $35.1 million recorded. In October 1996, all of such Common
Shares were issued and all subscriptions receivable were collected.
Security Capital Group Incorporated ("Security Capital"), an affiliate of SCI's
REIT Manager, purchased 3,734,240 Common Shares in connection with the
September rights offering at the same price paid by the public. As of December
31, 1996, Security Capital owned 46.0% of SCI's outstanding 93,676,546 Common
Shares.
In February 1996, SCI issued a total of 8,050,000 Series B Cumulative
Convertible Redeemable Preferred Shares (the "Series B Preferred Shares"). The
Series B Preferred Shares have a liquidation preference of $25.00 per share for
an aggregate liquidation preference of $201.3 million plus any accrued and
unpaid dividends. Holders of the Series B Preferred Shares are only entitled to
limited voting rights under certain conditions. The Series B Preferred Shares
are convertible at any time, unless previously redeemed, at the option of the
holders thereof into Common Shares at a conversion price of $19.50 per share
(equivalent to a conversion rate of 1.282 Common Shares for each Series B
Preferred Share), subject to adjustment in certain circumstances. Holders of
the Series B Preferred Shares are entitled to receive, when, as and if declared
by the Board, out of funds legally available for the payment of distributions,
cumulative preferential cash distributions in an amount per share equal to the
greater of 7% of the liquidation preference per annum (equivalent to $1.75 per
share) or the distribution on the Common Shares, or portion thereof, into which
a Series B Preferred Share is convertible. Distributions on the Series B
Preferred Shares are cumulative from the date of original issue and payable
quarterly in arrears on the last day of March, June, September and December of
each year. The Series B Preferred Shares are redeemable at the option of SCI on
or after February 21, 2001.
On September 29, 1995, SCI issued 9,421,505 Common Shares at $15.375 per share
and received subscriptions for 6,838,658 additional Common Shares at the same
price in conjunction with a rights offering ($250 million). The
F-85
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
additional Common Shares were issued on October 3, 1995. Security Capital
purchased 6,504,148 Common Shares in this offering (40% of the shares sold). As
of December 31, 1995, Security Capital owned 48.3% of SCI's outstanding
81,416,451 Common Shares.
On June 21, 1995, SCI issued 5,400,000 Series A Cumulative Redeemable Preferred
Shares (the "Series A Preferred Shares"). The Series A Preferred Shares have a
liquidation preference of $25.00 per share for an aggregate liquidation
preference of $135.0 million plus any accrued and unpaid dividends. The net
proceeds (after underwriting commission and other offering costs) of the Series
A Preferred Shares issued were $130.4 million. Holders of the Series A
Preferred Shares are entitled only to limited voting rights under certain
conditions. Holders of the Series A Preferred Shares will be entitled to
receive, when, as and if declared by the Board, out of funds legally available
for the payment of distributions, cumulative preferential cash distributions at
the rate of 9.4% of the liquidation preference per annum (equivalent to $2.35
per share). Such distributions are cumulative from the date of original issue
and are payable quarterly in arrears on the last day of March, June, September,
and December of each year. The Series A Preferred Shares are redeemable at the
option of SCI on or after June 21, 2000. The redemption price (other than the
portion thereof consisting of accrued and unpaid distributions) is payable
solely out of the sale proceeds of other capital shares of SCI, which may
include shares of other series of preferred shares.
In October and November 1994, SCI completed an offering of 18,000,000 Common
Shares at a price of $15.25 per share. 17,750,000 Common Shares were issued on
October 5, 1994, and 250,000 Common Shares were issued on November 17, 1994.
9,800,000 of the Common Shares were purchased by Security Capital, at the same
price paid by the public, with no underwriting discount or commission ($149.5
million). 8,200,000 of the Common Shares were sold through an underwritten
offering at $15.25 per share. The underwriting discount on these Common Shares
was $0.80 per share. After additional costs of the offering, net proceeds to
SCI were $266.9 million.
On June 29, 1994, SCI completed a rights offering and issued 6,611,571 Common
Shares at $15.125 per share ($100 million). Security Capital purchased
3,517,483 Common Shares in this offering (53% of the shares sold). On March 31,
1994, SCI completed its initial public offering and sold 3,260,870 Common
Shares at $11.50 per share ($37.5 million). Security Capital purchased 523,370
Common Shares in this offering (16% of the shares sold).
Dividend Reinvestment and Share Purchase Plan
In March 1995, SCI adopted a Dividend Reinvestment and Share Purchase Plan (the
"1995 Plan"), which commenced in April 1995. The 1995 Plan allows holders of
Common Shares the opportunity to acquire additional Common Shares by
automatically reinvesting distributions. Common Shares are acquired pursuant to
the 1995 Plan at a price equal to 98% of the market price of such Common
Shares, without payment of any brokerage commission or service charge. The 1995
Plan also allows participating common shareholders to purchase a limited number
of additional Common Shares at 98% of the market price of such Common Shares,
by making optional cash payments, without payment of any brokerage commission
or service charge. Holders of Common Shares who do not participate in the 1995
Plan continue to receive distributions as declared.
Option Plan
In April 1994, SCI adopted its Share Option Plan for Outside Trustees (the
"Outside Trustees Plan"). Under the Outside Trustees Plan, there are 100,000
Common Shares approved which can be granted to non-employee Trustees. All
options granted are for a term of five years and are immediately exercisable in
whole or in part. The exercise price of the options granted may not be less
than the fair market value on the date of the grant. At December 31, 1996 there
were 18,000 options for Common Shares outstanding and exercisable under the
Outside Trustees Plan at exercise prices of $15.50, $16.00, and $17.50.
SCI adopted the provisions of Statement of Financial Accounting Standards No.
123 ("SFAS 123") "Accounting for Stock Based Compensation" during 1996. Under
the provisions of this statement, SCI will continue to account for the Outside
Trustees Plan under the provisions of APB Opinion No. 25, and make the pro
forma disclosures required by SFAS 123 where applicable. The effect of adopting
this statement was immaterial to SCI's consolidated financial statements.
F-86
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Shareholder Purchase Rights
On December 7, 1993, the Board declared a dividend of one preferred share
purchase right ("Right") for each outstanding Common Share to be distributed to
all holders of record of the Common Shares on December 31, 1993. Each Right
entitles the registered holder to purchase one-hundredth of a Participating
Preferred Share for an exercise price of $40.00 per one-hundredth of a
Participating Preferred Share, subject to adjustment as provided in the Rights
Agreement. The Rights will generally be exercisable only if a person or group
(other than certain affiliates of SCI) acquires 20% or more of the Common
Shares or announces a tender offer for 25% or more of the Common Shares. Under
certain circumstances, upon a shareholder acquisition of 20% or more of the
Common Shares (other than certain affiliates of SCI), each Right will entitle
the holder to purchase, at the Right's then-current exercise price, a number of
Common Shares having a market value of twice the Right's exercise price. The
acquisition of SCI pursuant to certain mergers or other business transactions
will entitle each holder of a Right to purchase, at the Right's then-current
exercise price, a number of the acquiring company's common shares having a
market value at that time equal to twice the Right's exercise price. The Rights
held by certain 20% shareholders will not be exercisable. The Rights will
expire on December 7, 2003, unless the expiration date of the Rights is
extended, and the Rights are subject to redemption at a price of $0.01 per
Right under certain circumstances.
7. DISTRIBUTIONS:
The annual distribution per Common Share was $1.01 in 1996, $0.935 in 1995 and
$0.85 in 1994. Distributions attributable to realized gains on the disposition
of investments may be considered for payment to shareholders on a special, as-
incurred basis.
For federal income tax purposes, the following summarizes the taxability of
distributions paid on Common Shares in 1995 and 1994 and the estimated
taxability for 1996:
----------------------------
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Per Common Share:
Ordinary income $0.879 $0.692 $0.67
Capital gains - - -
Return of capital 0.131 0.243 0.18
--------- --------- ---------
Total $1.010 $0.935 $0.85
========= ========= =========
</TABLE>
On December 17, 1996, SCI declared a distribution of $0.2675 per Common Share
payable on February 18, 1997 to shareholders of record as of February 4, 1997.
At the same time, SCI announced that it set an annualized distribution level of
$1.07 per Common Share for 1997.
Pursuant to the terms of the preferred shares, SCI is restricted from declaring
or paying any distribution with respect to the Common Shares unless all
cumulative distributions with respect to the preferred shares have been paid
and sufficient funds have been set aside for distributions that have been
declared for the then-current distribution period with respect to the preferred
shares.
F-87
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For Federal income tax purposes, the following summary reflects the taxability
of dividends paid on the Series A Preferred Shares, Series B Preferred Shares,
and Series C Preferred Shares for the period prior to 1996 and the estimated
taxability for 1996.
------------------
<TABLE>
<CAPTION>
DATE OF
ISSUANCE
TO
DECEMBER
1996 31, 1995
--------- ---------
<S> <C> <C>
Per Series A Preferred Share:
Ordinary Income $2.35 $1.24
Capital Gains - -
--------- ---------
Total $2.35 $1.24
========= =========
<CAPTION>
DATE OF
ISSUANCE
TO
DECEMBER
31, 1996
---------
<S> <C> <C>
Per Series B Preferred Share:
Ordinary Income $1.50
Capital Gains -
---------
Total $1.50
=========
Per Series C Preferred Share:
Ordinary Income $0.57
Capital Gains -
---------
Total $0.57
=========
</TABLE>
SCI's tax return for the year ended December 31, 1996 has not been filed, and
the taxability information for 1996 is based upon the best available data.
SCI's tax returns have not been examined by the Internal Revenue Service and,
therefore, the taxability of the distributions is subject to change.
8. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
Selected quarterly financial data (in thousands except for per share amounts)
for 1996 and 1995 is as follows:
------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED, YEAR ENDED
3-31 6-30 9-30 12-31 12-31
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1996:
Rental income $50,062 $54,361 $59,391 $63,186 $227,000
========= ========= ========= ========= =========
Earnings from opera-
tions $17,262 $19,456 $20,427 $25,565 $ 82,710
Minority interest
share in net
earnings 756 884 859 827 3,326
Loss on disposition of
real estate (29) - - - (29)
--------- --------- --------- --------- ---------
Net earnings 16,477 18,572 19,568 24,738 79,355
Less preferred share
dividends 4,673 6,695 6,694 7,833 25,895
--------- --------- --------- --------- ---------
Net earnings attribut-
able to Common Shares $11,804 $11,877 $12,874 $16,905 $ 53,460
========= ========= ========= ========= =========
Net earnings per Com-
mon Share $ 0.14 $ 0.15 $ 0.16 $ 0.18 $ 0.63
========= ========= ========= ========= =========
</TABLE>
F-88
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED, YEAR ENDED
3-31 6-30 9-30 12-31 12-31
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1995:
Rental income $32,901 $35,340 $40,372 $45,266 $153,879
========= ========= ========= ========= =========
Earnings from
operations $10,528 $10,372 $13,121 $16,970 $ 50,991
Minority interest
share in net earnings 865 874 807 785 3,331
Gain on disposition of
real estate - - - 1,053 1,053
--------- --------- --------- --------- ---------
Net earnings 9,663 9,498 12,314 17,238 48,713
Less preferred share
dividends - 353 3,172 3,173 6,698
--------- --------- --------- --------- ---------
Net earnings
attributable to
Common Shares $ 9,663 $ 9,145 $ 9,142 $14,065 $ 42,015
========= ========= ========= ========= =========
Net earnings per
Common Share $ 0.15 $ 0.14 $ 0.14 $ 0.17 $ 0.61
========= ========= ========= ========= =========
</TABLE>
9. REIT MANAGEMENT AGREEMENT:
Security Capital Industrial Incorporated (the "REIT Manager"), a subsidiary of
Security Capital (Note 6), is the REIT manager of SCI. All officers of SCI are
employees of the REIT Manager and SCI currently has no employees. Pursuant to
the REIT management agreement, in exchange for providing research, strategic
planning, investment analysis, acquisition and development services, asset
management, capital markets, legal and accounting services and day-to-day
management of SCI's operations, the REIT Manager is entitled to receive from
SCI a REIT management fee, payable quarterly, equal to 16% of cash flow, as
defined in the agreement, before deducting (i) fees paid to the REIT Manager,
(ii) extraordinary expenses incurred at the request of the independent Trustees
of SCI, and (iii) 33% of any interest paid by SCI on convertible subordinated
debentures (of which there has been none since inception of the REIT management
agreement); and, after deducting (iv) actual or assumed regularly scheduled
principal and interest payments on long-term debt and (v) distributions
actually paid with respect to any non-convertible preferred shares of
beneficial interest of SCI. The REIT management agreement has been amended so
that the long-term senior notes described in Note 4 will be treated as if they
had regularly scheduled principal and interest payments similar to a 20-year
level monthly payment, fully amortizing mortgage and the assumed principal and
interest payments will be deducted from cash flow in determining the fee for
future periods. Cash flow does not include interest and income from SCI
Development Services, realized gains from dispositions of investments or income
from cash equivalent investments. The REIT Manager also receives a fee of .2%
of the average daily balance of funds invested in interest bearing cash
accounts, the earnings on which are not subject to the 16% fee. For the years
ended December 31, 1996, 1995 and 1994, the REIT Manager earned REIT management
fees totalling $21,472,000, $14,207,000 and $8,673,000, respectively.
10. PROPERTY MANAGEMENT COMPANY:
Commencing January 1994, SCI Client Services Incorporated ("Client Services"),
a subsidiary of Security Capital, began providing property management services
for certain of SCI's properties. The agreement is subject to termination by SCI
or Client Services on 30 days' notice, is renewable annually upon approval of
SCI's independent Trustees, and provides for a monthly fee to Client Services
of no more than 3% per annum of property revenues, paid monthly, plus leasing
commissions consistent with industry practice, which together were $10.1
million, $4.7 million and $1.7 million for 1996, 1995 and 1994, respectively.
As of December 31, 1996, Client Services managed 90.0% of SCI's 80.6 million
total operating square feet. The REIT Manager anticipates that Client Services
will manage additional SCI properties in the future. Any management contracts
executed with Client Services are expected to be at terms management believes
are no less favorable to SCI than could be obtained with unaffiliated third
parties.
F-89
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. RELATED PARTY TRANSACTIONS:
SCI leases space to related parties on market terms that management believes
are no less favorable to SCI than those that could be obtained with
unaffiliated third parties. These transactions are summarized as follows:
--------------------------------------
<TABLE>
<CAPTION>
SECURITY REIT CLIENT
CAPITAL MANAGER SERVICES
(NOTE 6) (NOTE 9) (NOTE 10) TOTAL
-------- -------- --------- ----------
<S> <C> <C> <C> <C>
Rental revenue during the year ended
December 31, 1994 $203,220 $ 44,926 $112,542 $ 360,688
Rental revenue during the year ended
December 31, 1995 $415,264 $210,856 $194,335 $ 820,455
Rental revenue during the year ended
December 31, 1996 $593,657 $210,856 $571,970 $1,376,483
Square feet leased as of December 31,
1996 102,268 25,007 84,520 211,795
Annualized revenue for leases in effect
at December 31, 1996 $744,718 $210,856 $766,190 $1,721,764
</TABLE>
12. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Fair Value of Financial Instruments
The following disclosure of the estimated fair value of financial instruments
is presented in accordance with the requirements of SFAS No. 107. The estimated
fair value amounts have been determined by SCI using available market
information and valuation methodologies.
As of December 31, 1996 and 1995, the carrying amounts of certain financial
instruments employed by SCI, including cash and cash equivalents, accounts and
notes receivable, accounts payable and accrued expenses were representative of
their fair values because of the short-term maturity of these instruments. As
of December 31, 1995, based on the borrowings available to SCI, the carrying
value of the long-term debt and mortgages was a reasonable estimation of their
fair values. As of December 31, 1996, the fair value of the long-term debt and
mortgages has been estimated based on quoted market prices for the same or
similar issues or by discounting the future cash flows using rates currently
available for debt with similar terms and maturities. The increase in the fair
value of long-term debt and mortgages over the carrying value in the table
below is a result of a net reduction in the interest rates available to SCI at
December 31, 1996 from the interest rates in effect at the dates of issuance.
The long-term debt and many of the mortgages contain prepayment penalties or
yield maintenance provisions which would make the cost of refinancing exceed
the benefit of refinancing at the lower rates. As of December 31, 1996, the
fair value of all derivative financial instruments are amounts at which they
could be settled, based on quoted market prices or estimates obtained from
brokers (there were no derivative financial instruments outstanding as of
December 31, 1995). The following table reflects the carrying amount and
estimated fair value of SCI's financial instruments (in thousands):
------------------
<TABLE>
<CAPTION>
DECEMBER 31, 1996
CARRYING FAIR
AMOUNT VALUE
-------- --------
<S> <C> <C>
Balance sheet financial instruments
Long-term debt $524,191 $549,613
Mortgages $139,952 $142,643
Derivative financial instruments
Interest rate contracts $ - $ 1,218
</TABLE>
Derivative Financial Instruments
SCI has only limited involvement with derivative financial instruments and does
not use them for trading purposes. SCI uses derivatives to manage well-defined
interest rate risk.
F-90
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The primary risks associated with derivative instruments are market risk (price
risk) and credit risk. Price risk is defined as the potential for loss in the
value of the derivative due to adverse changes in market prices (interest
rates). SCI utilizes derivative instruments in anticipation of future
transactions to manage well defined interest rate risk. Through hedging, SCI
can effectively manage the risk of increases in interest rates on future debt
issuances.
Credit risk is the risk that one of the parties to a derivative contract fails
to perform or meet their financial obligation under the contract. SCI does not
obtain collateral to support financial instruments subject to credit risk but
monitors the credit standing of counterparties. As of December 31, 1996, the
counterparties to all outstanding contracts were financial institutions with AA
or A+ credit ratings. SCI does not anticipate non-performance by any of the
counterparties to its derivative contracts. Should a counterparty fail to
perform, however, SCI would incur a financial loss to the extent of the
positive fair market value of the derivative instruments.
The following table summarizes the activity in interest rate contracts for the
year ended December 31, 1996 (in millions):
------------------
<TABLE>
<CAPTION>
INTEREST
RATE FUTURES INTEREST
CONTRACTS RATE SWAPS
------------ ---------
<S> <C> <C>
Notional amount at December 31, 1995 $ - $ -
New contracts 156.0 173.0
Matured or expired contracts (50.0) -
Terminated contracts - (140.0)
--------- ---------
Notional amount at December 31, 1996 $106.0(1) $ 33.0(2)
========= =========
</TABLE>
- --------
(1) Included in the $106.0 million notional amount at December 31, 1996 are two
contracts totalling $80.0 million which settled on January 31, 1997 (see Note
14), and a $26.0 million contract with a termination date of July 15, 1997. The
$26.0 million contract locks in the 30 year Treasury at a rate of 6.56%.
(2) The remaining swap contract as of December 31, 1996, which matures in 2007,
provides for SCI to pay a fixed rate of 6.61% and receive a floating rate equal
to the three month LIBOR rate.
Deferred losses totalling $1.9 million on matured, expired or terminated
interest rate contracts were recorded on the balance sheet as of December 31,
1996. These losses related to the unwind of hedges placed for the May 1996 debt
offering (see Note 4) and are being amortized into interest expense over a
weighted-average amortization period of 10.8 years.
13. COMMITMENTS AND CONTINGENCIES:
Environmental Matters
All of the properties acquired by SCI have been subjected to Phase I
environmental reviews. While some of these assessments have led to further
investigation and sampling, none of the environmental assessments has revealed,
nor is SCI aware of any environmental liability (including asbestos-related
liability) that SCI believes would have a material adverse effect on SCI's
business, financial condition or results of operations.
14. SUBSEQUENT EVENTS:
On January 22, 1997, SCI announced that it received a proposal from Security
Capital to exchange the REIT Manager and Client Services, the REIT manager's
property management affiliate, for Common Shares. As a result of the proposed
transaction, SCI would become an internally managed REIT, and Security Capital
would remain SCI's largest shareholder. SCI's Board has formed a special
committee comprised of independent Trustees to review the proposed transaction.
The proposed transaction is subject to approval by the special committee, the
full Board and SCI's shareholders.
On February 7, 1997, SCI completed a public offering of 4,025,000 Common
Shares. Net proceeds to SCI after underwriting discounts and offering costs
were $80.4 million.
F-91
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On February 4, 1997, SCI issued $100.0 million of Series A 2015 Notes under its
Medium-Term Note program established in November 1996. The Series A 2015 Notes
bear interest at 7.81%, payable semi-annually on February 1 and August 1,
commencing August 1, 1997. Installments of principal will be paid annually on
each February 1, commencing February 1, 2010, in the following amounts: $20
million in 2010, $15 million in 2011, $15 million in 2012, $20 million in 2013,
$20 million in 2014 and $10 million in 2015. The Series A 2015 Notes have a
weighted-average life to maturity of 15.35 years and a final maturity extending
to 2015. The average effective interest cost is 7.73%, including all costs
associated with the offering plus $1.7 million in proceeds received on January
31, 1997 in connection with two interest rate protection agreements entered
into in August and November 1996 in anticipation of the debt offering. Both the
August 1996 and the November 1996 interest rate protection agreements were in
the form of a forward treasury lock agreement with an AA rated financial
institution. The August agreement included a notional principal amount of $30.0
million and a reference price of 99.653 on the thirty year Treasury Note. The
November agreement included a notional principal amount of $50.0 million and a
reference price of 101 29/32 on the ten year Treasury Note. The settlement date
on both contracts was January 31, 1997.
On October 11, 1996, and as amended on October 31, 1996, SCI filed a shelf
registration statement with the Securities and Exchange Commission regarding
the offering from time to time of $600 million in one or more series of its
debt securities, preferred shares of beneficial interest and Common Shares of
beneficial interest, and had approximately $78 million remaining under its
previous shelf registration statement. After the Series C Preferred Share
offering in November 1996 (see Note 6) and the offerings described above, as of
February 10, 1997, approximately $393 million in securities were available to
be issued under the shelf registration statement.
F-92
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Trustees and Shareholders of
Security Capital Industrial Trust:
We have audited, in accordance with generally accepted auditing standards, the
financial statements of Security Capital Industrial Trust, and have issued our
report thereon dated February 10, 1997. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The supplemental
Schedule III--Real Estate and Accumulated Depreciation ("Schedule III") is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. The
Schedule III has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Chicago, Illinois
February 10, 1997
F-93
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(IN THOUSANDS)
---------------------------------------------------------
<TABLE>
<CAPTION>
GROSS AMOUNTS AT
WHICH CARRIED
INITIAL COSTS COSTS AT CLOSE OF PERIOD
------------------- CAPITALIZED --------------------------- ACCUMULATED DATE OF
NO. OF ENCUM- BUILDING & SUBSEQUENT BUILDING & TOTAL DEPRECIATION CONSTRUCTION/
DESCRIPTION BLDGS. BRANCES LAND IMPROVEMENTS TO ACQUISITION LAND IMPROVEMENTS (A,B) (C) ACQUISITION
----------- ------ ------- ------ ------------ -------------- ------ ------------ ------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING
PROPERTIES
Atlanta, Georgia
Atlanta Airport
Distribution
Center 3 $1,758 $ - $ 4,610 $1,763 $ 4,605 $ 6,368 $ (70) 1996
Atlanta NE
Distribution
Center 4 3,248 - 11,942 3,248 11,942 15,190 (156) 1996
Atlanta West
Distribution
Center 21 6,995 36,055 7,007 6,995 43,062 50,057 (2,496) 1994, 1996
Carter-Pacific
Business Center 3 556 3,151 59 556 3,210 3,766 (115) 1995
Chattahoochee
Business Center 4 362 2,049 601 438 2,574 3,012 - 1996
Fulton Park
Distribution
Center 4 447 2,533 (79) 426 2,475 2,901 - 1996
International
Airport
Industrial
Center 9 2,939 14,146 4,436 2,969 18,552 21,521 (1,251) 1994, 1995
LaGrange
Distribution
Center 1 174 986 103 174 1,089 1,263 (91) 1994
Northeast
Industrial
Center 4 1,109 6,283 (158) 1,050 6,184 7,234 (168) 1996
Northmont
Industrial
Center 1 566 3,209 135 566 3,344 3,910 (244) 1994
Oakcliff
Industrial
Center 3 608 3,446 142 608 3,588 4,196 (206) 1995
Olympic
Industrial
Center 2 698 3,956 950 757 4,847 5,604 (120) 1996
Peachtree
Commerce
Business Center 4 707 4,004 490 707 4,494 5,201 (379) 1994
Peachtree
Distribution
Center 1 302 1,709 27 302 1,736 2,038 (115) 1994
Plaza Industrial
Center 1 66 372 11 66 383 449 (19) 1995
Pleasantdale
Industrial
Center 2 541 3,184 102 541 3,286 3,827 (214) 1995
Regency
Industrial
Center 9 1,853 10,480 555 1,856 11,032 12,888 (804) 1994
Sullivan 75
Distribution
Center 3 (d) 728 4,123 217 728 4,340 5,068 (291) 1994, 1995
Tradeport
Distribution
Center 3 1,464 4,563 5,215 1,479 9,763 11,242 (479) 1994, 1996
Weaver
Distribution
Center 2 935 5,182 369 935 5,551 6,486 (350) 1995
Westfork
Industrial
Center 10 2,483 14,115 415 2,483 14,530 17,013 (720) 1995
Zip Industrial
Center 4 533 3,023 (275) 485 2,796 3,281 - 1996
Austin, Texas
Braker Service
Center 3 1,765 10,002 789 1,765 10,791 12,556 (1,012) 1994
Corridor Park
Corporate Center 6 2,109 1,681 12,135 2,131 13,794 15,925 (369) 1995, 1996
Montopolis
Distribution
Center 1 580 3,384 430 580 3,814 4,394 (349) 1994
Pecan Business
Center 4 630 3,572 217 631 3,788 4,419 (177) 1995
Rutland
Distribution
Center 2 460 2,617 197 462 2,812 3,274 (275) 1993
Southpark
Corporate Center 7 1,946 - 13,894 1,946 13,894 15,840 (694) 1994, 1995, 1996
Walnut Creek
Corporate Center 12 2,707 5,649 15,668 2,707 21,317 24,024 (671) 1994, 1995, 1996
</TABLE>
F-94
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
----------------------------------------------------------
<TABLE>
<CAPTION>
GROSS AMOUNTS AT
WHICH CARRIED
INITIAL COSTS COSTS AT CLOSE OF PERIOD
-------------------- CAPITALIZED ------------------------------ ACCUMULATED DATE OF
NO. OF ENCUM- BUILDING & SUBSEQUENT BUILDING & TOTAL DEPRECIATION CONSTRUCTION/
DESCRIPTION BLDGS. BRANCES LAND IMPROVEMENTS TO ACQUISITION LAND IMPROVEMENTS (A,B) (C) ACQUISITION
----------- ------ ------- ------- ------------ -------------- ------- ------------ --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Birmingham,
Alabama
Oxmoor
Distribution
Center 4 (d) 2,398 13,591 123 2,398 13,714 16,112 (1,215) 1994
Perimeter
Distribution
Center 2 2,489 14,109 428 2,490 14,536 17,026 (1,285) 1994
Charlotte, North
Carolina
Barringer
Industrial
Center 3 308 1,746 380 308 2,126 2,434 (176) 1994
Bond
Distribution
Center 2 905 5,126 859 905 5,985 6,890 (527) 1994
Charlotte
Commerce Center 10 (d) 4,341 24,954 765 4,342 25,718 30,060 (2,221) 1994
Charlotte
Distribution
Center 5 3,131 - 11,549 3,131 11,549 14,680 (344) 1995, 1996
Northpark
Distribution
Center 1 307 1,742 38 307 1,780 2,087 (145) 1994
Chattanooga,
Tennessee
Stone Fort
Distribution
Center 4 2,063 11,688 150 2,063 11,838 13,901 (889) 1994
Tiftonia
Distribution
Center 1 146 829 182 146 1,011 1,157 (51) 1995
Chicago, Illinois
Bedford Park
Distribution
Center 1 473 2,678 17 473 2,695 3,168 (15) 1996
Bridgeview
Distribution
Center 4 1,302 7,378 384 1,302 7,762 9,064 (102) 1996
Des Plaines
Distribution
Center 3 2,158 12,232 278 2,159 12,509 14,668 (311) 1995, 1996
Elk Grove
Distribution
Center 8 3,674 20,820 1,793 3,674 22,613 26,287 (555) 1995, 1996
Glendale Heights
Distribution
Center 1 1,126 6,382 40 1,126 6,422 7,548 - 1996
Glenview
Distribution
Center 1 214 1,213 7 214 1,220 1,434 (7) 1996
Itasca
Distribution
Center 1 319 1,808 23 319 1,831 2,150 (41) 1996
Mitchell
Distribution
Center 1 1,236 7,004 287 1,236 7,291 8,527 (137) 1996
Northlake
Distribution
Center 1 372 2,106 41 372 2,147 2,519 (47) 1996
Tri-Center
Distribution
Center 3 889 5,038 82 889 5,120 6,009 (42) 1996
Cincinnati, Ohio
Airpark
Distribution
Center 2 1,692 - 10,020 1,718 9,994 11,712 (169) 1996
Blue
Ash/Interstate
Distribution
Center 1 144 817 469 144 1,286 1,430 (44) 1995
Capital
Distribution
Center I 4 1,750 9,922 574 1,751 10,495 12,246 (680) 1994
Capital
Distribution
Center II 5 1,953 11,067 876 1,953 11,943 13,896 (853) 1994
</TABLE>
F-95
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
-------------------------------------------------------
<TABLE>
<CAPTION>
GROSS AMOUNTS AT
WHICH CARRIED
INITIAL COSTS COSTS AT CLOSE OF PERIOD
------------------ CAPITALIZED ------------------------- ACCUMULATED DATE OF
NO. OF ENCUM- BUILDING & SUBSEQUENT BUILDING & TOTAL DEPRECIATION CONSTRUCTION/
DESCRIPTION BLDGS. BRANCES LAND IMPROVEMENTS TO ACQUISITION LAND IMPROVEMENTS (A,B) (C) ACQUISITION
----------- ------ ------- ----- ------------ -------------- ----- ------------ ------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital
Industrial
Center I 10 1,039 5,885 841 1,039 6,726 7,765 (375) 1994, 1995
Empire
Distribution
Center 3 529 2,995 223 529 3,218 3,747 (138) 1995
Production
Distribution
Center 1 (f) 598 2,717 (18) 479 2,818 3,297 (201) 1994
Springdale
Commerce Center 3 421 2,384 431 421 2,815 3,236 (74) 1996
Columbus, Ohio
Capital Park
South
Distribution
Center 3 1,981 - 18,781 1,981 18,781 20,762 (320) 1996
Columbus West
Industrial
Center 3 645 3,655 578 645 4,233 4,878 (199) 1995
Corporate Park
West 2 679 3,849 45 679 3,894 4,573 (54) 1996
Fischer
Distribution
Center 1 1,197 6,785 561 1,197 7,346 8,543 (475) 1995
McCormick
Distribution
Center 5 1,664 9,429 697 1,664 10,126 11,790 (666) 1994
New World
Distribution
Center 1 207 1,173 411 207 1,584 1,791 (120) 1994
Dallas/Fort
Worth, Texas
Carter
Industrial
Center 1 334 - 2,301 334 2,301 2,635 (8) 1996
Dallas Corporate
Center 4 3,325 - 15,517 3,325 15,517 18,842 (208) 1996
Franklin
Distribution
Center 2 528 2,991 392 528 3,383 3,911 (317) 1994
Freeport
Distribution
Center 1 613 3,473 34 613 3,507 4,120 (19) 1996
Great Southwest
Distribution
Center 8 2,260 10,697 3,420 2,269 14,108 16,377 (590) 1994, 1995, 1996
Great Southwest
Industrial
Center 2 308 1,744 96 308 1,840 2,148 (68) 1995
Lone Star
Distribution
Center 2 967 5,477 57 967 5,534 6,501 (107) 1996
Metropolitan
Distribution
Center 1 201 1,097 716 297 1,717 2,014 (76) 1995
Northgate
Distribution
Center 5 1,570 8,897 339 1,570 9,236 10,806 (700) 1994, 1996
Northpark
Business Center 2 467 2,648 158 467 2,806 3,273 (79) 1995, 1996
Northway
Business Plaza 7 565 3,202 184 565 3,386 3,951 - 1995
Redbird
Distribution
Center 2 738 4,186 86 739 4,271 5,010 (112) 1994, 1996
Skyline Business
Center 4 409 2,320 21 409 2,341 2,750 - 1995
Stemmons
Distribution
Center 1 272 1,544 341 272 1,885 2,157 (103) 1995
Stemmons
Industrial
Center 11 1,497 8,484 993 1,497 9,477 10,974 (532) 1994, 1995, 1996
Trinity Mills
Distribution
Center 4 1,709 9,684 584 1,709 10,268 11,977 (191) 1996
Valwood Business
Center 2 520 2,945 (35) 520 2,910 3,430 - 1995
</TABLE>
F-96
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
-------------------------------------------------------
<TABLE>
<CAPTION>
GROSS AMOUNTS AT
WHICH CARRIED
INITIAL COSTS COSTS AT CLOSE OF PERIOD
------------------ CAPITALIZED ------------------------- ACCUMULATED DATE OF
NO. OF ENCUM- BUILDING & SUBSEQUENT BUILDING & TOTAL DEPRECIATION CONSTRUCTION/
DESCRIPTION BLDGS. BRANCES LAND IMPROVEMENTS TO ACQUISITION LAND IMPROVEMENTS (A,B) (C) ACQUISITION
----------- ------ ------- ----- ------------ -------------- ----- ------------ ------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Denver, Colorado
Denver Business
Center 5 1,156 7,486 5,892 1,156 13,378 14,534 (1,141) 1992, 1994, 1996
Havana
Distribution
Center 1 401 2,281 67 401 2,348 2,749 (270) 1993
Moline
Distribution
Center 1 327 1,850 95 327 1,945 2,272 (181) 1994
Moncrieff
Distribution
Center 1 314 2,493 147 314 2,640 2,954 (356) 1992
Pagosa
Distribution
Center 1 406 2,322 100 406 2,422 2,828 (295) 1993
Stapleton
Distribution
Center 1 219 1,247 49 219 1,296 1,515 (148) 1993
Upland
Distribution
Center I 6 820 5,710 8,007 821 13,716 14,537 (1,243) 1992, 1994, 1995
Upland
Distribution
Center II 6 2,456 13,946 486 2,489 14,399 16,888 (1,569) 1993, 1994
East Bay (San
Francisco),
California
East Bay
Industrial
Center 1 531 3,009 137 531 3,146 3,677 (246) 1994
Eigenbrodt Way
Distribution
Center 1 (d) 393 2,228 39 393 2,267 2,660 (226) 1993
Hayward Commerce
Center 4 1,933 10,955 276 1,933 11,231 13,164 (1,104) 1993
Hayward Commerce
Park 9 2,764 15,661 1,037 2,764 16,698 19,462 (1,603) 1994
Hayward
Distribution
Center 7 (e) 3,417 19,255 262 3,417 19,517 22,934 (1,947) 1993
Hayward
Industrial
Center 13 (d) 4,481 25,393 1,727 4,481 27,120 31,601 (2,603) 1993
Patterson Pass
Business Center 2 862 4,885 34 862 4,919 5,781 (492) 1993
San Leandro
Distribution
Center 3 1,387 7,862 188 1,387 8,050 9,437 (817) 1993
El Paso, Texas
Billy the Kid
Distribution
Center 1 273 1,547 453 273 2,000 2,273 (145) 1994
Broadbent
Industrial
Center 3 676 5,183 248 676 5,431 6,107 (668) 1993
Goodyear
Distribution
Center 1 511 2,899 32 511 2,931 3,442 (251) 1994
Northwestern
Corporate Center 4 1,272 3,155 6,632 1,278 9,781 11,059 (819) 1992, 1993, 1994
Pan Am
Distribution
Center 1 318 - 2,330 318 2,330 2,648 (107) 1995
Peter Cooper
Distribution
Center 1 (d) 495 2,816 42 495 2,858 3,353 (244) 1994
Vista Corporate
Center 4 1,945 - 10,211 1,946 10,210 12,156 (420) 1994, 1995, 1996
Vista Del Sol
Industrial
Center 7 (d) 2,255 12,782 9,310 3,516 20,831 24,347 (1,468) 1994, 1995
</TABLE>
F-97
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
------------------------------------------------------------
<TABLE>
<CAPTION>
GROSS AMOUNTS AT
WHICH CARRIED
INITIAL COSTS COSTS AT CLOSE OF PERIOD
-------------------- CAPITALIZED ------------------------------ ACCUMULATED
NO. OF ENCUM- BUILDING & SUBSEQUENT BUILDING & TOTAL DEPRECIATION
DESCRIPTION BLDGS. BRANCES LAND IMPROVEMENTS TO ACQUISITION LAND IMPROVEMENTS (A,B) (C)
----------- ------ ------- ------- ------------ -------------- ------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fort
Lauderdale/Miami,
Florida
Airport West
Distribution
Center 1 675 3,825 644 1,276 3,868 5,144 (129)
North Andrews
Distribution
Center 1 (f) 698 3,956 91 698 4,047 4,745 (292)
Port 95
Distribution
Center 1 1,174 6,654 26 1,174 6,680 7,854 (370)
Houston, Texas
Crosstimbers
Distribution
Center 1 359 2,035 427 359 2,462 2,821 (213)
Hempstead
Distribution
Center 3 1,013 5,740 545 1,013 6,285 7,298 (551)
I-10 Central
Distribution
Center 2 181 1,023 100 181 1,123 1,304 (104)
I-10 Central
Service Center 1 58 330 29 58 359 417 (33)
Pine Forest
Business Center 18 4,859 27,557 1,451 4,859 29,008 33,867 (1,684)
Post Oak
Business Center 16 3,462 17,966 2,468 3,462 20,434 23,896 (1,718)
Post Oak
Distribution
Center 7 2,115 12,017 1,224 2,115 13,241 15,356 (1,433)
South Loop
Distribution
Center 5 1,051 5,964 689 1,052 6,652 7,704 (527)
Southwest
Freeway
Industrial
Center 1 84 476 27 84 503 587 (44)
West by
Northwest
Industrial
Center 13 3,076 8,382 17,984 3,088 26,354 29,442 (1,308)
White Street
Distribution
Center 1 469 2,656 164 469 2,820 3,289 (168)
Indianapolis,
Indiana
Eastside
Distribution
Center 2 471 2,668 246 472 2,913 3,385 (106)
North by
Northeast
Distribution
Center 1 1,058 - 6,009 1,059 6,008 7,067 (107)
Park 100
Industrial
Center 29 10,918 61,874 2,854 10,985 64,661 75,646 (2,757)
Park Fletcher
Distribution
Center 12 3,251 18,418 1,612 3,309 19,972 23,281 (711)
Shadeland
Industrial
Center 3 428 2,431 440 429 2,870 3,299 (130)
Kansas City,
Kansas/Missouri
44th Street
Business Center 1 143 813 284 143 1,097 1,240 (27)
<CAPTION>
DATE OF CONSTRUCTION/
DESCRIPTION ACQUISITION
----------- ----------------------
<S> <C>
Fort
Lauderdale/Miami,
Florida
Airport West
Distribution
Center 1995
North Andrews
Distribution
Center 1994
Port 95
Distribution
Center 1995
Houston, Texas
Crosstimbers
Distribution
Center 1994
Hempstead
Distribution
Center 1994
I-10 Central
Distribution
Center 1994
I-10 Central
Service Center 1994
Pine Forest
Business Center 1993, 1994, 1995
Post Oak
Business Center 1993, 1994, 1996
Post Oak
Distribution
Center 1993, 1994
South Loop
Distribution
Center 1994
Southwest
Freeway
Industrial
Center 1994
West by
Northwest
Industrial
Center 1993, 1994, 1995, 1996
White Street
Distribution
Center 1995
Indianapolis,
Indiana
Eastside
Distribution
Center 1995
North by
Northeast
Distribution
Center 1995
Park 100
Industrial
Center 1994, 1995
Park Fletcher
Distribution
Center 1994, 1995, 1996
Shadeland
Industrial
Center 1995
Kansas City,
Kansas/Missouri
44th Street
Business Center 1996
</TABLE>
F-98
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
-------------------------------------------------------
<TABLE>
<CAPTION>
GROSS AMOUNTS AT
WHICH CARRIED
INITIAL COSTS COSTS AT CLOSE OF PERIOD
------------------ CAPITALIZED ------------------------- ACCUMULATED DATE OF
NO. OF ENCUM- BUILDING & SUBSEQUENT BUILDING & TOTAL DEPRECIATION CONSTRUCTION/
DESCRIPTION BLDGS. BRANCES LAND IMPROVEMENTS TO ACQUISITION LAND IMPROVEMENTS (A,B) (C) ACQUISITION
----------- ------ ------- ----- ------------ -------------- ----- ------------ ------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Congleton
Distribution
Center 3 518 2,937 203 518 3,140 3,658 (254) 1994
Lamar
Distribution
Center 1 323 1,829 274 323 2,103 2,426 (166) 1994
Macon Bedford
Distribution
Center 1 304 1,725 140 304 1,865 2,169 (34) 1996
Platte Valey
Industrial
Center 9 (d) 3,533 20,017 550 3,533 20,567 24,100 (1,479) 1994
Riverside
Distribution
Center 5 (d) 533 3,024 226 534 3,249 3,783 (230) 1994
Riverside
Industrial
Center 5 (d) 1,012 5,736 212 1,012 5,948 6,960 (419) 1994
Terrace &
Lackman
Distribution
Center 1 285 1,615 397 285 2,012 2,297 (139) 1994
Las Vegas, Nevada
Hughes Airport
Center 1 876 - 3,511 910 3,477 4,387 (241) 1994
Las Vegas
Corporate Center 5 (e) 3,255 - 14,229 3,256 14,228 17,484 (537) 1994, 1995, 1996
West One
Business Center 4 (d) 2,468 13,985 78 2,468 14,063 16,531 (156) 1996
Louisville, Ken-
tucky
Louisville
Distribution
Center 2 1,219 3,402 6,200 1,220 9,601 10,821 (173) 1995, 1996
Memphis, Tennes-
see
Airport
Distribution
Center 15 4,543 25,748 1,894 4,544 27,641 32,185 (1,230) 1995, 1996
Delp
Distribution
Center 6 1,910 10,826 814 1,910 11,640 13,550 (678) 1995
Fred Jones
Distribution
Center 1 125 707 66 125 773 898 (49) 1994
Southwide
Industrial
Center 4 (d) 423 3,365 271 425 3,634 4,059 (236) 1994
Nashville, Ten-
nessee
Bakertown
Distribution
Center 2 463 2,626 53 463 2,679 3,142 (103) 1995
I-40 Industrial
Center 3 665 3,774 150 666 3,923 4,589 (200) 1995, 1996
Interchange City
Distribution
Center 3 1,953 5,767 3,638 2,095 9,263 11,358 (423) 1994, 1995, 1996
Space Park South
Distribution
Center 15 3,499 19,830 929 3,499 20,759 24,258 (1,514) 1994
New Jersey/I-95
Corridor
Clearview
Distribution
Center 1 2,232 12,648 - 2,232 12,648 14,880 - 1996
Kilmer
Distribution
Center 4 2,526 14,313 - 2,526 14,313 16,839 - 1996
Meadowland
Industrial
Center 1 2,409 13,653 246 2,409 13,899 16,308 (191) 1996
</TABLE>
F-99
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
-----------------------------------------------------------
<TABLE>
<CAPTION>
GROSS AMOUNTS AT
WHICH CARRIED
INITIAL COSTS COSTS AT CLOSE OF PERIOD
-------------------- CAPITALIZED -------------------------------
NO. OF ENCUM- BUILDING & SUBSEQUENT BUILDING & ACCUMULATED
DESCRIPTION BLDGS. BRANCES LAND IMPROVEMENTS TO ACQUISITION LAND IMPROVEMENTS TOTAL(A,B) DEPRECIATION(C)
----------- ------ ------- ------- ------------ -------------- ------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Oklahoma City,
Oklahoma
Greenfield
Service Center 2 257 1,172 362 258 1,533 1,791 (134)
Melcat
Distribution
Center 1 240 1,363 268 240 1,631 1,871 (133)
Meridian
Business Center 2 195 1,109 402 196 1,510 1,706 (99)
Oklahoma
Distribution
Center 3 893 5,082 266 893 5,348 6,241 (607)
Will Rogers
Service Center 2 334 1,891 252 334 2,143 2,477 (170)
Orange County,
California
Mid-Counties
Distribution
Center 5 2,804 15,895 1,431 2,805 17,325 20,130 (719)
North County
Distribution
Center 2 16,543 - 22,571 16,543 22,571 39,114 (119)
Pacific Business
Center 2 1,179 - 4,820 1,179 4,820 5,999 (66)
Santa Ana
Distribution
Center 1 647 3,668 26 647 3,694 4,341 (246)
Orlando, Florida
33rd Street
Industrial
Center 9 (d)(f) 1,980 11,237 523 1,980 11,760 13,740 (531)
Chancellor
Distribution
Center 1 380 2,156 692 380 2,848 3,228 (182)
La Quinta
Distribution
Center 1 354 2,006 592 354 2,598 2,952 (182)
Titusville
Industrial
Center 1 (d) 283 1,603 62 283 1,665 1,948 (118)
Phoenix, Arizona
24th Street
Industrial
Center 2 503 2,852 188 503 3,040 3,543 (299)
Alameda
Distribution
Center 1 369 2,423 166 369 2,589 2,958 (397)
Hohokam 10
Industrial
Center 5 2,940 - 10,992 2,940 10,992 13,932 (108)
I-10 West
Business Center 3 263 1,525 102 263 1,627 1,890 (186)
Kyrene Commons
Distribution
Center 1 430 2,656 77 430 2,733 3,163 (435)
Martin Van Buren
Distribution
Center 6 572 3,285 188 572 3,473 4,045 (318)
Papago
Distribution
Center 1 420 2,383 73 420 2,456 2,876 (225)
Pima
Distribution
Center 1 306 1,742 195 306 1,937 2,243 (195)
Tiger
Distribution
Center 1 402 2,279 592 402 2,871 3,273 (265)
Watkins
Distribution
Center 1 242 1,375 192 243 1,566 1,809 (101)
Portland, Oregon
Argyle
Distribution
Center 3 946 5,388 211 946 5,599 6,545 (589)
<CAPTION>
DATE OF
CONSTRUCTION/
DESCRIPTION ACQUISITION
----------- ----------------
<S> <C>
Oklahoma City,
Oklahoma
Greenfield
Service Center 1994
Melcat
Distribution
Center 1994
Meridian
Business Center 1994
Oklahoma
Distribution
Center 1993
Will Rogers
Service Center 1994
Orange County,
California
Mid-Counties
Distribution
Center 1995
North County
Distribution
Center 1996
Pacific Business
Center 1996
Santa Ana
Distribution
Center 1994
Orlando, Florida
33rd Street
Industrial
Center 1994, 1995, 1996
Chancellor
Distribution
Center 1994
La Quinta
Distribution
Center 1994
Titusville
Industrial
Center 1994
Phoenix, Arizona
24th Street
Industrial
Center 1994
Alameda
Distribution
Center 1992
Hohokam 10
Industrial
Center 1996
I-10 West
Business Center 1993
Kyrene Commons
Distribution
Center 1992
Martin Van Buren
Distribution
Center 1993, 1994
Papago
Distribution
Center 1994
Pima
Distribution
Center 1993
Tiger
Distribution
Center 1994
Watkins
Distribution
Center 1995
Portland, Oregon
Argyle
Distribution
Center 1993
</TABLE>
F-100
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
GROSS AMOUNTS AT
WHICH CARRIED
INITIAL COSTS COSTS AT CLOSE OF PERIOD
-------------------- CAPITALIZED ------------------------------- DATE OF
NO. OF ENCUM- BUILDING & SUBSEQUENT BUILDING & ACCUMULATED CONSTRUCTION/
DESCRIPTION BLDGS. BRANCES LAND IMPROVEMENTS TO ACQUISITION LAND IMPROVEMENTS TOTAL(A,B) DEPRECIATION(C) ACQUISITION
----------- ------ ------- ------- ------------ -------------- ------- ------------ ---------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Columbia
Distribution
Center 2 550 3,121 107 551 3,227 3,778 (231) 1994
PDX Corporate
Center North 7 (e) 2,405 - 10,698 2,542 10,561 13,103 (380) 1995, 1996
Wilsonville
Corporate Center 6 (e) 2,963 - 11,143 2,963 11,143 14,106 (301) 1995, 1996
Reno, Nevada
Golden Valley
Distribution
Center 2 2,850 - 10,331 2,812 10,369 13,181 - 1996
Meredith Kleppe
Business Center 5 1,573 8,949 699 1,573 9,648 11,221 (991) 1993
Pacific
Industrial
Center 4 2,501 - 10,519 2,501 10,519 13,020 (568) 1994, 1995
Packer Way
Business Center 3 458 2,604 408 458 3,012 3,470 (312) 1993
Packer Way
Distribution
Center 2 506 2,879 164 506 3,043 3,549 (318) 1993
Spice Island
Distribution
Center 1 435 2,466 648 435 3,114 3,549 (51) 1996
Rio Grande
Valley, Texas
Rio Grande
Distribution
Center 5 (d) 527 2,987 480 527 3,467 3,994 (160) 1995
Rio Grande
Industrial
Center 8 (d) 2,188 12,399 1,190 2,188 13,589 15,777 (664) 1995
Salt Lake City,
Utah
Centennial
Distribution
Center 2 1,149 - 7,769 1,149 7,769 8,918 (281) 1995
Clearfield
Distribution
Center 2 2,500 14,165 101 2,481 14,285 16,766 (471) 1995
Ogden
Distribution
Center 1 463 2,625 50 463 2,675 3,138 - 1996
Salt Lake
International
Distribution
Center 2 1,364 2,792 7,520 1,364 10,312 11,676 (289) 1994, 1996
San Antonio,
Texas
10711
Distribution
Center 2 582 3,301 473 582 3,774 4,356 (338) 1994
Blossom Business
Center 2 573 3,249 605 573 3,854 4,427 (182) 1995
Coliseum
Distribution
Center 2 1,102 2,380 10,433 1,568 12,347 13,915 (728) 1994, 1995
Distribution
Drive Center 1 473 2,680 191 473 2,871 3,344 (382) 1992
Downtown
Distribution
Center 1 (d) 241 1,364 255 241 1,619 1,860 (146) 1994
I-10 Central
Distribution
Center 1 223 1,275 161 223 1,436 1,659 (202) 1992
I-35 Business
Center 4 663 3,773 350 663 4,123 4,786 (477) 1993
Ison Business
Center 3 648 3,674 1,146 648 4,820 5,468 (219) 1995
Landmark One
Distribution
Center 1 (d) 341 1,933 251 341 2,184 2,525 (177) 1994
Macro
Distribution
Center 1 225 1,282 139 225 1,421 1,646 (191) 1993
</TABLE>
F-101
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
-----------------------------------------------------------
<TABLE>
<CAPTION>
GROSS AMOUNTS AT
WHICH CARRIED
INITIAL COSTS COSTS AT CLOSE OF PERIOD
-------------------- CAPITALIZED -------------------------------
NO. OF ENCUM- BUILDING & SUBSEQUENT BUILDING & ACCUMULATED
DESCRIPTION BLDGS. BRANCES LAND IMPROVEMENTS TO ACQUISITION LAND IMPROVEMENTS TOTAL(A,B) DEPRECIATION(C)
- ----------- ------ ------- ------- ------------ -------------- ------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Northwest
Corporate Center 6 609 3,453 341 609 3,794 4,403 -
Perrin Creek
Corporate Center 6 1,547 - 8,502 1,610 8,439 10,049 (216)
San Antonio
Distribution
Center I 13 2,154 12,247 2,628 2,154 14,875 17,029 (1,881)
San Antonio
Distribution
Center II 3 969 - 5,713 885 5,797 6,682 (429)
San Antonio
Distribution
Center III 6 1,709 9,684 503 1,709 10,187 11,896 (210)
Sentinel
Business Center 6 1,276 7,230 797 1,276 8,027 9,303 (560)
Woodlake
Distribution
Center 2 248 1,405 64 248 1,469 1,717 (134)
San Diego,
California
Carmel Mountain
Ranch Industrial
Center 2 1,834 - 4,384 1,834 4,384 6,218 (2)
Eastgate
Distribution
Center 1 2,204 - 5,151 2,204 5,151 7,355 -
Seattle,
Washington
Andover East
Business Center 2 535 3,033 198 535 3,231 3,766 (234)
Fife Corporate
Center 3 4,059 - 7,820 4,060 7,819 11,879 -
Kent Corporate
Center 2 2,882 1,987 8,246 3,154 9,961 13,115 (395)
Van Doren's
Distribution
Center 1 (e) 895 - 3,343 977 3,261 4,238 (62)
South Bay (San
Francisco),
California
Bayside Business
Center 2 (e) 2,088 - 3,802 2,088 3,802 5,890 (24)
Bayside
Corporate Center 7 (e) 4,365 - 16,080 4,365 16,080 20,445 (454)
Bayside Plaza I 12 (e) 5,212 18,008 393 5,216 18,397 23,613 (1,839)
Bayside Plaza II 2 (e) 634 - 2,784 634 2,784 3,418 (342)
Gateway
Corporate Center 11 (d)(e) 7,575 24,746 4,432 7,575 29,178 36,753 (2,876)
Shoreline
Business Center 8 (e) 4,328 16,101 314 4,328 16,415 20,743 (1,634)
Shoreline
Business Center
II 2 (e) 922 - 4,595 922 4,595 5,517 (283)
Spinnaker
Business Center 12 (e) 7,043 25,220 662 7,043 25,882 32,925 (2,606)
Thornton
Business Center 5 (d) 3,988 11,706 6,072 3,989 17,777 21,766 (1,373)
Trimble
Distribution
Center 5 2,836 16,067 606 2,836 16,673 19,509 (1,628)
Tampa, Florida
Adamo
Distribution
Center 1 105 595 300 105 895 1,000 (24)
Clearwater
Distribution
Center 2 (f) 92 524 48 92 572 664 (39)
<CAPTION>
DATE OF
CONSTRUCTION/
DESCRIPTION ACQUISITION
- ----------- --------------
<S> <C>
Northwest
Corporate Center 1995
Perrin Creek
Corporate Center 1995, 1996
San Antonio
Distribution 1992, 1993,
Center I 1994
San Antonio
Distribution
Center II 1994
San Antonio
Distribution
Center III 1996
Sentinel
Business Center 1994
Woodlake
Distribution
Center 1994
San Diego,
California
Carmel Mountain
Ranch Industrial
Center 1996
Eastgate
Distribution
Center 1996
Seattle,
Washington
Andover East
Business Center 1994
Fife Corporate
Center 1996
Kent Corporate
Center 1995
Van Doren's
Distribution
Center 1995
South Bay (San
Francisco),
California
Bayside Business
Center 1996
Bayside
Corporate Center 1995, 1996
Bayside Plaza I 1993
Bayside Plaza II 1994
Gateway
Corporate Center 1993, 1996
Shoreline
Business Center 1993
Shoreline
Business Center
II 1995
Spinnaker
Business Center 1993
Thornton
Business Center 1993, 1996
Trimble
Distribution
Center 1994
Tampa, Florida
Adamo
Distribution
Center 1995
Clearwater
Distribution
Center 1994
</TABLE>
F-102
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
----------------------------------------------------
INITIAL COSTS COSTS
--------------------- CAPITALIZED
NO. OF ENCUM- BUILDING & SUBSEQUENT
DESCRIPTION BLDGS. BRANCES LAND IMPROVEMENTS TO ACQUISITION
----------- ------ ------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Commerce Park
Distribution
Center 4 $ 811 $ 4,597 $ 205
Eastwood
Distribution
Center 1 (f) 122 690 36
Joe's Creek
Distribution
Center 3 (f) 242 1,369 174
Lakeland
Distribution
Center 1 938 5,313 541
Orchid Lake
Industrial
Center 1 41 235 10
Plant City
Distribution
Center 1 (f) 206 1,169 50
Sabal Park
Distribution
Center 1 352 - 3,042
Silo Bend
Distribution
Center 4 (f) 2,887 16,358 655
Silo Bend
Industrial
Center 1 (f) 525 2,975 222
St. Petersburg
Service Center 1 35 197 21
Tampa East
Distribution
Center 12 (f) 2,780 15,757 1,337
Tampa East
Industrial
Center 2 (f) 332 1,880 104
Tampa West
Distribution
Center 16 (d)(f) 3,341 19,046 1,663
Tampa West
Industrial
Center 4 (f) 700 1,161 3,569
Tampa West
Service Center 4 (f) 970 5,501 273
ulsa, Oklahoma
52nd Street
Distribution
Center 1 340 1,924 64
70th East
Distribution
Center 1 129 733 131
East 55th Street
Distribution
Center 1 (f) 210 1,191 28
Expressway
Distribution
Center 4 573 3,280 322
Henshaw
Distribution
Center 3 500 2,829 70
Washington,
D.C./Baltimore
Ardmore
Distribution
Center 3 1,431 8,110 231
Ardmore
Industrial
Center 2 984 5,581 128
Chantilly
Distribution
Center 1 1,650 - 9,352
Concorde
Industrial
Center 4 1,538 8,717 319
De Soto Business
Park 5 (d) 1,774 10,055 978
Eisenhower
Industrial
Center 3 1,240 7,025 894
Fleet
Distribution
Center 8 3,198 18,121 430
Hampton Central
Distribution
Center 1 986 - 3,635
Patapsco
Distribution
Center 1 270 1,528 499
Sunnyside
Industrial
Center 3 1,541 8,733 947
Other markets 9 (f) 2,703 16,583 (105)
--- -------- ---------- --------
Total Operat-
ing Properties 942 $352,574 $1,406,914 $515,196
--- -------- ---------- --------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------
GROSS AMOUNTS AT
WHICH CARRIED
AT CLOSE OF PERIOD
-------------------------------- DATE OF
BUILDING & ACCUMULATED CONSTRUCTION/
DESCRIPTION LAND IMPROVEMENTS TOTAL(A,B) DEPRECIATION(C) ACQUISITION
----------- -------- ------------ ---------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Commerce Park
Distribution
Center $ 811 $ 4,802 $ 5,613 $ (342) 1994
Eastwood
Distribution
Center 122 726 848 (51) 1994
Joe's Creek
Distribution
Center 242 1,543 1,785 (102) 1994
Lakeland
Distribution
Center 938 5,854 6,792 (498) 1994
Orchid Lake
Industrial
Center 41 245 286 (17) 1994
Plant City
Distribution
Center 206 1,219 1,425 (86) 1994
Sabal Park
Distribution
Center 352 3,042 3,394 (26) 1996
Silo Bend
Distribution
Center 2,887 17,013 19,900 (1,131) 1994
Silo Bend
Industrial
Center 525 3,197 3,722 (226) 1994
St. Petersburg
Service Center 35 218 253 (15) 1994
Tampa East
Distribution
Center 2,780 17,094 19,874 (1,165) 1994
Tampa East
Industrial
Center 332 1,984 2,316 (139) 1994
Tampa West
Distribution
Center 3,400 20,650 24,050 (1,421) 1994, 1995
Tampa West
Industrial
Center 700 4,730 5,430 (119) 1994, 1996
Tampa West
Service Center 971 5,773 6,744 (405) 1994
Tulsa, Oklahoma
52nd Street
Distribution
Center 340 1,988 2,328 (141) 1994
70th East
Distribution
Center 129 864 993 (54) 1994
East 55th Street
Distribution
Center 210 1,219 1,429 (88) 1994
Expressway
Distribution
Center 573 3,602 4,175 (405) 1993
Henshaw
Distribution
Center 499 2,900 3,399 (213) 1994
Washington,
D.C./Baltimore
Ardmore
Distribution
Center 1,431 8,341 9,772 (549) 1994
Ardmore
Industrial
Center 985 5,708 6,693 (381) 1994
Chantilly
Distribution
Center 2,103 8,899 11,002 - 1996
Concorde
Industrial
Center 1,538 9,036 10,574 (470) 1995
De Soto Business
Park 1,774 11,033 12,807 (170) 1996
Eisenhower
Industrial
Center 1,240 7,919 9,159 (515) 1994
Fleet
Distribution
Center 3,198 18,551 21,749 (558) 1996
Hampton Central
Distribution
Center 986 3,635 4,621 (59) 1996
Patapsco
Distribution
Center 270 2,027 2,297 (57) 1995
Sunnyside
Industrial
Center 1,541 9,680 11,221 (618) 1994
1991, 1994,
Other markets 2,825 16,356 19,181 (748) 1996
-------- ---------- ---------- ---------
Total Operat-
ing Properties$356,428 $1,918,256 $2,274,684 $(109,147)
-------- ---------- ---------- ---------
</TABLE>
F-103
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
GROSS AMOUNTS AT
WHICH CARRIED
INITIAL COSTS COSTS AT CLOSE OF PERIOD
--------------------- CAPITALIZED -------------------------------- DATE OF
NO. OF ENCUM- BUILDING & SUBSEQUENT BUILDING & ACCUMULATED CONSTRUCTION/
DESCRIPTION BLDGS. BRANCES LAND IMPROVEMENTS TO ACQUISITION LAND IMPROVEMENTS TOTAL(A,B) DEPRECIATION(C) ACQUISITION
----------- ------ ------- -------- ------------ -------------- -------- ------------ ---------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LAND UNDER DE-
VELOPMENT
Atlanta, Georgia
Atlanta North
East
Distribution
Center $ 1,287 $ - $ 334 $ 1,621 $ - $ 1,621 $ - 1995
Charlotte, North
Carolina
Charlotte
Distribution
Center 695 - 483 1,178 - 1,178 - 1995, 1996
Chicago,
Illinois
O'Hare Cargo
Distribution
Center 3,557 - 1,615 5,172 - 5,172 - 1996
North Avenue
Distribution
Center 1,675 - 99 1,774 - 1,774 - 1996
Cincinnati, Ohio
Princeton
Distribution
Center (d) 816 - 204 1,020 - 1,020 - 1996
Dallas/Fort
Worth, Texas
Dallas
Corporate
Center 615 - 310 925 - 925 - 1995
Great Southwest
Industrial
Center II 836 - 7 843 - 843 - 1996
East Bay (San
Francisco),
California
Patterson Pass
Business Center 590 - 409 999 - 999 - 1996
Houston, Texas
West by
Northwest
Industrial
Center 744 - 89 833 - 833 - 1993
Indianapolis,
Indiana
Ameriplex
Distribution
Center 634 - 55 689 - 689 - 1996
Kansas City,
Kansas/Missouri
Platte Valley
Ind Ctr 416 - 44 460 - 460 - 1994
Las Vegas,
Nevada
Black Mountain
Distribution
Center 1,108 - 70 1,178 - 1,178 - 1995
Las Vegas
Corporate
Center (e) 893 - 411 1,304 - 1,304 - 1993, 1995
Nashville,
Tennessee
Interchange
City
Distribution
Center 369 - 558 927 - 927 - 1995
</TABLE>
F-104
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
-------------------------------------------------------------
<TABLE>
<CAPTION>
GROSS AMOUNTS AT
WHICH CARRIED
INITIAL COSTS COSTS AT CLOSE OF PERIOD
--------------------- CAPITALIZED --------------------------------
NO. OF ENCUM- BUILDING & SUBSEQUENT BUILDING & ACCUMULATED
DESCRIPTION BLDGS. BRANCES LAND IMPROVEMENTS TO ACQUISITION LAND IMPROVEMENTS TOTAL(A,B) DEPRECIATION(C)
----------- ------ ------- -------- ------------ -------------- -------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Orange County,
California
Mid-Counties
Distribution
Center $ 3,360 $ - $ (2,809) $ 551 $ - $ 551 $ -
Pacific Business
Center 3,017 - 183 3,200 - 3,200 -
Foothill
Business Center 1,841 - 68 1,909 - 1,909 -
Orlando, Florida
Orlando Central
Park 613 - 78 691 - 691 -
Portland, Oregon
PDX Corporate
Center North 1,464 - 346 1,810 - 1,810 -
The Evergreen
Park 2,241 - 788 3,029 - 3,029 -
Rio Grande
Valley, Texas
Valley
Industrial
Center 230 - 102 332 - 332 -
Salt Lake City,
Utah
Centennial Dist
Center 2,115 - 39 2,154 - 2,154 -
San Antonio,
Texas
Tri-County
Distribution
Center 496 - 119 615 - 615 -
Seattle,
Washington
Van Doren's
Distribution
Center (e) 1,670 - 212 1,882 - 1,882 -
Tampa, Florida
Sabal Park
Distribution
Center 428 - 76 504 - 504 -
Washington,
DC/Baltimore
Airport Commons
Distribution
Center 2,320 - 37 2,357 - 2,357 -
Chantilly
Distribution
Center 592 - 677 1,269 - 1,269 -
Hampton Central
Distribution
Center 880 - 359 1,239 - 1,239 -
-------- ---------- -------- -------- ---------- ---------- ---------
Total Land
Under
Development $ 35,502 - $ 4,963 $ 40,465 - $ 40,465 -
-------- ---------- -------- -------- ---------- ---------- ---------
<CAPTION>
DATE OF
CONSTRUCTION/
DESCRIPTION ACQUISITION
----------- -------------
<S> <C>
Orange County,
California
Mid-Counties
Distribution
Center 1995
Pacific Business
Center 1995
Foothill
Business Center 1995
Orlando, Florida
Orlando Central
Park 1996
Portland, Oregon
PDX Corporate
Center North 1996
The Evergreen
Park 1996
Rio Grande
Valley, Texas
Valley
Industrial
Center 1996
Salt Lake City,
Utah
Centennial Dist
Center 1996
San Antonio,
Texas
Tri-County
Distribution
Center 1996
Seattle,
Washington
Van Doren's
Distribution
Center 1994
Tampa, Florida
Sabal Park
Distribution
Center 1995
Washington,
DC/Baltimore
Airport Commons
Distribution
Center 1996
Chantilly
Distribution
Center 1995
Hampton Central
Distribution
Center 1994
Total Land
Under
Development
</TABLE>
F-105
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
------------------------------------------------------------
<TABLE>
<CAPTION>
GROSS AMOUNTS AT
WHICH CARRIED
INITIAL COSTS COSTS AT CLOSE OF PERIOD
--------------------- CAPITALIZED --------------------------------
NO. OF ENCUM- BUILDING & SUBSEQUENT BUILDING & ACCUMULATED
DESCRIPTION BLDGS. BRANCES LAND IMPROVEMENTS TO ACQUISITION LAND IMPROVEMENTS TOTAL(A,B) DEPRECIATION(C)
----------- ------ ------- -------- ------------ -------------- -------- ------------ ---------- ---------------
LAND HELD FOR
DEVELOPMENT
-------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Atlanta, Georgia
Atlanta West
Distribution
Center $ 750 $ - $ 1 $ 751 $ - $ 751 $ -
Atlanta NE
Distribution
Center 520 - 266 786 - 786 -
Clark Howell
Road
Distribution
Center 1,679 - 126 1,805 - 1,805 -
Riverside
Distribution
Center 1,378 - 119 1,497 - 1,497 -
Austin, Texas
Corridor Park
Corporate Center 585 - 727 1,312 - 1,312 -
Southpark
Corporate Center 526 - 62 588 - 588 -
Walnut Creek
Corporate Center 1,029 - 32 1,061 - 1,061 -
Charlotte, North
Carolina
Charlotte
Distribution
Center 1,599 - - 1,599 - 1,599 -
Chicago, Illinois
North Avenue
Distribution
Center 1,524 - 73 1,597 - 1,597 -
O'Hare Cargo
Distribution
Center 2,216 - 655 2,871 - 2,871 -
Cincinnati, Ohio
Sharonville
Distribution
Center 1,780 - 35 1,815 - 1,815 -
Princeton
Distribution
Center 436 - (1) 435 - 435 -
Columbus, Ohio
Capital Park
South
Distribution
Center 909 - 320 1,229 - 1,229 -
International
Street Commerce
Center 555 - 27 582 - 582 -
Dallas/Fort
Worth, Texas
Dallas Corporate
Center 1,534 - - 1,534 - 1,534 -
Freeport
Distribution
Center 414 - 1 415 - 415 -
GSW Distribution
Center 1,539 - - 1,539 - 1,539 -
Denver, Colorado
Upland
Distribution
Center I 1,128 - 17 1,145 - 1,145 -
<CAPTION>
DATE OF
CONSTRUCTION/
DESCRIPTION ACQUISITION
----------- ---------------------
LAND HELD FOR
DEVELOPMENT
-------------
<S> <C>
Atlanta, Georgia
Atlanta West
Distribution
Center 1994
Atlanta NE
Distribution
Center 1995
Clark Howell
Road
Distribution
Center 1996
Riverside
Distribution
Center 1996
Austin, Texas
Corridor Park
Corporate Center 1994
Southpark
Corporate Center 1996
Walnut Creek
Corporate Center 1994, 1996
Charlotte, North
Carolina
Charlotte
Distribution
Center 1995, 1996
Chicago, Illinois
North Avenue
Distribution
Center 1996
O'Hare Cargo
Distribution
Center 1996
Cincinnati, Ohio
Sharonville
Distribution
Center 1996
Princeton
Distribution
Center 1996
Columbus, Ohio
Capital Park
South
Distribution
Center 1994, 1995, 1996
International
Street Commerce
Center 1996
Dallas/Fort
Worth, Texas
Dallas Corporate
Center 1995
Freeport
Distribution
Center 1996
GSW Distribution
Center 1996
Denver, Colorado
Upland
Distribution
Center I 1994
</TABLE>
F-106
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
------------------------------------------------------------
<TABLE>
<CAPTION>
GROSS AMOUNTS AT
WHICH CARRIED
INITIAL COSTS COSTS AT CLOSE OF PERIOD
--------------------- CAPITALIZED --------------------------------
NO. OF ENCUM- BUILDING & SUBSEQUENT BUILDING & ACCUMULATED
DESCRIPTION BLDGS. BRANCES LAND IMPROVEMENTS TO ACQUISITION LAND IMPROVEMENTS TOTAL(A,B) DEPRECIATION(C)
----------- ------ ------- -------- ------------ -------------- -------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
East Bay (San
Francisco), Cali-
fornia
Patterson Pass
Business Center $ 920 $ - $ 597 $ 1,517 $ - $ 1,517 $ -
El Paso, Texas
Northwestern
Corporate Center 3,455 - 2,853 6,308 - 6,308 -
Vista Corporate
Center 351 - 123 474 - 474 -
Vista Del Sol
Industrial
Center 2,923 - 191 3,114 - 3,114 -
Fort
Lauderdale/Miami,
Florida
Port 95
Distribution
Center I 8,419 - - 8,419 - 8,419 -
Houston, Texas
West by
Northwest
Industrial
Center 1,859 - 203 2,062 - 2,062 -
Indianapolis, In-
diana
North by
Northeast
Distribution
Center 437 - 54 491 - 491 -
Plainfield Park 1,967 - 656 2,623 - 2,623 -
Las Vegas, Nevada
Black Mountain
Distribution
Center 2,845 - 117 2,962 - 2,962 -
Las Vegas
Corporate Center (e) 2,772 - 248 3,020 - 3,020 -
Louisville, Ken-
tucky
Riverport
Distribution
Center 539 - 47 586 - 586 -
Los Angeles Ba-
sin, California
Foothills
Business Center 11,350 - 174 11,524 - 11,524 -
Nashville, Ten-
nessee
Nashville/l-24
Distribution
Center 776 - 90 866 - 866 -
Orlando, Florida
Orlando Central
Park 4,007 - 30 4,037 - 4,037 -
Phoenix, Arizona
Kyrene Commons
Distribution
Center 2,530 - 46 2,576 - 2,576 -
Portland, Oregon
The Evergreen
Park 2,235 - - 2,235 - 2,235 -
<CAPTION>
DATE OF
CONSTRUCTION/
DESCRIPTION ACQUISITION
----------- -------------
<S> <C>
East Bay (San
Francisco), Cali-
fornia
Patterson Pass
Business Center 1996
El Paso, Texas
Northwestern
Corporate Center 1991, 1992
Vista Corporate
Center 1993
Vista Del Sol
Industrial
Center 1994, 1996
Fort
Lauderdale/Miami,
Florida
Port 95
Distribution
Center I 1996
Houston, Texas
West by
Northwest
Industrial
Center 1993
Indianapolis, In-
diana
North by
Northeast
Distribution
Center 1994
Plainfield Park 1996
Las Vegas, Nevada
Black Mountain
Distribution
Center 1995, 1996
Las Vegas
Corporate Center 1995
Louisville, Ken-
tucky
Riverport
Distribution
Center 1996
Los Angeles Ba-
sin, California
Foothills
Business Center 1995, 1996
Nashville, Ten-
nessee
Nashville/l-24
Distribution
Center 1996
Orlando, Florida
Orlando Central
Park 1996
Phoenix, Arizona
Kyrene Commons
Distribution
Center 1992, 1996
Portland, Oregon
The Evergreen
Park 1996
</TABLE>
F-107
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
------------------------------------------------------------
<TABLE>
<CAPTION>
GROSS AMOUNTS AT
WHICH CARRIED
INITIAL COSTS COSTS AT CLOSE OF PERIOD
--------------------- CAPITALIZED --------------------------------
NO. OF ENCUM- BUILDING & SUBSEQUENT BUILDING & ACCUMULATED
DESCRIPTION BLDGS. BRANCES LAND IMPROVEMENTS TO ACQUISITION LAND IMPROVEMENTS TOTAL(A,B) DEPRECIATION(C)
----------- ------ ------- -------- ------------ -------------- -------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Reno, Nevada
Golden Valley
Distribution
Center $ 609 $ - $ 1,601 $ 2,210 $ - $ 2,210 $ -
Rio Grande
Valley, Texas
Rio Grande
Industrial
Center 429 - 10 439 - 439 -
Salt Lake City,
Utah
Salt Lake
International
Distribution
Center 1,804 - 16 1,820 - 1,820 -
Centennial
Distribution
Center 2,726 - 46 2,772 - 2,772 -
San Antonio,
Texas
Coliseum
Distribution
Center 651 - 326 977 - 977 -
Perrin Creek
Corporate Center 2,637 - 153 2,790 - 2,790 -
San Antonio
Distribution
Center III 1,290 - 13 1,303 - 1,303 -
San Diego,
California
Carmel Mountain
Ranch Industrial
Center 1,899 - 40 1,939 - 1,939 -
Seattle,
Washington
Van Doren's
Distribution
Center (e) 1,138 - 110 1,248 - 1,248 -
South Bay (San
Francisco),
California
Mowry Business
Center 5,931 - 103 6,034 - 6,034 -
Tampa, Florida
Sabal Park
Distribution
Center 1,694 - 95 1,789 - 1,789 -
Tampa East
Distribution
Center 3,528 - 7 3,535 - 3,535 -
Washington,
DC/Baltimore
Hampton Central
Distribution
Center 1,298 - (2) 1,296 - 1,296 -
Meadowridge
Distribution
Center 5,617 - 172 5,789 - 5,789 -
--- -------- ---------- -------- -------- ---------- ---------- ---------
Total Land
Held for
Development $ 98,737 - $ 10,579 $109,316 - $ 109,316 -
--- -------- ---------- -------- -------- ---------- ---------- ---------
Grand Total $486,813 $1,406,914 $530,738 $506,209 $1,918,256 $2,424,465 $(109,147)
=== ======== ========== ======== ======== ========== ========== =========
<CAPTION>
DATE OF
CONSTRUCTION/
DESCRIPTION ACQUISITION
----------- -------------
<S> <C>
Reno, Nevada
Golden Valley
Distribution
Center 1995
Rio Grande
Valley, Texas
Rio Grande
Industrial
Center 1995
Salt Lake City,
Utah
Salt Lake
International
Distribution
Center 1994, 1995
Centennial
Distribution
Center 1996
San Antonio,
Texas
Coliseum
Distribution
Center 1994
Perrin Creek
Corporate Center 1996
San Antonio
Distribution
Center III 1996
San Diego,
California
Carmel Mountain
Ranch Industrial
Center 1995
Seattle,
Washington
Van Doren's
Distribution
Center 1994
South Bay (San
Francisco),
California
Mowry Business
Center 1996
Tampa, Florida
Sabal Park
Distribution
Center 1995
Tampa East
Distribution
Center 1994
Washington,
DC/Baltimore
Hampton Central
Distribution
Center 1994
Meadowridge
Distribution
Center 1996
Total Land
Held for
Development
Grand Total
</TABLE>
F-108
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
- --------
(a) Reconciliation of total cost to balance sheet caption at December 31, 1996
(in thousands):
<TABLE>
<S> <C>
total per schedule III $2,424,465
construction in process 77,506
capitalized preacquisition costs 6,776
----------
Total real estate $2,508,747(g)
==========
</TABLE>
(b) The aggregate cost for Federal income tax purposes was approximately
$2,340,922,000.
(c) Buildings are depreciated over their estimated useful lives (30 years for
acquisitions, 40 years for developments).
(d) $165,049,812 of these properties are pledged as collateral for $91,756,998
in mortgage notes payable.
(e) $219,627,378 of these properties are subject to lien under $12,170,468 of
net assessment bonds payable.
(f) $68,139,988 of these properties are pledged as collateral for $27,685,408
and $8,339,169 in first and second priority mortgage notes, respectively.
(g) A summary of activity for real estate and accumulated depreciation is as
follows:
<TABLE>
-------------
<CAPTION>
DECEMBER 31,
1996
(IN THOUSANDS)
--------------
<S> <C>
Real Estate
Balance at beginning of year $1,827,670
Additions:
Acquisitions/Completions 649,049
Improvements 43,568
Cost of real estate sold (7,863)
Change in construction in process (3,452)
Change in capitalized preacquisition costs (225)
----------
Balance at end of year $2,508,747
==========
Accumulated Depreciation
Balance at beginning of year $ 56,406
Depreciation expense 52,919
Accumulated depreciation associated with real estate
sold (178)
----------
Balance at end of year $ 109,147
==========
</TABLE>
F-109
<PAGE>
SECURITY CAPITAL U.S. REALTY
AUDITORS' REPORT
To the Shareholders of
SECURITY CAPITAL U.S. REALTY
Luxembourg
We have audited the consolidated financial statements, which consist of the
consolidated statement of net assets, the consolidated statement of operations,
the consolidated statement of changes in net assets, the consolidated statement
of cash flows, the consolidated statement of changes in shares outstanding, the
consolidated financial highlights for the year, the consolidated schedules of
investments and the notes to the consolidated financial statements of Security
Capital U.S. Realty (the "Company") as of and for the year ended December 31,
1996. These consolidated financial statements are the responsibility of the
Board of Directors of the Company. Our responsibility is to express an opinion
on these consolidated financial statements based on our audit.
We conducted our audit in accordance with International Standards on Auditing.
Those Standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by the Board of Directors of the Company in
preparing the consolidated financial statements, as well as evaluating the
overall consolidated financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the attached consolidated financial statements described above
give, in conformity with the legal requirements and United States generally
accepted accounting principles, a true and fair view of the financial position
of the Company at December 31, 1996 and of the results of its operations and
changes in its net assets for the year then ended.
Price Waterhouse Jean-Robert Lentz
Reviseur d'enterprises
Luxembourg, February 28, 1997
F-110
<PAGE>
SECURITY CAPITAL U.S. REALTY
CONSOLIDATED STATEMENT OF NET ASSETS
AT DECEMBER 31, 1996
(EXPRESSED IN $, IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
STRATEGIC INVESTMENTS:
CarrAmerica, at market/fair value (cost $428,416) 554,573
Pacific Retail, at fair value (cost $210,315) 209,091
Regency, at market value (cost $67,098) 98,986
Storage USA, at market value (cost $271,883) 321,745
SPECIAL OPPORTUNITY INVESTMENTS:
Publicly traded positions, at market value (cost $178,008) 223,745
Security Capital, at fair value (cost $22,500) 22,500
---------
1,430,640
---------
Cash and cash equivalents 54,957
Accounts receivable and prepayments 8,294
Interest receivable from affiliate 366
---------
TOTAL ASSETS 1,494,257
---------
LIABILITIES
Accounts payable and accrued expenses 2,651
Operating advisor fee payable 2,614
Taxes payable 393
Line of credit 169,500
---------
TOTAL LIABILITIES 175,158
---------
TOTAL NET ASSETS (SHAREHOLDERS' EQUITY) 1,319,099
=========
NET ASSETS ARE COMPRISED OF:
Paid in capital 1,050,184
Undistributed net investment income 13,015
Undistributed realised gain 3,480
Unrealised appreciation on investments 252,420
---------
1,319,099
=========
Represented by 96,492,710 shares outstanding
NET ASSET VALUE PER SHARE 13.67
</TABLE>
The accompanying notes form an integral part of the financial statements.
F-111
<PAGE>
SECURITY CAPITAL U.S. REALTY
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996
(EXPRESSED IN $, IN THOUSANDS EXCEPT PER SHARE DATA)
INVESTMENT INCOME
<TABLE>
<S> <C>
Dividends from strategic investments:
CarrAmerica (net of withholding tax of $2,015) 11,552
Pacific Retail (net of withholding tax of $1,359) 8,123
Regency Realty (net of withholding tax of $115) 658
Storage USA (net of withholding tax of $1,292) 7,408
---------
27,741
Dividends from publicly-traded investments (net of withholding tax
of $770) 4,422
---------
32,163
Interest and other income 2,673
---------
TOTAL INVESTMENT INCOME 34,836
---------
EXPENSES
Operating advisor fees 8,041
Custodian fees 318
Professional expenses 431
Offering expenses 592
Directors fees 57
Administrative expenses 845
Amortisation of formation expenses 1,654
Formation expenses 172
Line of credit arrangement fees 2,991
Taxes 628
Interest on line of credit 6,168
---------
TOTAL EXPENSES 21,897
NET INVESTMENT INCOME 12,939
Realised gains on publicly-traded investments 3,480
Increase in appreciation on investments 252,294
---------
Increase in net assets resulting from operations 268,713
=========
</TABLE>
The accompanying notes form an integral part of the financial statements.
F-112
<PAGE>
SECURITY CAPITAL U.S. REALTY
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1996
(EXPRESSED IN $, IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
<S> <C>
OPERATING ACTIVITIES:
Net Income 268,713
Adjustments to reconcile net income to net cash provided by op-
erating activities:
Movement in unrealised gain (252,294)
Amortisation of formation expenses 1,654
Changes in operating assets and liabilities:
Accounts receivable and prepayments (8,289)
Interest receivable from affiliate (366)
Accounts payable and accrued expenses 2,426
Operating advisor fees payable 2,594
Other liabilities 386
----------
Net cash provided by operating activities 14,824
----------
INVESTING ACTIVITIES:
Investments in Strategic Positions:
CarrAmerica (428,416)
Pacific Retail (157,255)
Regency (67,098)
Storage USA (271,883)
Investments in Publicly-traded Positions (176,413)
Investments in Security Capital (22,500)
----------
Net cash used in investing activities (1,123,565)
----------
FINANCING ACTIVITIES:
Proceeds from public and private offerings 987,238
Proceeds from line of credit 376,500
Repayment of line of credit (207,000)
----------
Net cash provided by financing activities 1,156,738
----------
Net increase in cash and cash equivalents 47,997
Cash and cash equivalents, beginning of the year 6,960
----------
Cash and cash equivalents, end of the year 54,957
==========
</TABLE>
The accompanying notes form an integral part of the financial statements.
F-113
<PAGE>
SECURITY CAPITAL U.S. REALTY
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR/PERIOD ENDED DECEMBER 31, 1996 AND 1995
(EXPRESSED IN $, IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
----------
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Net investment income 12,939 76
Realised gains on publicly-traded investments 3,480 0
Increase in appreciation on investments 252,294 126
--------- ---------
Increase in net assets resulting from operations 268,713 202
Paid-in subscriptions 987,238 62,946
--------- ---------
Increase in net assets during the year/period 1,255,951 63,148
Net assets at the beginning of the year/period 63,148 0
--------- ---------
Net assets at the end of the year/period 1,319,099 63,148
========= =========
Net Asset Value per share on December 31, 1996 13.67 10.03
</TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN SHARES OUTSTANDING
FOR THE YEAR/PERIOD ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
NUMBER OF SHARES
---------------------
1996 1995
---------- ---------
<S> <C> <C>
At the beginning of the year/period 6,294,573 0
Issued during the year/period 90,198,137 6,294,573
---------- ---------
At the end of the year/period 96,492,710 6,294,573
========== =========
</TABLE>
CONSOLIDATED FINANCIAL HIGHLIGHTS FOR THE
YEAR/PERIOD ENDED DECEMBER 31, 1996 AND 1995
(EXPRESSED IN $)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Per share data:
Net asset value beginning of the year/period 10.03 0.00
Paid-in capital 0.00 10.00
Net investment income 0.12 0.01
Net change in unrealised appreciation and realised gains
on investments in year/period 3.52 0.02
--------- ---------
Net asset value at the end of the year/period 13.67 10.03
========= =========
</TABLE>
The accompanying notes form an integral part of the financial statements.
F-114
<PAGE>
SECURITY CAPITAL U.S. REALTY
CONSOLIDATED SCHEDULE OF INVESTMENTS IN STRATEGIC POSITIONS
AT DECEMBER 31, 1996
(EXPRESSED IN $, IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
-----------------------------------------------------------------------------------
<CAPTION>
NUMBER OF MARKET/FAIR PERCENTAGE
STRATEGIC INVESTEES SECURITY TYPE SHARES HELD COST VALUE OF NET ASSETS
- ------------------- ------------------- -------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
CarrAmerica Common Stock 18,515,307 415,416 541,573 41.1%
CarrAmerica Preferred Stock 520,000 13,000 13,000 0.9%
Pacific Retail Common Stock 20,909,091 210,315 209,091 15.9%
Regency Common Stock 3,770,900 67,098 98,986 7.5%
Storage USA Common Stock 8,551,354 271,883 321,745 24.4%
TOTAL INVESTMENTS IN STRATEGIC POSITIONS AT MARKET VALUE (FOR
PUBLICLY-
---------
TRADED COMPANIES) AND ESTIMATED FAIR VALUE (FOR UNTRADED COM-
PANIES) 1,184,395
---------
</TABLE>
CONSOLIDATED SCHEDULE OF INVESTMENTS IN SPECIAL OPPORTUNITY POSITIONS
AT DECEMBER 31, 1996
(EXPRESSED IN $, IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
------------------------------------
<CAPTION>
NUMBER OF MARKET/FAIR PERCENTAGE
PROPERTY TYPE SHARES HELD COST VALUE OF NET ASSETS
- ------------- ----------- ------ ----------- -------------
<S> <C> <C> <C> <C>
Companies in which USREALTY owns
a 5% or greater interest:
NONE
Companies in which USREALTY owns
less than 5% interest:
Multifamily 2,386,900 49,749 59,935 4.5%
Office/Industrial 2,690,900 65,472 87,946 6.7%
Retail 3,215,800 62,787 75,864 5.8%
---------
Total investments in publicly-
traded companies at market
value: 223,745
Investment in Security Capital 22,500 22,500 1.7%
TOTAL INVESTMENTS IN SPECIAL OPPORTUNITY POSITIONS
AT MARKET VALUE (FOR PUBLICLY-
---------
TRADED COMPANIES) AND ESTIMATED FAIR VALUE (FOR
UNTRADED COMPANIES): 246,245
---------
</TABLE>
A detailed schedule of portfolio changes for the year ended December 31, 1996
is available free of charge upon request at the registered office.
The accompanying notes form an integral part of the financial statements.
F-115
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 1996
NOTE 1--ORGANISATION
Security Capital U.S. Realty (the "Company") is a Luxembourg real estate
corporation organised as a "Societe d'Investissement a Capital Variable"
("SICAV"). The Company was formed on July 7, 1995 for the purpose of owning and
operating United States of America real estate primarily through companies in
which it has a strategic ownership position. The Company owns its assets
through its wholly owned Luxembourg subsidiary, Security Capital Holdings S.A.
("HOLDINGS"). All accounts of HOLDINGS have been consolidated with the Company
and all significant intercompany transactions have been eliminated upon
consolidation. References herein to USREALTY are to the consolidated entity
consisting of Security Capital U.S. Realty and Security Capital Holdings S.A.,
unless noted otherwise.
The Company expects to request shareholder approval in the first half of 1997
to convert to a Societe d'Investissement a Capital Fixe, which should not
materially alter the Company's operations or prospects.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared in accordance with generally
accepted accounting principles in the United States and with Luxembourg
regulatory requirements.
A. Market Value/Fair Value Basis of Presentation:
USREALTY accounts for its investments at market value or estimated fair value
(depending on whether the investment is publicly traded or not) as management
believes market/fair value more accurately reflects USREALTY's financial
position and results of operations as a real estate business. Thus, USREALTY's
investments in publicly traded companies are valued at market determined by
using closing market prices as of the balance sheet date. Investments in
private companies are valued at fair value generally determined at cost, or an
appropriate lower value if the investment is not progressing as envisioned. If
substantial additional capital is raised by the investee from independent third
parties in a private placement, then USREALTY values its investment at the
price at which that capital was raised when a substantial percentage of the new
subscriptions have been funded. Untraded convertible securities are carried at
their principal amount until convertible at an ascertainable value. The
CarrAmerica convertible preferred each are convertible into one share of
CarrAmerica common stock beginning April 1997, at which time they will be
reflected at their conversion value.
Under market/fair value accounting, unrealised gains or losses are determined
by comparing market/fair value of the securities held to the cost of such
securities. Unrealised gains or losses relating to changes in market/fair value
of USREALTY's investments are reported as a component of net earnings. Deferred
income taxes, if any, are recorded at the applicable statutory rate as the
estimate of taxes payable as if such gains were realised. Under current tax
laws, and in light of USREALTY's operating methods and plans, USREALTY's
investment gains generally are not subject to income taxes.
USREALTY's investments are generally long-term and USREALTY does not intend to
sell securities simply to realise gain thereon (other than in the case of
selected special opportunity investments).
At December 31, 1996, 17.1% of USREALTY's investments were private or untraded
securities valued at their fair value as determined by the Board of Directors,
using the methodology described above. This value may differ from the value
that would have been used had a trading market for these shares existed. The
valuation of assets assumes that any assets disposed of would be sold in an
orderly process; any forced sale of assets under short-term pressures, which is
not foreseen, could adversely affect realisable values.
B. Accounting for Investments and Income
All purchases and sales of publicly traded securities are recorded as of the
trade date (being the date that USREALTY's broker actually executes an order to
buy or sell). Purchases and sales of unlisted securities are recorded as of the
date the actual purchase or sale is completed. Dividend income is recorded on
the ex-dividend date for each dividend declared by an issuer. Dividends
received are presented net of withholding taxes, which totalled $5.6 million
during the twelve months ended December 31, 1996. The withholding tax is stated
net of
F-116
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
estimated refunds of $56,573. HOLDINGS is entitled to the refunds as the
withholding tax is not levied on the portion of dividends which is a return of
capital. Interest income (including interest on convertible subordinated
debentures issued by Security Capital Group Incorporated ("Security Capital"))
is recorded on the accrual basis. Interest received is also stated net of
withholding taxes, of which there were none in 1996. Realised gains and losses
on sales of shares are determined on the average cost method.
C. Cash and Cash Equivalents
USREALTY considers all cash on hand, demand deposits with financial
institutions and short-term, highly liquid investments with original maturities
of three months or less to be cash equivalents.
NOTE 3--INVESTMENTS
USREALTY will aim to have 65% to 85% of its assets deployed in strategic
ownership positions ("Strategic Investments"), and 10% to 35% invested in
special opportunity ownership positions, including up to 10% in securities of
Security Capital.
A. Strategic Investments
Strategic investments represent significant (minimum of 25% to a general
maximum of 49% of each issuer's fully diluted common stock outstanding) equity
ownership positions in public companies, or in private companies that will be
positioned to be taken public. With private companies which USREALTY sponsors,
it will frequently own substantially more than 50% of the voting shares until
such companies become publicly traded, at which time USREALTY's ownership will
begin to be diluted until it reaches 35% to 45% ownership levels. USREALTY will
be the largest shareholder of its strategic investees, have representation on
their Boards of Directors, and influence their operations and strategy.
Strategic investees are characterised by the perceived potential for a superior
market niche and the ultimate potential for market preeminence with a focused
strategy and product.
B. Special Opportunity Investments
(i) PUBLICLY-TRADED INVESTMENTS
"Publicly-Traded Investments" consist of ownership positions of less than 10%
of the fully diluted stock in publicly-traded United States real estate
investment trusts ("US REITS") and real estate companies. Publicly-traded
investments have and will take the form of either direct investments in, or
public market purchases of, shares of companies that USREALTY believes possess
the requisite fundamentals to generate strong cash flow growth and/or value
appreciation.
At December 31, 1996, USREALTY had $223.7 million (market value) of publicly-
traded investments in thirteen companies. From time to time, when deemed
appropriate, USREALTY may seek to increase a publicly-traded investment to a
strategic investment.
(ii) INVESTMENT IN SECURITY CAPITAL GROUP INCORPORATED.
USREALTY has a Special Opportunity Investment in securities of Security Capital
which, through wholly owned subsidiaries, owned approximately 39.4% of
USREALTY's total subscribed shares at December 31, 1996 (and may from time to
time purchase further shares on the open market and in new USREALTY offerings)
and is the sole shareholder of USREALTY's Operating Advisor. The purpose of
this investment is to provide USREALTY with the benefit of exposure to specific
niches within the apartment and industrial real estate sectors, as well as the
diversification benefits of fee income through Security Capital's real estate
services and advisory activities. USREALTY intends to invest up to 10% of its
assets in securities of Security Capital. USREALTY's investments in such
securities will primarily be made in general offerings by Security Capital, on
the same terms and conditions as all other investors in such offerings. To a
lesser extent, USREALTY may negotiate purchases from independent third parties
on an arm's-length basis. When and if Security Capital becomes traded on a
recognised securities market, USREALTY may purchase Security Capital securities
from third parties in open-market transactions. At December 31, 1996, USREALTY
had funded $22.5 million (representing 10,724.5 common shares and $11.25
million principal amount of 6.5% convertible subordinated debentures due 2016)
out of a total commitment of $110 million. The remaining commitment is expected
to be funded in the first half of 1997.
F-117
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--ACCOUNTS RECEIVABLE AND PREPAYMENTS
A. Deferred Costs
The Company believes that minimising intangible assets makes the Company more
attractive to investors. Therefore, the unamortised portion of (i) costs
associated with the formation of USREALTY and its initial private placement,
and (ii) costs incurred in connection with arranging USREALTY's $300 million
line of credit, were written off in October 1996. Such amortised costs were
$3.7 million. Since October 1996, all costs of raising capital, including line
of credit increases, are expensed as incurred (an additional $1.1 million for
increasing the line of credit in 1996).
B. Accounts Receivable
The amounts included within accounts receivable and prepayments are as follows:
<TABLE>
<CAPTION>
---------------------
DECEMBER 31,
1996 1995
--------- ---------
(IN THOUSANDS $)
<S> <C> <C>
Dividends 8,236
Debenture Interest from Security Capital 366
Formation Expenses - 1,654
Refund of withholding tax 56
Other 2 6
--------- ---------
8,660 1,660
========= =========
NOTE 5--ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<CAPTION>
---------------------
DECEMBER 31,
1996 1995
--------- ---------
(IN THOUSANDS $)
<S> <C> <C>
Offering expenses 1,090
Interest Payable 646 -
Amount payable to Security Capital 217
Custodian Fees 127
Other 571 224
--------- ---------
2,651 224
========= =========
</TABLE>
The offering expenses accruals are covered by the commission received during
the November 1996 offering.
NOTE 6--ADVISORY AGREEMENT AND OPERATING EXPENSES
USREALTY has an advisory agreement with Security Capital (EU) Management S.A.
(the "Operating Advisor"), a wholly-owned subsidiary of Security Capital. This
agreement requires the Operating Advisor to provide USREALTY with advice with
respect to the investment of assets of USREALTY. The Operating Advisor has
agreed to identify tangible investment opportunities in U.S. real estate
companies and evaluate such companies' competitive positions, management
expertise, strategic direction, financial strength and their prospects for
long-term sustainable per share cash flow growth. The Operating Advisor will
also advise USREALTY on obtaining board and committee representation and
management rights. The agreement is for a two-year term expiring July 1997. The
agreement automatically renews for successive two-year periods unless either
party gives notice they will not renew. The Operating Advisor subcontracts for
certain services through its wholly-owned affiliate, Security Capital (UK)
Management Limited (based in London), and another Security Capital subsidiary,
Security Capital Investment Research Incorporated (based in Chicago). The
Operating Advisor is entitled to a management fee, payable quarterly, at an
annual rate of 1.25% of gross invested assets, excluding investments in
Security Capital securities and investments of short-term cash and cash
equivalents. The amounts accrued at December 31, 1996 represent two months'
fees. USREALTY pays its own third-party operating and administrative expenses
and transaction costs, provided that the Operating Advisor's fee will be
reduced to the extent that third-party operating and administrative expenses
(but not transaction costs) exceed 0.25% of assets, excluding Security Capital
securities, per annum. Such third-party operating and administrative costs were
0.19% per annum in 1996.
F-118
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
USREALTY pays to the Custodian, Paying Agent, Domiciliary and Corporate Agent
as well as the Registrar and Transfer Agent, a fee in accordance with usual
practice in Luxembourg. Such fees are payable quarterly and are based on
USREALTY's gross assets.
NOTE 7--TAXATION
The Company, as separate from HOLDINGS, is not liable for any Luxembourg tax on
income. The Company is liable in Luxembourg for a capital tax of 0.06% per
annum of its net asset value. Cash dividends and interest received by the
Company or HOLDINGS on their investments may be subject to non-recoverable
withholding or other taxes in the countries of origin. U.S. withholding tax
rates of 15% were in effect for 1996. These are proposed to be increased to 30%
based on a new tax treaty; however, the proposed increase is the subject of
U.S. Senate committee review, and may not go into effect. If approved, the
increase would probably become effective January 1, 1999. Management does not
believe such an increase would materially adversely affect growth in net asset
value per share.
HOLDINGS, an ordinary corporate taxpayer under Luxembourg law, owns
substantially all of the consolidated group's interests in US REITs.
Corporations which are resident Luxembourg taxpayers are taxed on their
worldwide net income, determined on the basis of gross income less cost
incurred. Certain items of income and capital gains are excluded from the
calculation of income received for tax purposes, including income and capital
gains from certain investments which meet certain holding period (generally one
calendar year) and size requirements. HOLDINGS attempts to operate so as to
have the highest possible percentage of its investments qualify for the
exclusion. Interest accrued on advances from the Company to HOLDINGS are
deducted in determining HOLDINGS's taxable income.
Income paid from HOLDINGS to the Company is subject to various levels of tax.
Gross cash (but not accrued) interest payments from HOLDINGS to the Company,
which were $5,029,787 during the twelve months ended December 31, 1996, are
subject to withholding tax at a rate of 3.75% (which totalled $188,617 for the
twelve months to December 31, 1996). No dividends were paid.
<TABLE>
<CAPTION>
---------------------
DECEMBER 31,
1996 1995
--------- ---------
(IN THOUSANDS $)
<S> <C> <C>
Capital Tax 439 -
Withholding Tax 189 7
--------- ---------
628 7
========= =========
</TABLE>
NOTE 8--LINE OF CREDIT
The Company's wholly owned subsidiary, HOLDINGS, has a $400 million revolving
line of credit from a syndicate of European and international banks. The
earliest date on which this line of credit will expire is June 1999, subject to
annual extension with the consent of the lenders, but HOLDINGS has the right to
convert the then outstanding borrowings into a two-year term loan on that date,
with semi-annual amortisation payments to be made over the two-year period,
which effectively extends the final loan payment to June 2001. Borrowings bear
interest at the greater of United States prime or the federal funds rate plus
0.5% or, at HOLDINGS' option, LIBOR plus 1.75%. Additionally, there is a
commitment fee of 0.25% to 0.375% on the average undrawn balance of the line of
credit.
The amount of $2.99 million was paid to the syndicate of European and
international banks as arrangement and upfront fees as well as to cover the
costs of syndication.
The line of credit is secured by substantially all the assets of USREALTY.
HOLDINGS has pledged all securities owned by it as collateral for the line, and
the Company has guaranteed the line and pledged its shares in HOLDINGS as
collateral.
F-119
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In February 1997, HOLDINGS received preliminary agreement from the lead lending
bank to increase the line of credit to $500 million and reduce the interest
rate to 1.50% over LIBOR, subject to certain conditions and approvals.
Average daily borrowings during the twelve months ended December 31, 1996 were
$84.9 million, at a weighted average interest rate of 7.18% per annum.
The line of credit requires USREALTY to continue to meet certain financial
covenants. At December 31, 1996, USREALTY was in compliance with all covenants.
NOTE 9--SHAREHOLDERS' EQUITY
During the twelve months ended December 31, 1996, $987.3 million of equity
capital subscriptions were called by the Company and funded by investors. This
equity was partly raised through the completion of the funding of subscriptions
under the Company's initial $509.5 million private offering.
The equity was also raised through the June 1996 international public offering
where the Company accepted subscriptions for 22,244,420 shares: 13,112,000
shares through an underwritten public offering and 9,132,420 shares directly to
its principal shareholder, Security Capital. The Company contracted to receive
net proceeds per share of $10.95, equal to the net asset value per share on
June 26, 1996, the day the offering was priced. The transaction was closed on
July 2, 1996.
Additional equity was also raised through the November private offering where
the Company sold 24,115,805 shares. The Company contracted to receive net
proceeds per share of $12.32, equal to the net asset value per share on
November 15, 1996, the day the offering was priced. The transaction closed on
December 19, 1996.
F-120
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and ShareholdersSECURITY CAPITAL ATLANTIC INCORPORATED
We have audited the balance sheets of Security Capital Atlantic Incorporated as
of December 31, 1996 and 1995, and the related statements of earnings,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996 (not presented separately herein). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Security Capital Atlantic
Incorporated at December 31, 1996 and 1995, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1996 in conformity with generally accepted accounting principles.
Ernst & Young LLP
Dallas, TexasFebruary 3, 1997
F-121
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Homestead Village Incorporated
We have audited the balance sheet of Homestead Village Incorporated as of
December 31, 1996 and the related statements of operations, shareholders'
equity, and cash flows for the year ended December 31, 1996 (not presented
separately herein). The financial statements are the responsibility of
Homestead Village Incorporated's management. Our responsibility is to express
an opinion on the financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Homestead Village Incorporated
at December 31, 1996, and the results of its operations and its cash flows for
the year ended December 31, 1996 in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Dallas, Texas
February 24, 1997
F-122
<PAGE>
LOGO
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table itemizes the expenses incurred by the Registrant in
connection with the offering of the shares being registered. All the amounts
shown are estimates (other than the SEC registration fee and the NASD fee).
--------
<TABLE>
<CAPTION>
AMOUNT
---------
<S> <C>
SEC registration fee.......................................... $ 87,121
NASD fee...................................................... 29,250
New York Stock Exchange listing fee...........................
Printing and engraving fees...................................
Legal fees and expenses (other than Blue Sky).................
Accounting fees and expenses..................................
Blue Sky fees and expenses (including fees of counsel)........ 5,000
Miscellaneous expenses........................................
---------
Total....................................................... $
=========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article EIGHTH of the Registrant's Charter provides as follows with respect to
the indemnification of directors and officers of the Registrant:
"The Corporation shall have the power, to the maximum extent permitted by
Maryland law in effect from time to time, to obligate itself to indemnify
and to pay or reimburse reasonable expenses in advance of final disposition
of a proceeding to (a) any individual who is a present or former director
or officer of the Corporation or (b) any individual who, while a director
or officer of the Corporation and at the request of the Corporation, serves
or has served as a director, officer, partner or trustee of another
corporation, partnership, joint venture, trust, employee benefit plan or
any other enterprise from and against any claim or liability to which such
person may become subject or which such person may incur by reason of his
or her status as a present or former director or officer of the
Corporation. The Corporation shall have the power, with the approval of the
Board of Directors, to provide such indemnification and advancement of
expenses to a person who served a predecessor of the Corporation in any of
the capacities described in (a) or (b) above and to any employee or agent
of the Corporation or a predecessor of the Corporation."
Article NINTH of the Registrant's Charter provides as follows with respect to
limitation of liability of it directors and officers:
"To the maximum extent that Maryland law in effect from time to time
permits limitation of the liability of directors and officers of a Maryland
corporation, no director or officer of the Corporation shall be liable to
the Corporation or its stockholders for money damages. Neither the
amendment nor repeal of this Article NINTH, nor the adoption or amendment
of any other provision of the charter or Bylaws of the Corporation
inconsistent with this Article NINTH, shall apply to or affect in any
respect the applicability of the preceding sentence with respect to any act
or failure to act which occurred prior to such amendment, repeal or
adoption."
Article XIII of the Registrant's Bylaws provides as follows with respect to
indemnification of its directors and officers and advances for expenses:
"To the maximum extent permitted by Maryland law in effect from time to
time, the Corporation shall indemnify and, without requiring a preliminary
determination of the ultimate entitlement to indemnification, shall pay or
reimburse reasonable expenses in advance of final disposition of a
proceeding to (a) any individual who is a present or former director or
officer of the Corporation and who is made a party to the proceeding by
reason of his service in that capacity or (b) any individual who, while a
director of the Corporation and at the request of the Corporation, serves
or has served another corporation, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer,
partner or trustee of such corporation, partnership,
II-1
<PAGE>
joint venture, trust, employee benefit plan or other enterprise and who is
made a party to the proceeding by reason of his or her service in that
capacity. The Corporation may, with the approval of its Board of Directors,
provide such indemnification and advance for expenses to a person who
served a predecessor of the Corporation in any of the capacities described
in (a) or (b) above and to any employee or agent of the Corporation or a
predecessor of the Corporation."
"Neither the amendment nor repeal of this Article, nor the adoption or
amendment of any other provision of the Bylaws or charter of the
Corporation inconsistent with this Article, shall apply to or affect in any
respect the applicability of the preceding paragraph with respect to any
act or failure to act which occurred prior to such amendment, repeal or
adoption."
The Registrant has entered into indemnity agreements with each of its officers
and directors which provide for reimbursement of all expenses and liabilities
of such officer or director, arising out of any lawsuit or claim against such
officer or director due to the fact that he or she was or is serving as an
officer or director, except for such liabilities and expenses (a) the payment
of which is judicially determined to be unlawful, (b) relating to claims under
Section 16(b) of the Securities Exchange Act of 1934 or (c) relating to
judicially determined criminal violations.
The form of Underwriting Agreement filed as an exhibit to this registration
statement provides for the reciprocal indemnifications by the Underwriters of
the Registrant, and its directors, officers and controlling persons, and by the
Registrant of the Underwriters, and their respective directors, officers and
controlling persons, against certain liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In February and March 1994, the Registrant sold to accredited investors
approximately 285,136 of its Class A Shares for an aggregate purchase price of
approximately $425,138,832. In June 1994, the Registrant issued to an
accredited investor a warrant to acquire approximately 40,241 Class A Shares in
connection with the acquisition of a portfolio of properties by one of the
Registrant's consolidated operating companies. In August and September 1994,
the Registrant sold approximately 301,968 Class A Shares for an aggregate
purchase price of approximately $266,335,942 and an aggregate principal amount
of $43,996,000 of its 2014 Convertible Debentures (convertible into an
aggregate of approximately 42,061 Class A Shares) to accredited investors. On
January 1, 1995, the Registrant issued an aggregate of approximately 54,767
Class A Shares in connection with the merger of Security Capital Group
Incorporated, a Delaware corporation ("GROUP"), with and into the Registrant.
Pursuant to such transaction, each outstanding share of GROUP's common stock
was converted into 1.22 Class A Shares. Also on January 1, 1995, in connection
with the acquisition of GROUP the Registrant issued approximately 80,494 Class
A Shares and an aggregate principal amount of $70,178,000 of its 2014
Convertible Debentures (convertible into an aggregate of approximately 67,092
Class A Shares) for approximately $70,178,000 of GROUP's outstanding
convertible debentures. In addition, on January 1, 1995, the Registrant issued
43,494 Class A Shares and $32,497,000 of its 2014 Convertible Debentures
(convertible into an aggregate of approximately 31,068 Class A Shares) to
holders of $53,201,000 of convertible notes according to terms of an exchange
offer. During the period March 1996 through July 1996, the Registrant sold an
aggregate of approximately 307,950 Class A Shares and an aggregate principal
amount of $323,048,500 of its 2016 Convertible Debentures (convertible into an
aggregate of approximately 279,962 Class A Shares) to accredited investors. In
June 1996, the Registrant sold 139,000 shares of Series A Preferred Stock
(convertible into a maximum of 105,896 Class A Shares) to an accredited
investor. On April 21, 1997, the Registrant agreed to issue an aggregate of
19,938 Class A Shares in exchange for all of the capital stock of an entity
owned by the Chairman of the Registrant.
On June 9, 1995, the Registrant instituted an interest reinvestment plan with
respect to its 2014 Convertible Debentures, pursuant to which cash interest
paid on the 2014 Convertible Debentures may be reinvested into Class A Shares.
As of March 31, 1997, 7,969 Class A Shares have been issued pursuant to such
plan. On September 4, 1996, the Registrant instituted an interest reinvestment
plan with respect to its 2016 Convertible Debentures, pursuant to which cash
interest paid on the 2016 Convertible Debentures may be reinvested into Class A
Shares. As of March 31, 1997, 928 Class A Shares have been issued pursuant to
such plan.
Since January 1, 1994, the Registrant has granted options to purchase an
aggregate of 75,750 Class A Shares to directors and officers of the Registrant
and its subsidiaries. During 1996, options to purchase 5,353 Class A Shares
II-2
<PAGE>
at an aggregate exercise price of approximately $1,161,600 and approximately
$2,659,600 of 2014 Convertible Debentures (convertible into approximately 2,542
Class A Shares) were exercised. Since January 1, 1994, the Registrant has
issued an aggregate of 71 Class A Shares to its directors as compensation for
serving in such capacity.
Each non-employee director is currently entitled to receive an annual retainer
of $35,000 in cash, or at the election of the director, Class A Shares.
Each of the foregoing transactions was effected without registration under the
Securities Act in reliance on the exemption from registration provided pursuant
to Section 4(2).
ITEM 16. FINANCIAL STATEMENTS AND EXHIBITS.
See Index to Financial Statements and Index to Exhibits.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the underwriter at
the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The Registrant hereby undertakes that: (1) for purposes of determining any
liability under the Securities Act of 1933, the information omitted from the
form of prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it was declared
effective; and (2) for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-1 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF SANTA FE, STATE OF NEW MEXICO, ON THE 29TH DAY OF
APRIL, 1997.
Security Capital Group Incorporated
/s/ William D. Sanders
By: ___________________________________
William D. Sanders
Chairman and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of Security Capital Group
Incorporated, a Maryland corporation, and each of the undersigned directors and
officers of Security Capital Group Incorporated, hereby constitutes and
appoints William D. Sanders, C. Ronald Blankenship, Jeffrey A. Klopf and Ariel
Amir its, his or her true and lawful attorneys-in-fact and agents, for it, him
or her and in its, his or her name, place and stead, in any and all capacities,
with full power to act alone, to sign any and all amendments to this
registration statement, to sign a registration statement filed with the
Securities and Exchange Commission pursuant to Rule 462(b) promulgated under
the Securities Act and any and all amendments thereto, and to file each such
registration statement or amendment with all exhibits thereto, and any and all
documents in connection therewith, with the Securities and Exchange Commission,
hereby granting unto said attorneys-in-fact and agents, and each of them, full
power and authority to do and perform any and all acts and things requisite and
necessary to be done in and about the premises, as fully and to all intents and
purposes as it, he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ William D. Sanders Chairman, Director and Chief April 29, 1997
____________________________________ Executive Officer
William D. Sanders (Principal Executive
Officer)
/s/ Gerald R. Morgan, Jr. Principal Financial Officer April 29, 1997
____________________________________
Gerald R. Morgan, Jr.
/s/ Jayson C. Cyr Principal Accounting Officer April 29, 1997
____________________________________
Jayson C. Cyr
/s/ Samuel W. Bodman Director April 29, 1997
____________________________________
Samuel W. Bodman
/s/ Hermann Buerger Director April 29, 1997
____________________________________
Hermann Buerger
/s/ John P. Frazee, Jr. Director April 29, 1997
____________________________________
John P. Frazee, Jr.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Cyrus F. Freidheim, Jr. Director April 29, 1997
____________________________________
Cyrus F. Freidheim, Jr.
/s/ H. Laurance Fuller Director April 29, 1997
____________________________________
H. Laurance Fuller
/s/ Ray L. Hunt Director April 29, 1997
____________________________________
Ray L. Hunt
/s/ John T. Kelley III Director April 29, 1997
____________________________________
John T. Kelley III
/s/ Peter S. Willmott Director April 29, 1997
____________________________________
Peter S. Willmott
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENT DESCRIPTION
------- --------------------
<C> <S> <C>
1 Form of Underwriting Agreement among Security Capital Group
Incorporated ("Security Capital") and J.P. Morgan Securities,
Inc., as representative of the several underwriters named
therein (to be filed by amendment)
2.1 Merger and Issuance Agreement, dated as of March 24, 1997,
between Security Capital Atlantic Incorporated ("ATLANTIC")
and Security Capital, as amended (the "ATLANTIC Merger")
(incorporated by reference to Annex I to Security Capital
Form S-4 (File No. 333- ) (the "ATLANTIC Form S-4"))
2.2 Merger and Issuance Agreement, dated as of March 24, 1997,
between Security Capital Pacific Trust ("PTR") and Security
Capital, as amended (the "PTR Merger") (incorporated by
reference to Annex I to Security Capital Form S-4 (File No.
333- ) (the "PTR Form S-4"))
2.3 Merger and Issuance Agreement, dated as of March 24, 1997,
between Security Capital Industrial Trust ("SCI") and
Security Capital, as amended (the "SCI Merger") (incorporated
by reference to Annex I to Security Capital Form S-4 (File
No. 333- ) (the "SCI Form S-4"))
2.4 ATLANTIC Merger Form of Agreement and Plan of Merger
(incorporated by reference to Exhibit 2.4 to the ATLANTIC
Form S-4)
2.5 PTR Merger Form of Agreement and Plan of Merger (incorporated
by reference to Exhibit 2.4 to the PTR Form S-4)
2.6 SCI Merger Form of Agreement and Plan of Merger (incorporated
by reference to Exhibit 2.4 to the SCI Form S-4)
4.1 Security Capital Articles of Amendment and Restatement
4.2 Security Capital Amended and Restated Bylaws
4.3 Form of Rights Agreement between Security Capital and The
First National Bank of Boston, as Rights Agent, including
form of Rights Certificate
4.4 Form of stock certificate for shares of Class A common stock
of Security Capital (to be filed by amendment)
4.5 Form of stock certificate for shares of Class B common stock
of Security Capital (to be filed by amendment)
4.6 Form of 12% Convertible Subordinated Debentures due June 30,
2014
4.7 Form of 6.50% Convertible Subordinated Debentures due March
29, 2016
4.8 Form of Warrant Agreement by and between Security Capital and
The First National Bank of Boston, as warrant agent,
including form of warrant certificate
4.9 Stock Purchase Warrant issued June 30, 1994 by Security
Capital to Citibank, N.A.
5 Opinion of Mayer, Brown & Platt as to the legality of the
shares being registered (including opinion of Ballard Spahr
Andrews & Ingersoll in support thereof) (to be filed by
amendment)
10.1 Investor Agreement, dated as of October 28, 1993, between
ATLANTIC and Security Capital (incorporated by reference to
Exhibit 10.4 to ATLANTIC's Form S-11 (File No. 333-7071) (the
"ATLANTIC Form S-11"))
10.2 Form of Amended and Restated Investor Agreement between
ATLANTIC and Security Capital (incorporated by reference to
Exhibit 10.1 to ATLANTIC's Form 8-K filed March 26, 1997
(File No. 1-12303) (the "ATLANTIC Form 8-K"))
10.3 Investor Agreement, dated as of October 17, 1996, by and
between Homestead and Security Capital (incorporated by
reference to Exhibit 10.2 to Homestead's Form 10-Q for the
quarter ended September 30, 1996 (File No. 1-12269) (the
"Homestead Form 10-Q"))
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENT DESCRIPTION
------- --------------------
<C> <S> <C>
10.4 Second Amended and Restated Investor Agreement, dated as of
July 11, 1994, by and between Property Trust of America, a
predecessor to PTR ("PTA"), and Security Capital Realty
Incorporated, a predecessor to Security Capital ("SCRI")
(incorporated by reference to Exhibit 10.1 to PTR's Form 8-K
dated July 19, 1994)
10.5 Form of Third Amended and Restated Investor Agreement between
PTR and Security Capital (incorporated by reference to
Exhibit 10.1 to PTR's Form 8-K filed March 26, 1997 (File No.
1-10272) (the "PTR Form 8-K"))
10.6 Supplemental Investment Agreement, dated as of October 1,
1991, by and between PTA and Southwest Realty Advisors
Incorporated, a predecessor to SCRI (incorporated by
reference to Exhibit 10.70 to PTR's Form S-11 (File No. 33-
43201))
10.7 Second Supplemental Investment Agreement, dated as of
December 7, 1993, by and between PTA and SCRI (incorporated
by reference to Exhibit 10.2 to PTR's Form 8-K dated May 3,
1994)
10.8 Third Supplemental Investment Agreement, dated as of December
6, 1994, by and between PTA and SCRI (incorporated by
reference to Exhibit 10.6 to PTR's Form 10-K for the year
ended December 31, 1994)
10.9 Second Amended and Restated Investor Agreement, dated as of
November 18, 1993, between SCI and SCRI (incorporated by
reference to Exhibit 10.14 to SCI's Form S-3 (File No. 33-
73382))
10.10 Form of Third Amended and Restated Investor Agreement between
SCI and Security Capital (incorporated by reference to
Exhibit 10.1 to SCI's Form 8-K filed March 26, 1997 (File No.
1-12846) (the "SCI Form 8-K"))
10.11 First Supplemental Investment Agreement, dated August 23,
1995, between SCI, Security Capital and SCRI (incorporated by
reference to Exhibit 10.11 to SCI's Form 10-K for the year
ended December 31, 1995)
10.12 Second Amended and Restated REIT Management Agreement, dated
as of June 30, 1996, between ATLANTIC and Security Capital
Realty Services Atlantic Incorporated (incorporated by
reference to Exhibit 10.3 to the ATLANTIC Form S-11)
10.13 Fifth Amended and Restated REIT Management Agreement, dated
as of May 21, 1996, between PTR and Security Capital Pacific
Incorporated (incorporated by reference to Exhibit 10.9 to
PTR's Form 10-K for the year ended December 31, 1996 (the
"PTR Form 10-K"))
10.14 Seventh Amended and Restated REIT Management Agreement, dated
June 30, 1996, between SCI and Security Capital Industrial
Incorporated (incorporated by reference to Exhibit 10 to
SCI's Form 8-K dated August 20, 1996)
10.15 Form of property management agreement for ATLANTIC's
communities (incorporated by reference to Exhibit 10.13 to
the ATLANTIC Form S-11)
10.16 Management Agreement, dated as of September 1, 1995, by and
between PTR and SCRI (incorporated by reference to Exhibit
10.7 to the PTR Form 10-K)
10.17 Administrative Services Agreement, dated as of October 17,
1996, between Homestead and Security Capital (incorporated by
reference to Exhibit 10.11 to the Homestead Form 10-Q)
10.18 Form of Administrative Services Agreement between ATLANTIC
and Security Capital (incorporated by reference to Exhibit
10.2 to the ATLANTIC Form 8-K)
10.19 Form of Administrative Services Agreement between PTR and
Security Capital (incorporated by reference to Exhibit 10.2
to the PTR Form 8-K)
10.20 Form of Administrative Services Agreement between SCI and
Security Capital (incorporated by reference to Exhibit 10.2
to the SCI Form 8-K)
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENT DESCRIPTION
------- --------------------
<C> <S> <C>
10.21 Advisory Agreement dated July 5, 1995 between Security
Capital U.S. Realty, Security Capital Holdings, S.A. and
Security Capital (EU) Management S.A. (to be filed by
amendment)
10.22 Sub-Advisory Agreement dated July 5, 1995 between Security
Capital (EU) Management S.A. and Security Capital Investment
Research Incorporated (to be filed by amendment)
10.23 Amended and Restated Credit Agreement, dated as of August 19,
1996 between SC Realty Incorporated and Wells Fargo Realty
Advisors Funding, Incorporated, as agent for the financial
institutions identified therein, including form of Revolving
Credit Note (to be filed by amendment)
10.24 Amended and Restated Pledge Agreement, dated as of August 19,
1996, by and between SC Realty Incorporated and Wells Fargo
Realty Advisors, Incorporated (to be filed by amendment)
10.25 Amended and Restated Guaranty, dated as of August 19, 1996,
by Security Capital in favor of Wells Fargo Realty Advisors,
Incorporated (to be filed by amendment)
10.26 Form of Indemnification Agreement entered into between
Security Capital and each of its directors (to be filed by
amendment)
10.27 1996 Security Capital Outside Directors Plan (to be filed by
amendment)
10.28 Security Capital 1995 Option Plan (as amended and restated
effective as of December 3, 1996)
10.29 Security Capital Deferred Fee Plan for Directors (to be filed
by amendment)
10.30 Security Capital 1991 Option Plan A (as amended and restated
effective as of December 3, 1996)
10.31 Security Capital 1991 Option Plan B (as amended and restated
effective as of December 3, 1996)
10.32 Security Capital 1992 Option Plan A (as amended and restated
effective as of December 3, 1996)
10.33 Security Capital 1992 Option Plan B (as amended and restated
effective as of December 3, 1996)
10.34 Security Capital Realty Investors 1991 Option Plan A (as
amended and restated effective December 3, 1996)
10.35 Security Capital Realty Investors 1991 Option Plan B (as
amended and restated effective December 3, 1996)
11 Fully Diluted Earnings per Common Share and Common Equivalent
Share
21 Subsidiaries of Security Capital (to be filed by amendment)
23.1 Consent of Mayer, Brown & Platt (to be included in the
opinion filed as Exhibit 5)
23.2 Consent of Ballard Spahr Andrews & Ingersoll (to be included
in the opinion filed as a part of Exhibit 5)
23.3 Consent of Arthur Andersen LLP
23.4 Consent of KPMG Peat Marwick LLP
23.5 Consent of Price Waterhouse
23.6 Consent of Ernst & Young LLP
23.7 Consent of Ernst & Young LLP
24 Power of Attorney pursuant to which amendments to this
Registration Statement may be filed (included in this
Registration Statement at page II-4)
27 Financial Data Schedule
</TABLE>
II-8
<PAGE>
EXHIBIT 4.1
SECURITY CAPITAL GROUP INCORPORATED
ARTICLES OF AMENDMENT AND RESTATEMENT
THIS IS TO CERTIFY THAT:
1. Security Capital Group Incorporated, a Maryland corporation (the
"Corporation"), desires to amend and restate its charter as currently in effect
and as hereinafter amended.
2. The following provisions are all of the provisions of the charter
currently in effect and as hereinafter amended:
FIRST: The name of the corporation (the "Corporation") is:
Security Capital Group Incorporated
SECOND: The purposes for which the Corporation is formed are to engage in
any lawful act or activity for which corporations may be formed under the
general laws of the State of Maryland.
THIRD: The current address of the principal office of the Corporation is
125 Lincoln Avenue, Santa Fe, New Mexico 87501. The post office address of the
principal office of the Corporation in the State of Maryland is c/o The
Prentice-Hall Corporation System, Maryland, 11 East Chase Street, Baltimore,
Maryland 21202. The name and address of the resident agent of the Corporation in
the State of Maryland is The Prentice-Hall Corporation System, Maryland, 11 East
Chase Street, Baltimore, Maryland 21202. The resident agent is a corporation
located in the State of Maryland.
FOURTH: The Corporation has authority to issue 250,000,000 shares of
stock, consisting of 20,000,000 shares of Class A Common Stock $0.01 par value
per share (the "Class A Stock"), 229,861,000 shares of Class B Common Stock,
$0.01 par value per share (the "Class B Stock" and, together with the Class A
Stock, the "Common Stock"), and 139,000 shares of Series A Cumulative
Convertible Redeemable Voting Preferred Stock, $0.01 par value per share. The
aggregate par value of all outstanding shares of stock having a par value is
$2,500,000.00. The Board of Directors of the Corporation may, by articles
supplementary filed with and accepted for record by the State Department of
Assessments and Taxation of Maryland ("SDAT"), classify or reclassify any
unissued shares of stock from time to time by setting or changing the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends and other distributions, qualifications or terms or
conditions of redemption of stock; provided, however, that the Corporation shall
not have the authority to issue in excess of 20,000,000 shares of Class A Stock.
The Board of Directors of the Corporation may authorize the issuance from time
to time of shares of its stock of any class, whether now or hereafter
authorized, or securities convertible into or exchangeable for shares of its
stock of any class,
<PAGE>
whether now or hereafter authorized, for such consideration as the Board of
Directors of the Corporation (or a committee thereof) may deem advisable,
subject to such restrictions or limitations, if any, as may be set forth in the
Maryland General Corporation Law (the "MGCL") or in the Bylaws of the
Corporation.
The following is a description of each class of stock of the Corporation,
including any preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends and other distributions,
qualifications and terms and conditions of redemption:
1. Common Stock.
------------
A. Class A Stock.
-------------
Section 1. Voting. Each holder of Class A Stock shall be entitled to
one (1) vote for each share of Class A Stock standing in such holder's name
on the books of the Corporation on all matters upon which stockholders are
entitled to vote. The Class A Stock shall vote on all matters submitted to
a vote of stockholders as a single class with the Class B Stock.
Section 2. Conversion. Commencing on January 1, 1998, each share of
Class A Stock may, at the option of the holder of record thereof and
without payment of any consideration, be converted into fifty (50) fully
paid and nonassessable shares of Class B Stock. Any such conversion may be
effected by any holder of Class A Stock surrendering such holder's
certificate or certificates representing the Class A Stock to be converted,
duly endorsed, at the office of the Corporation or any transfer agent for
the Class A Stock, together with a written notice to the Corporation that
such holder elects to convert all or a specified whole number of shares of
Class A Stock and stating the name or names in which such holder desires
the certificate or certificates representing the Class B Stock to be
issued. If so required by the Corporation, any certificate representing
shares surrendered for conversion shall be accompanied by instruments of
transfer, in form satisfactory to the Corporation, duly executed by the
holder of such shares or the duly authorized representative of such holder.
Promptly thereafter, the Corporation shall issue and deliver or cause to be
issued and delivered to such holder or such holder's nominee or nominees, a
certificate or certificates for the number of shares of Class B Stock to
which such holder shall be entitled as herein provided. Such conversion
shall be deemed to have been made at the close of business on the date of
receipt by the Corporation or any such transfer agent of such certificate
or certificates for Class A Stock and such notice. The person or persons
entitled to receive the Class B Stock issuable on such conversion shall be
treated for all purposes as the record holder or holders of such Class B
Stock on that date.
The issuance of certificates representing shares of Class B Stock
issuable upon the conversion of shares of Class A Stock shall be made
without charge to the converting holder; provided, however, that if any
certificate is to be issued in a name other than that of the record holder
of the shares being converted, the Corporation shall not be required
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to issue or deliver any such certificate unless and until the person
requesting the issuance thereof shall have paid to the Corporation the
amount of any tax that may be payable with respect to any transfer involved
in the issuance and delivery of such certificate or has established to the
satisfaction of the Corporation that such tax has been paid.
The Corporation covenants that it will at all times reserve and keep
available, solely for the purpose of issuance upon conversion of the
outstanding shares of Class A Stock, a number of shares of Class B Stock
equal to fifty (50) times the number of shares of Class A Stock then
outstanding and the number of shares of Class A Stock which may be issued
upon conversion or exchange of outstanding convertible or exchangeable
securities of the Corporation, in addition to the number of shares of Class
B Stock then outstanding.
Section 3. Dividends and Distributions. Holders of Class A Stock shall
be entitled to such dividends or other distributions (including liquidating
distributions) per share, whether in cash or in kind, in stock (including a
stock split) or by any other means, when and as may be authorized by the
Board of Directors of the Corporation out of assets or funds of the
Corporation legally available therefor. In the event of a stock split or
stock dividend, holders of Class A Stock shall only be entitled to receive
shares of Class A Stock, unless otherwise specifically designated by
resolution of the Board of Directors of the Corporation.
Section 4. Reclassification. Immediately upon the filing with, and
acceptance for record by, the SDAT of these Articles of Amendment and
Restatement (the "Effective Time"), each outstanding share and each
unissued share of common stock, $0.01 par value per share ("Old Stock"), of
the Corporation outstanding immediately prior to the Effective Time, shall
be reclassified as, and changed into, one (1) share of Class A Stock of the
Corporation. At the Effective Time, each outstanding security of the
Company convertible into or exchangeable for shares of Old Stock shall be
convertible into or exchangeable for a like number of shares of Class A
Stock.
B. Class B Stock.
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Section 1. Voting. Each holder of Class B Stock shall be entitled to
one two-hundredth (1/200th) of a vote for each share of Class B Stock
standing in such holder's name on the books of the Corporation on all
matters upon which stockholders are entitled to vote. The Class B Stock
shall vote on all matters submitted to a vote of stockholders as a single
class with the Class A Stock.
Section 2. Dividends and Distributions. Holders of Class B Stock shall
be entitled to dividends or other distributions (including liquidating
distributions) per share, whether in cash, in kind, in stock (including a
stock split), or by any other means, equal to one-fiftieth (1/50th) of the
amount per share authorized by the Board of Directors of the Corporation
for each share of Class A Stock, and such dividends or distributions with
respect to the Class B Stock shall be paid in the same form and at the same
time as
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dividends or distributions with respect to the Class A Stock; provided,
however, that, in the event of a stock split or stock dividend, holders of
Class B Stock shall only be entitled to receive shares of Class B Stock,
unless otherwise specifically designated by resolution of the Board of
Directors of the Corporation, in which case articles supplementary shall be
filed with and accepted by the SDAT. At such time as there are no shares of
Class A Stock outstanding, holders of Class B Stock shall be entitled to
such dividends or other distributions (including liquidating distributions)
per share, whether in cash or in kind, in stock (including a stock split)
or by any other means, when and as may be authorized by the Board of
Directors of the Corporation out of assets or funds of the Corporation
legally available therefor.
C. Series A Preferred Stock.
------------------------
Section 1. Number of Stock and Designation. This class of preferred
stock shall be designated as Series A Cumulative Convertible Redeemable
Voting Preferred Stock (the "Series A Preferred Stock") and the number of
shares which shall constitute such series shall not be more than 139,000
shares, par value $0.01 per share, which number may be decreased (but not
below the number thereof then outstanding) from time to time by the Board
of Directors.
Section 2. Definitions. For purposes of the Series A Preferred Stock,
the following terms shall have the meanings indicated:
"Board of Directors" shall mean the Board of Directors of the
Corporation or any committee authorized by the Board of Directors to
perform any of its responsibilities with respect to the Series A
Preferred Stock.
"Business Day" shall mean any day other than a Saturday, Sunday
or a day on which state or federally chartered banking institutions in
New York City, New York are not required to be open.
"Call Date" shall have the meaning set forth in Section 5(d).
"Class A Stock" shall mean the Class A Common Stock of the
Corporation, par value $0.01 per share.
"Class B Stock" shall mean the Class B Common Stock of the
Corporation, par value $0.01 per share.
"Constituent Person" shall have the meaning set forth in Section
6(i).
"Conversion Price" shall mean the conversion price per share of
Class A Stock for which each share of Series A Preferred Stock is
convertible, as such Conversion Price may be adjusted pursuant to
Section 6. The initial conversion
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price shall be $1,312.61 (equivalent to a conversion rate of 0.76184
shares of Class A Stock for each share of Series A Preferred Stock).
"Current Market Price" of publicly traded common stock or any
other class of stock or other security of the Corporation or any other
issuer for any day shall mean the last reported sales price, regular
way, 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, regular way,
in either case as reported on the New York Stock Exchange ("NYSE"),
or, 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, 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, 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, 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, if no such firm is regularly making a market in such
security, the fair market value as determined in good faith by the
Board of Directors.
"Dividend Payment Date" shall mean the last calendar day of
March, June, September and December in each year, commencing on the
first Dividend Payment Date following the Issue Date; provided,
however, that if any Dividend Payment Date falls on any day other than
a Business Day, the dividend payment due on such Dividend Payment Date
shall be paid on the Business Day immediately following such Dividend
Payment Date.
"Dividend Periods" shall mean quarterly dividend periods
commencing on January 1, April 1, July 1 and October 1 of each year
and ending on and including the day preceding the first day of the
next succeeding Dividend Period (other than the initial Dividend
Period, which shall commence on the Issue Date and end on and include
the first Dividend Payment Date following the Issue Date, and other
than the Dividend Period during which any shares of Series A Preferred
Stock shall be redeemed pursuant to Section 5, which shall end on and
include the Call Date with respect to the shares of Series A Preferred
Stock being redeemed).
"Expiration Time" shall have the meaning set forth in Section
6(g)(iv).
"Fair Market Value" shall mean the average of the daily Current
Market Prices of a share of Class A Stock during the five consecutive
Trading Days selected by the Corporation commencing not more than 20
Trading Days before, and ending not later than, the earlier of the day
in question and the day before the
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"ex date" with respect to the issuance or distribution requiring such
computation. The term "ex date," when used with respect to any
issuance or distribution, means the first day on which the Class A
Stock trades regular way, without the right to receive such issuance
or distribution, on the exchange or in the market, as the case may be,
used to determine that day's Current Market Price.
"Fully Junior Stock" shall mean the Class A Stock, the Class B
Stock, and any other class or series of stock of the Corporation now
or hereafter issued and outstanding over which the Series A Preferred
Stock has preference or priority in both (i) the payment of dividends
and (ii) the distribution of assets on any liquidation, dissolution or
winding up of the Corporation.
"Issue Date" shall mean the date on which the applicable Series A
Preferred Shares were issued by the Corporation.
"Junior Stock" shall mean the Class A Stock, the Class B Stock
and any other class or series of stock of the Corporation now or
hereafter issued and outstanding over which the Series A Preferred
Stock has preference or priority in the payment of dividends or in the
distribution of assets on any liquidation, dissolution or winding up
of the Corporation.
"Non-Electing Share" shall have the meaning set forth in Section
6(i).
"Parity Stock" shall have the meaning set forth in Section 8(b).
"Person" shall mean any individual, firm, partnership,
corporation, limited liability company, real estate investment trust
or other entity, and shall include any successor (by merger or
otherwise) of such entity.
"Purchased Shares" shall have the meaning set forth in Section
6(g)(iv).
"Securities" and "Security" shall have the meanings set forth in
Section 6(g)(iii).
"Series A Preferred Stock" shall have the meaning set forth in
Section 1.
"set apart for payment" shall be deemed to include, without any
action other than the following, the recording by the Corporation in
its accounting ledgers of any accounting or bookkeeping entry which
indicates, pursuant to a declaration of dividends or other
distribution by the Board of Directors, the allocation of funds to be
so paid on any series or class of stock of the Corporation; provided,
however, that if any funds for any class or series of Junior Stock or
any class or series of stock ranking on a parity with the Series A
Preferred Stock as to the payment of dividends are placed in a
separate account of the Corporation or delivered to a disbursing,
paying or other similar agent,
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then "set apart for payment" with respect to the Series A Preferred
Stock shall mean placing such funds in a separate account or
delivering such funds to a disbursing, paying or other similar agent.
"Trading Day" shall mean any day on which the securities in
question are traded on the NYSE, or, if such securities are not listed
or admitted for trading on the NYSE, on the principal national
securities exchange on which such securities are listed or admitted,
or, if such securities are not listed or admitted for trading on any
national securities exchange, on the National Market System of NASDAQ,
or, if such securities are not quoted on such National Market System,
in the applicable securities market in which the securities are
traded, or, if such securities are not traded in any securities
market, any Business Day.
"Transaction" shall have the meaning set forth in Section 6(i).
"Transfer Agent" means the Corporation, or such agent or agents
of the Corporation as may be designated by the Board of Directors or
their designee, as the transfer agent, registrar and dividend
disbursing agent for the Series A Preferred Stock.
Section 3. Dividends.
(a) The holders of Series A Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors, out of
funds legally available for the payment of dividends, cumulative
preferential dividends payable in cash in an amount per share equal to
7.50% of the liquidation preference per annum (equivalent to $75.00
per share). Such dividends shall begin to accrue and shall be fully
cumulative from the Issue Date, whether or not in any Dividend Period
or Periods there shall be funds of the Corporation legally available
for the payment of such dividends, and shall be payable quarterly,
when, as and if declared by the Board of Directors, in arrears on
Dividend Payment Dates, commencing on the first Dividend Payment Date
following the Issue Date. Each such dividend shall be payable in
arrears to the holders of record of Series A Preferred Stock as they
appear in the records of the Corporation at the close of business on
such record dates, not less than 10 nor more than 50 days preceding
the corresponding Dividend Payment Dates, as shall be fixed by the
Board of Directors. Dividends paid on the Series A Preferred Stock in
an amount less than the total amount of dividends accumulated and
unpaid on the Series A Preferred Stock shall be declared ratably among
all shares of Series A Preferred Stock then outstanding. Accrued and
unpaid dividends for any past Dividend Periods may be declared and
paid at any time and for such interim periods, without reference to
any regular Dividend Payment Date, to holders of record on such date,
not less than 10 nor more than 50 days preceding the corresponding
payment date, as may be fixed by the Board of Directors. Any dividend
payment made on the Series A Preferred Stock shall first be credited
against the earliest accrued but unpaid
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dividend due with respect to the Series A Preferred Stock which
remains payable. No interest, or sum of money in lieu of interest,
shall be payable in respect of any dividend payment or payments on the
Series A Preferred Stock which may be in arrears.
(b) The amount of dividends payable for each full Dividend Period
on the Series A Preferred Stock shall be computed by dividing by four
the amount per share per annum set forth in Section 3(a). The amount
of dividends payable for the initial Dividend Period, or any other
period shorter than a full Dividend Period (including, in the case of
any redemption, on any Call Date), on the Series A Preferred Stock
shall be computed on the basis of a 360-day year of twelve 30-day
months. Holders of Series A Preferred Stock shall not be entitled to
any dividends, whether payable in cash, property or stock, in excess
of cumulative dividends, as herein provided, on the Series A Preferred
Stock.
(c) So long as any shares of Series A Preferred Stock are
outstanding, no dividends (other than dividends or distributions paid
solely in shares of, or options, warrants or rights to subscribe for
or purchase shares of, Fully Junior Stock), except as described in the
immediately following sentence, shall be declared or paid or set apart
for payment on any class or series of Parity Stock for any period
unless full cumulative dividends have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment
thereof set apart for such payment on the Series A Preferred Stock for
the then current Dividend Period and for all Dividend Periods
terminating on or prior to the dividend payment date on such class or
series of Parity Stock. When dividends are not paid in full or a sum
sufficient for such payment is not set apart, as aforesaid, all
dividends declared upon the Series A Preferred Stock and all dividends
declared upon any class or series of Parity Stock shall be declared
ratably in proportion to the respective amounts of dividends
accumulated and unpaid on the Series A Preferred Stock and accumulated
and unpaid on such Parity Stock.
(d) So long as any shares of Series A Preferred Stock are
outstanding, no dividends (other than dividends or distributions paid
solely in shares of, or options, warrants or rights to subscribe for
or purchase shares of, Fully Junior Stock) shall be declared or paid
or set apart for payment or other distribution shall be declared or
made or set apart for payment upon Junior Stock, nor shall any Junior
Stock be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of Class A Stock made for
purposes of an employee incentive or benefit plan of the Corporation
or any subsidiary) for any consideration (or any moneys be paid to or
made available for a sinking fund for the redemption of any Junior
Stock) by the Corporation or any majority-owned subsidiary of the
Corporation, directly or indirectly (except by conversion into or
exchange for Fully Junior Stock), unless in each case (i) the full
cumulative dividends on all outstanding shares of Series A Preferred
Stock and
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any Parity Stock of the Corporation shall have been or
contemporaneously are declared and paid or declared and set apart for
payment for all past Dividend Periods with respect to the Series A
Preferred Stock and all past dividend periods with respect to such
Parity Stock and (ii) sufficient funds shall have been or
contemporaneously are declared and paid or declared and set apart for
the payment of the dividend for the current Dividend Period with
respect to the Series A Preferred Stock and the current dividend
period with respect to such Parity Stock.
Section 4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, before any payment
or distribution of the assets of the Corporation (whether capital or
surplus) shall be made to or set apart for the holders of Junior
Stock, the holders of Series A Preferred Stock shall be entitled to
receive $1,000 per share of Series A Preferred Stock plus an amount
equal to all dividends (whether or not earned or declared) accrued and
unpaid thereon to the date of final distribution to such holders; but
after payment in full of such amounts, such holders in their capacity
as such shall not be entitled to any further payment. If, upon any
liquidation, dissolution or winding up of the Corporation, the assets
of the Corporation, or proceeds thereof, distributable among the
holders of Series A Preferred Stock shall be insufficient to pay in
full the preferential amount aforesaid and liquidating payments on any
class or series of Parity Stock, then such assets, or the proceeds
thereof, shall be distributed among the holders of Series A Preferred
Stock and any such Parity Stock ratably in accordance with the
respective amounts that would be payable on the Series A Preferred
Stock and any such Parity Stock if all amounts payable thereon were
paid in full. For the purposes of this Section 4, (i) a consolidation
or merger of the Corporation with one or more corporations, real
estate investment trusts or other entities, (ii) a sale, lease or
conveyance of all or substantially all of the Corporation's property
or business or (iii) a statutory share exchange shall not be deemed to
be a liquidation, dissolution or winding up, voluntary or involuntary,
of the Corporation, but Section 6(i) shall apply to any such
transaction, if applicable by its terms.
(b) Subject to the rights of the holders of any series or class
of stock ranking on a parity with or prior to the Series A Preferred
Stock upon liquidation, dissolution or winding up, upon any
liquidation, dissolution or winding up of the Corporation, after
payment shall have been made in full to the holders of the Series A
Preferred Stock, as provided in this Section 4, any series or class of
Junior Stock shall, subject to the respective terms and provisions (if
any) applying thereto, be entitled to receive any and all assets
remaining to be paid or distributed, and the holders of Series A
Preferred Stock shall not be entitled to share therein.
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Section 5. Redemption at the Option of the Corporation.
(a) The Series A Preferred Stock shall not be redeemable by the
Corporation prior to the third anniversary of the applicable Issue
Date. On and after the third anniversary of the applicable Issue Date,
the Corporation, at its option, may redeem the Series A Preferred
Stock, in whole at any time or from time to time in part at the option
of the Corporation, at a redemption price of $1,000 per share of
Series A Preferred Stock, plus the amounts indicated in Section 5(b).
(b) Upon any redemption of Series A Preferred Stock pursuant to
this Section 5, the Corporation shall pay all accrued and unpaid
dividends, if any, thereon to the Call Date, without interest. If the
Call Date falls after a dividend payment record date and prior to the
corresponding Dividend Payment Date, then each holder of shares of
Series A Preferred Stock at the close of business on such dividend
payment record date shall be entitled to the dividend payable on such
shares on the corresponding Dividend Payment Date notwithstanding the
redemption of such shares before such Dividend Payment Date.
(c) If full cumulative dividends on the Series A Preferred Stock
and any class or series of Parity Stock of the Corporation have not
been declared and paid or declared and set apart for payment, the
Series A Preferred Stock may not be redeemed under this Section 5 in
part and the Corporation may not purchase or acquire any Series A
Preferred Stock, otherwise than pursuant to a purchase or exchange
offer made on the same terms to all holders of Series A Preferred
Stock.
(d) Notice of the redemption of any Series A Preferred Stock
under this Section 5 shall be mailed by first-class mail, postage
prepaid, to each holder of record of Series A Preferred Stock to be
redeemed at the address of each such holder as shown on the
Corporation's records, not less than 60 nor more than 90 days prior to
the date fixed for redemption (the "Call Date"). Neither the failure
to mail any notice required by this Section 5(d), nor any defect
therein or in the mailing thereof, to any particular holder, shall
affect the sufficiency of the notice or the validity of the
proceedings for redemption with respect to the other holders. Any
notice which was mailed in the manner herein provided shall be
conclusively presumed to have been duly given on the date mailed
whether or not the holder receives the notice. Each such mailed notice
shall state, as appropriate: (1) the Call Date; (2) the number of
shares of Series A Preferred Stock to be redeemed and, if fewer than
all the shares held by such holder are to be redeemed, the number of
such shares to be redeemed from such holder; (3) the redemption price;
(4) the place or places at which certificates for such shares are to
be surrendered (which shall be in the continental United States); (5)
the then-current Conversion Price; and (6) that dividends on the
shares to be redeemed shall cease to accrue on such Call Date except
as otherwise provided
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herein. Notice having been mailed as aforesaid, from and after the
Call Date (unless the Corporation shall fail to make available an
amount of cash necessary to effect such redemption), (i) except as
otherwise provided herein, dividends on the shares of Series A
Preferred Stock so called for redemption shall cease to accrue, (ii)
such shares shall no longer be deemed to be outstanding, and (iii) all
rights of the holders thereof as holders of Series A Preferred Stock
shall cease (except the rights to convert and to receive cash payable
upon such redemption, without interest thereon, upon surrender and
endorsement of their certificates if so required and to receive any
dividends payable thereon). The Corporation's obligation to provide
cash in accordance with the preceding sentence shall be deemed
fulfilled if, on or before the Call Date, the Corporation shall
deposit with a bank or trust company located in the continental United
States that has capital and surplus of at least $50,000,000, cash
necessary for such redemption, in trust for the pro rata benefit of
the holders of the shares called for redemption, with irrevocable
instructions that such cash be applied to the redemption of the shares
of Series A Preferred Stock so called for redemption. No interest
shall accrue for the benefit of the holders of shares of Series A
Preferred Stock to be redeemed on any cash so set aside by the
Corporation. Subject to applicable escheat laws, any such cash
unclaimed at the end of two years from the Call Date shall revert to
the general funds of the Corporation, after which reversion the
holders of such shares so called for redemption shall look only to the
general funds of the Corporation for the payment of such cash.
(e) Against presentation and surrender in accordance with the
notice described in Section 5(d) of the certificates for any shares of
Series A Preferred Stock so redeemed (properly endorsed or assigned
for transfer, if the Corporation shall so require and if the notice
shall so state), such shares shall be redeemed and paid by the
Corporation at the redemption price set forth in Section 5. If fewer
than all the outstanding shares of Series A Preferred Stock are to be
redeemed, shares to be redeemed shall be selected by the Corporation
from outstanding shares of Series A Preferred Stock not previously
called for redemption pro rata (as nearly as may be), by lot or by any
other method determined by the Corporation in its sole discretion to
be equitable. If fewer than all the shares of Series A Preferred
Stock represented by any certificate are redeemed, then new
certificates representing the unredeemed shares shall be issued
without cost to the holder thereof.
Section 6. Conversion. Holders of shares of Series A Preferred
Stock shall have the right to convert all or a portion of such shares
into Class A Stock, as follows:
(a) Subject to and upon compliance with the provisions of this
Section 6, a holder of shares of Series A Preferred Stock shall have
the right, at his or her option, at any time to convert such shares
into the number of fully paid and non-assessable shares of Class A
Stock obtained by dividing the aggregate
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liquidation preference of such shares by the Conversion Price (as in
effect at the time and on the date provided for in Section 6(e)) by
surrendering such shares to be converted, such surrender to be made in
the manner provided in Section 6(b); provided, however, that the right
to convert shares called for redemption pursuant to Section 5 shall
terminate at the close of business on the 3rd day prior to the Call
Date fixed for such redemption, unless the Corporation shall default
in making payment of the cash payable upon such redemption under
Section 5.
(b) In order to exercise the conversion right, the holder of each
share of Series A Preferred Stock to be converted shall surrender the
certificate representing such share, duly endorsed or assigned to the
Corporation or in blank, at the office of the Transfer Agent,
accompanied by written notice to the Corporation that the holder
thereof elects to convert such share of Series A Preferred Stock.
Unless the shares issuable on conversion are to be issued in the same
name as the name in which such share of Series A Preferred Stock is
registered, each share surrendered for conversion shall be accompanied
by instruments of transfer, in form satisfactory to the Corporation,
duly executed by the holder or such holder's duly authorized attorney
and an amount sufficient to pay any transfer or similar tax (or
evidence reasonably satisfactory to the Corporation demonstrating that
such taxes have been paid).
(c) Holders of shares of Series A Preferred Stock at the close of
business on a dividend payment record date shall be entitled to
receive the dividend payable on such shares on the corresponding
Dividend Payment Date notwithstanding the conversion thereof following
such dividend payment record date and prior to such Dividend Payment
Date. However, shares of Series A Preferred Stock surrendered for
conversion during the period between the close of business on any
dividend payment record date and the opening of business on the
corresponding Dividend Payment Date (except shares converted after the
issuance of notice of redemption with respect to a Call Date during
such period, such shares of Series A Preferred Stock being entitled to
such dividend on the Dividend Payment Date) must be accompanied by
payment of an amount equal to the dividend payable on such shares on
such Dividend Payment Date. A holder of shares of Series A Preferred
Stock on a dividend payment record date who (or whose transferee)
tenders any such shares for conversion into shares of Class A Stock on
the corresponding Dividend Payment Date will receive the dividend
payable by the Corporation on such shares of Series A Preferred Stock
on such date, and the converting holder need not include payment of
the amount of such dividend upon surrender of such shares of Series A
Preferred Stock for conversion. Except as provided above, the
Corporation shall make no payment or allowance for unpaid dividends,
whether or not in arrears, on converted shares of Series A Preferred
Stock or for dividends on the Class A Stock issued upon such
conversion.
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(d) As promptly as practicable after the surrender of
certificates for shares of Series A Preferred Stock as aforesaid, the
Corporation shall issue and shall deliver at such office to such
holder, or on his or her written order, a certificate or certificates
for the number of full shares of Class A Stock issuable upon the
conversion of such shares in accordance with the provisions of this
Section 6, and any fractional interest in respect of Class A Stock
arising upon such conversion shall be settled as provided in Section
6(f).
(e) Each conversion shall be deemed to have been effected
immediately prior to the close of business on the date on which the
certificates for shares of Series A Preferred Stock shall have been
surrendered and such notice shall have been received by the
Corporation as aforesaid (and if applicable, payment of an amount
equal to the dividend payable on such shares shall have been received
by the Corporation as provided above), and the person or persons in
whose name or names any certificate or certificates for shares of
Class A Stock shall be issuable upon such conversion shall be deemed
to have become the holder or holders of record of the shares
represented thereby at such time on such date and such conversion
shall be at the Conversion Price in effect at such time on such date
unless the stock transfer books of the Corporation shall be closed on
that date, in which event such person or persons shall be deemed to
have become such holder or holders of record at the close of business
on the next succeeding day on which such stock transfer books are
open, but such conversion shall be at the Conversion Price in effect
on the date on which such shares of Series A Preferred Stock shall
have been surrendered and such notice received by the Corporation.
(f) No fractional shares or scrip representing fractional
interests in respect of Class A Stock shall be issued upon conversion
of Series A Preferred Stock. Instead of any fractional interest in
respect of Class A Stock that would otherwise be deliverable upon the
conversion of a share of Series A Preferred Stock, the Corporation
shall pay to the holder of such share an amount in cash based upon the
Current Market Price of the Class A Stock on the Trading Day
immediately preceding the date of conversion. If more than one share
of Series A Preferred Stock shall be surrendered for conversion at one
time by the same holder, the number of full shares of Class A Stock
issuable upon conversion thereof shall be computed on the basis of the
aggregate number of shares of Series A Preferred Stock so surrendered.
(g) The Conversion Price shall be adjusted from time to time as
follows:
(i) If the Corporation shall after March 29, 1996 (A) pay a
dividend or make a distribution on the Class A Stock in Class A
Stock, (B) subdivide the outstanding Class A Stock into a greater
number of shares or (C) combine the outstanding Class A Stock
into a smaller number of shares, the Conversion Price in effect
at the opening of
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business on the day following the date fixed for the
determination of stockholders entitled to receive such dividend
or distribution or at the opening of business on the Business Day
next following the day on which such subdivision or combination
becomes effective, as the case may be, shall be adjusted so that
the holder of any Series A Preferred Stock thereafter surrendered
for conversion shall be entitled to receive the number of shares
of Class A Stock that such holder would have owned or have been
entitled to receive after the happening of any of the events
described above as if such Series A Preferred Stock had been
converted immediately prior to the record date in the case of a
dividend or distribution or the effective date in the case of a
subdivision or combination. Adjustments made pursuant to this
Section 6(g)(i) shall be made successively whenever any event
listed above shall occur and shall become effective immediately
after the opening of business on the Business Day next following
the record date (except as provided in Section 6(l)) in the case
of a dividend or distribution and shall become effective
immediately after the opening of business on the Business Day
next following the effective date in the case of a subdivision or
combination.
(ii) If the Corporation shall after March 29, 1996 issue
rights, options or warrants to all holders of Class A Stock
entitling them (for a period expiring within 45 days after the
record date described below) to subscribe for or purchase Class A
Stock at a price per share less than 94% (100% if a stand-by
underwriter is used and charges the Corporation a commission) of
the Fair Market Value per share of Class A Stock on the record
date for the determination of stockholders entitled to receive
such rights, options or warrants, then the Conversion Price in
effect at the opening of business on the Business Day next
following such record date shall be adjusted to equal the price
determined by multiplying (A) the Conversion Price in effect
immediately prior to the opening of business on the Business Day
next following the date fixed for such determination by (B) a
fraction, the numerator of which shall be the sum of (x) the
number of shares of Class A Stock outstanding on the close of
business on the date fixed for such determination and (y) the
number of shares of Class A Stock that the aggregate proceeds to
the Corporation from the exercise of such rights, options or
warrants for Class A Stock would purchase at 94% of such Fair
Market Value (or 100% in the case of a stand-by underwriting),
and the denominator of which shall be the sum of (x) the number
of shares of Class A Stock outstanding on the close of business
on the date fixed for such determination and (y) the number of
additional shares of Class A Stock offered for subscription or
purchase pursuant to such rights, options or warrants. Such
adjustments shall be made successively whenever such rights,
options or warrants are issued and shall become effective
immediately after the opening of business on
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the day next following such record date (except as provided in
Section 6(l)). In the event that all the shares of Class A Stock
offered for subscription or purchase are not delivered upon the
exercise of such rights, options or warrants, upon the expiration
of such rights, options or warrants the Conversion Price shall be
readjusted to the Conversion Price which would have been in
effect if the numerator and denominator of the foregoing fraction
and the resulting adjustment had been based upon the number of
shares of Class A Stock actually delivered upon the exercise of
such rights, options or warrants, rather than upon the number of
shares of Class A Stock offered for subscription or purchase. In
determining whether any rights, options or warrants entitle the
holders of Class A Stock to subscribe for or purchase Class A
Stock at less than 94% of such Fair Market Value (or 100% in the
case of a stand-by underwriting), there shall be taken into
account any consideration received by the Corporation upon
issuance and upon exercise of such rights, options or warrants,
the value of such consideration, if other than cash, to be
determined in good faith by the Board of Directors.
(iii) If the Corporation shall distribute to all holders of
Class A Stock any stock of the Corporation (other than Class A
Stock) or assets or evidences of its indebtedness (excluding cash
dividends or distributions paid with respect to the Class A Stock
from the Corporation's retained earnings) or rights, options or
warrants to subscribe for or purchase any of its securities
(excluding those rights, options and warrants issued to all
holders of Class A Stock entitling them for a period expiring
within 45 days after the record date referred to in Section
6(g)(ii) to subscribe for or purchase Class A Stock, which rights
and warrants are referred to in and treated under Section
6(g)(ii) (any of the foregoing being referred to collectively as
the "Securities" and individually as a "Security"), then in each
such case the Conversion Price shall be adjusted so that it shall
equal the price determined by multiplying (x) the Conversion
Price in effect immediately prior to the close of business on the
date fixed for the determination of stockholders entitled to
receive such distribution by (y) a fraction, the numerator of
which shall be the Fair Market Value per share of Class A Stock
on the record date described below less the then fair market
value (as determined in good faith by the Board of Directors), of
the portion of the stock or assets or evidences of indebtedness
so distributed or of such rights, options or warrants applicable
to one share of Class A Stock, and the denominator of which shall
be the Fair Market Value per share of Class A Stock on the record
date described below. Such adjustments shall be made
successively whenever any such distribution is made and shall
become effective immediately at the opening of business on the
Business Day next following the record date for the determination
of stockholders entitled to receive such distribution (except as
provided in Section 6(l)). For the purposes of this Section
6(g)(iii), the
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distribution of a Security, which is distributed not only to the
holders of Class A Stock on the date fixed for the determination
of stockholders entitled to such distribution of such Security,
but also is distributed with each share of Class A Stock
delivered to a Person converting a share of Series A Preferred
Stock after such determination date, shall not require an
adjustment of the Conversion Price pursuant to this Section
6(g)(iii); provided that on the date, if any, on which a person
converting a share of Series A Preferred Stock would no longer be
entitled to receive such Security with a share of Class A Stock
(other than as a result of the termination of all such
Securities), a distribution of such Securities shall be deemed to
have occurred and the Conversion Price shall be adjusted as
provided in this Section 6(g)(iii) (and such day shall be deemed
to be "the date fixed for the determination of the stockholders
entitled to receive such distribution" and "the record date"
within the meaning of the two preceding sentences).
(iv) In case a tender or exchange offer made by the
Corporation or any subsidiary of the Corporation for all or any
portion of the Class A Stock shall expire and such tender or
exchange offer shall involve the payment by the Corporation or
such subsidiary of consideration per share of Class A Stock
having a fair market value (as determined in good faith by the
Board of Directors), at the last time (the "Expiration Time")
tenders or exchanges may be made pursuant to such tender or
exchange offer, that exceeds the Current Market Price per share
of Class A Stock on the Trading Day next succeeding the
Expiration Time, the Conversion Price shall be reduced so that it
shall equal the price determined by multiplying the Conversion
Price in effect immediately prior to the effectiveness of the
Conversion Price reduction contemplated by this Section 6(g)(iv),
by a fraction the numerator of which shall be the number of
shares of Class A Stock outstanding (including any tendered or
exchanged shares) at the Expiration Time, multiplied by the
Current Market Price per share of Class A Stock on the Trading
Day next succeeding the Expiration Time, and the denominator of
which shall be the sum of (A) the fair market value (determined
as aforesaid) of the aggregate consideration payable to
stockholders based upon the acceptance (up to any maximum
specified in the terms of the tender or exchange offer) of all
shares validly tendered or exchanged and not withdrawn as of the
Expiration Time (the shares deemed so accepted, up to any
maximum, being referred to as the "Purchased Shares") and (B) the
product of the number of shares of Class A Stock outstanding
(less any Purchased Shares) at the Expiration Time and the
Current Market Price per share of Class A Stock on the Trading
Day next succeeding the Expiration Time, such reduction to become
effective immediately prior to the opening of business on the day
following the Expiration Time.
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(v) No adjustment in the Conversion Price shall be required
pursuant to this Section 6(g) unless such adjustment would
require a cumulative increase or decrease of at least 1% in such
price; provided, however, that any adjustments that by reason of
this Section 6(g)(v) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment until
made; and provided, further, that any adjustment shall be
required and made in accordance with the provisions of this
Section 6 (other than this Section 6(g)(v)) not later than such
time as may be required in order to preserve the tax-free nature
of a distribution to the holders of Class A Stock.
Notwithstanding any other provisions of this Section 6 (including
Section 6(h)), the Corporation shall not be required to make any
adjustment of the Conversion Price for the issuance of any Class
A Stock pursuant to any plan providing for the reinvestment of
dividends or interest payable on securities of the Corporation
and the investment of additional optional amounts in Class A
Stock under such plan. All calculations under this Section 6
(including Section 6(h)) shall be made to the nearest cent (with
$.005 being rounded upward) or to the nearest one-thousandth of a
share (with .0005 of a share being rounded upward), as the case
may be. Anything in this Section 6(g) to the contrary
notwithstanding, the Corporation shall be entitled, to the extent
permitted by law, to make such reductions in the Conversion
Price, in addition to those required by this Section 6(g) and
Section 6(h), as it in its discretion shall determine to be
advisable in order that any stock dividends, subdivision of
stock, reclassification or combination of stock, distribution of
rights or warrants to purchase stock or securities, or
distribution of other assets (other than cash dividends)
hereafter made by the Corporation to its stockholders shall not
be taxable.
(h) In addition to the adjustments provided in Section 6(g), if
the Corporation shall after March 29, 1996 issue additional shares of
Class A Stock (or securities convertible into or exchangeable for
shares of Class A Stock or any options, warrants or other rights to
acquire shares of Class A Stock) at a price per share less than the
Fair Market Value per share of Class A Stock on the date of such
issuance or over a reasonable and customary period preceding such
issuance date or the date such issuance is approved by the Board of
Directors (except as provided in Section 6(g) and except for (i)
options outstanding on March 29, 1996 or thereafter issued to
directors, officers, employees and service providers of the
Corporation and its affiliates pursuant to any employee benefit stock
offering, plan, agreement or arrangement approved by the Board of
Directors; (ii) the Series A Preferred Stock or other convertible
securities of the Corporation outstanding on March 29, 1996; and (iii)
securities of the Corporation issued in accordance with the pricing
terms set forth in the Corporation's December 1995 Private Placement
Memorandum, as amended and supplemented through March 29, 1996), other
than issuances for which an adjustment is made pursuant to other
adjustment provisions of this Section 6, then the Conversion Price in
effect at the
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opening of business on the Business Day next following such issuance
date shall be adjusted to equal the price determined by multiplying
(A) the Conversion Price in effect immediately prior to the opening of
business on the Business Day next following the date fixed for such
determination by (B) a fraction, the numerator of which shall be the
sum of (x) the number of shares of Class A Stock outstanding on the
close of business on the date fixed for such determination and (y) the
number of shares of Class A Stock that the aggregate proceeds to the
Corporation from such issuance or from the conversion, exchange or
exercise of such convertible or exchangeable securities, options,
warrants or other rights would purchase at Fair Market Value, and the
denominator of which shall be the sum of (x) the number of shares of
Class A Stock outstanding on the close of business on the date fixed
for such determination and (y) the number of additional shares of
Class A Stock issued or the maximum number initially issuable upon
conversion, exchange or exercise of such convertible or exchangeable
securities, options, warrants or other rights; provided that (i) the
determination as to whether an adjustment is required to be made
pursuant to this Section 6(h) shall only be made upon the issuance of
such shares of Class A Stock or such convertible or exchangeable
securities, options, warrants or other rights and not upon the
issuance of the Class A Stock into which such convertible or
exchangeable securities convert or exchange or the Class A Stock
underlying such options, warrants or other rights, (ii) all shares of
Class A Stock issuable upon conversion, exchange or exercise of
outstanding convertible or exchangeable securities, options, warrants
or other rights shall be deemed outstanding and (iii) if any such
convertible or exchangeable securities, options, warrants or rights
that shall have given rise to an adjustment pursuant to this Section
6(h) shall have expired or terminated without the exercise thereof,
then the Conversion Price shall be readjusted to the Conversion Price
which would have been in effect if the numerator and denominator of
the foregoing fraction and the resulting adjustment had been based
upon the number of shares of Class A Stock actually issued upon the
conversion, exchange or exercise thereof, rather than upon the maximum
number of shares of Class A Stock initially so issuable. Such
adjustments shall be made successively whenever such additional shares
of Class A Stock or convertible or exchangeable securities, options,
warrants or other rights are issued and shall become effective on the
day next following such issuance date (except as provided in Section
6(l)). In determining whether additional shares are issued or
issuable at less than the Fair Market Value, the consideration
received by the Corporation shall not be reduced by any reasonable
discounts, commissions or others expenses allowed, paid or incurred by
the Corporation in connection with the issuance thereof and the value
of any consideration other than cash shall be determined in good faith
by the Board of Directors. In determining whether any security
convertible, exchangeable or exercisable into Class A Stock has been
issued at a price per share less than the Fair Market Value, there
shall be taken into account any consideration received by the
Corporation upon issuance and upon conversion, exchange or exercise of
such security, the value of such consideration, if other than cash, to
be determined in good faith by the Board of
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Directors. No adjustment in the Conversion Price shall be required
pursuant to this Section 6(h) unless such adjustment would require a
cumulative decrease of at least 3% in such price; provided however
that any adjustments that by reason of this sentence are not required
to be made shall be carried forward and taken into account in any
subsequent adjustment is made.
(i) If the Corporation shall be a party to any transaction
(including without limitation a merger, consolidation, statutory share
exchange, self tender offer for all or substantially all shares of
Class A Stock, sale of all or substantially all of the Corporation's
assets or reorganization, reclassification or recapitalization of the
Class A Stock and excluding any transaction to which Section 6(g)(i)
applies) (each of the foregoing being referred to as a "Transaction"),
in each case as a result of which all or substantially all shares of
Class A Stock are converted into the right to receive stock,
securities or other property (including cash or any combination
thereof), each share of Series A Preferred Stock which is not redeemed
or converted into the right to receive stock, securities or other
property prior to such Transaction shall thereafter be convertible
into the kind and amount of stock, securities and other property
(including cash or any combination thereof) receivable upon the
consummation of such Transaction by a holder of that number of shares
of Class A Stock into which one share of Series A Preferred Stock was
convertible immediately prior to such Transaction, assuming such
holder of Class A Stock (i) is not a Person with which the Corporation
consolidated or into which the Corporation merged or which merged into
the Corporation or to which such sale or transfer was made, as the
case may be (a "Constituent Person"), or an affiliate of a Constituent
Person and (ii) failed to exercise his rights of election, if any, as
to the kind or amount of stock, securities and other property
(including cash) receivable upon such Transaction (provided that if
the kind or amount of stock, securities and other property (including
cash) receivable upon such Transaction is not the same for each share
of Class A Stock held immediately prior to such Transaction by other
than a Constituent Person or an affiliate thereof and in respect of
which such rights of election shall not have been exercised (a "Non-
Electing Share"), then for the purpose of this Section 6(i) the kind
and amount of stock, securities and other property (including cash)
receivable upon such Transaction by each Non-Electing Share shall be
deemed to be the kind and amount so receivable per share by a
plurality of the Non-Electing Shares). The Corporation shall not be a
party to any Transaction unless the terms of such Transaction are
consistent with the provisions of this Section 6(i), and it shall not
consent or agree to the occurrence of any Transaction until the
Corporation has entered into an agreement with the successor or
purchasing entity, as the case may be, for the benefit of the holders
of Series A Preferred Stock that will contain provisions enabling the
holders of the shares of Series A Preferred Stock that remain
outstanding after such Transaction to convert into the consideration
received by holders of Class A Stock at the Conversion Price in effect
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immediately prior to such Transaction. The provisions of this Section
6(i) shall similarly apply to successive Transactions.
(j) If:
(i) the Corporation shall declare a dividend (or any other
distribution) on the Class A Stock; or
(ii) the Corporation shall authorize the granting to the
holders of Class A Stock of rights, options or warrants to
subscribe for or purchase any stock of any class or any other
rights, options or warrants; or
(iii) there shall be any reorganization, reclassification
or recapitalization of the Class A Stock (other than a
transaction to which Section 6(g)(i) applies) or any
consolidation or merger to which the Corporation is a party and
for which approval of any stockholders of the Corporation is
required, or a statutory share exchange, or a self tender offer
by the Corporation for all or substantially all of the
outstanding shares of Class A Stock or the sale or transfer of
all or substantially all of the Corporation's assets; or
(iv) there shall occur the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
then the Corporation shall cause to be filed with the Transfer Agent
and shall cause to be mailed to the holders of record of Series A
Preferred Stock at their addresses as shown on the records of the
Corporation, as promptly as possible, but at least 10 days prior to
the applicable date hereinafter described, a notice stating (A) the
date on which a record is to be taken for the purpose of such
dividend, distribution or granting of rights, options or warrants, or,
if a record is not to be taken, the date as of which the holders of
Class A Stock of record to be entitled to such dividend, distribution
or rights, options or warrants are to be determined or (B) the date on
which such reorganization, reclassification, recapitalization,
consolidation, merger, statutory share exchange, sale, transfer,
liquidation, dissolution or winding up is expected to become
effective, and the date as of which it is expected that holders of
Class A Stock of record shall be entitled to exchange their Class A
Stock for securities or other property, if any, deliverable upon such
reorganization, reclassification, recapitalization, consolidation,
merger, statutory share exchange, sale, transfer, liquidation,
dissolution or winding up. Failure to give or receive such notice or
any defect therein shall not affect the legality or validity of the
proceedings described in this Section 6.
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(k) Whenever the Conversion Price is adjusted as herein provided,
the Corporation shall promptly file with the Transfer Agent an
officer's certificate setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring
such adjustment. As soon as practicable after delivery of such
certificate, the Corporation shall prepare a notice of such adjustment
of the Conversion Price setting forth the adjusted Conversion Price
and the effective date of such adjustment and shall mail such notice
of such adjustment of the Conversion Price to the holders of record of
Series A Preferred Stock at their addresses as shown on the records of
the Corporation.
(l) In any case in which Section 6(g) provides that an adjustment
shall become effective on the day next following the record date for
an event, the Corporation may defer (but only until five business days
following the mailing of the notice described in Section 6(k)) (A)
issuing to the holder of any Series A Preferred Stock converted after
such record date the additional Class A Stock issuable upon such
conversion by reason of the adjustment required by such event over and
above the Class A Stock issuable upon such conversion before giving
effect to such adjustment and (B) paying to such holder any amount of
cash in lieu of any fractional interest pursuant to Section 6(f); and
in lieu of the shares the issuance of which is so deferred, the
Corporation shall issue due bills or other appropriate evidence of the
right to receive such shares.
(m) There shall be no adjustment of the Conversion Price in case
of the issuance of any stock of the Corporation in a reorganization,
acquisition or other similar transaction except as specifically set
forth in this Section 6. If any action would require adjustment of
the Conversion Price pursuant to more than one paragraph of this
Section 6, only one adjustment shall be made and such adjustment shall
be the amount of adjustment that has the highest absolute value.
(n) If the Corporation shall take any action affecting the Class
A Stock, other than action described in this Section 6, that in the
opinion of the Board of Directors would materially and adversely
affect the conversion rights of the holders of Series A Preferred
Stock, the Conversion Price for the Series A Preferred Stock may be
adjusted, to the extent permitted by law, in such manner, if any, and
at such time, as the Board of Directors, in its sole discretion, may
determine to be equitable in the circumstances.
(o) (i) The Corporation covenants that it will at all times
reserve and keep available, free from preemptive rights, out of
the aggregate of the authorized but unissued shares of Class A
Stock, for the purpose of effecting conversion of the Series A
Preferred Stock, the full number of shares of Class A Stock
deliverable upon the conversion of all outstanding shares of
Series A Preferred Stock not theretofore converted. For purposes
of this Section 6(o)(i), the number of shares of Class A Stock
that shall be deliverable upon the conversion of all outstanding
Series A
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Preferred Stock shall be computed as if at the time of
computation all such outstanding shares were held by a single
holder.
(ii) The Corporation covenants that any shares of Class A
Stock issued upon conversion of the Series A Preferred Stock
shall be validly issued, fully paid and non-assessable. Before
taking any action that would cause an adjustment reducing the
Conversion Price below the then-par value of the shares of Class
A Stock deliverable upon conversion of the Series A Preferred
Stock, the Corporation will take any action that, in the opinion
of its counsel, may be necessary in order that the Corporation
may validly and legally issue fully paid and non-assessable
shares of Class A Stock at such adjusted Conversion Price.
(iii) The Corporation shall endeavor to list the shares of
Class A Stock required to be delivered upon conversion of the
Series A Preferred Stock, prior to such delivery, upon each
national securities exchange, if any, upon which the outstanding
shares of Class A Stock are listed at the time of such delivery.
(iv) Prior to the delivery of any securities that the
Corporation shall be obligated to deliver upon conversion of the
Series A Preferred Stock, the Corporation shall endeavor to
comply with all federal and state laws and regulations thereunder
requiring the registration of such securities with, or any
approval of or consent to the delivery thereof by, any
governmental authority.
(p) The Corporation will pay any and all documentary stamp or
similar issue or transfer taxes payable in respect of the issue or
delivery of Class A Stock or other securities or property on
conversion of the Series A Preferred Stock pursuant hereto; provided,
however, that the Corporation shall not be required to pay any tax
that may be payable in respect of any transfer involved in the issue
or delivery of Class A Stock or other securities or property in a name
other than that of the holder of the Series A Preferred Stock to be
converted, and no such issue or delivery shall be made unless and
until the person requesting such issue or delivery has paid to the
Corporation the amount of any such tax or established, to the
reasonable satisfaction of the Corporation, that such tax has been
paid.
(q) If at any time any holder of shares of Series A Preferred
Stock is prohibited under the Bank Holding Company Act of 1956, as
amended, or any similar statute then in effect, from owning securities
constituting or convertible into 5% or more of the outstanding shares
of Class A Stock, then the conversion rights of the shares of Series A
Preferred Stock held by such holder shall be modified as follows: (i)
the number of shares of Series A Preferred Stock held by such holder
which may then be converted by such holder without resulting in such
holder owning 5% or more of the shares of Class A Stock outstanding
after such
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conversion shall be convertible into shares of Class A Stock in
accordance with and subject to the other provisions of this Section 6;
and (ii) any shares of Series A Preferred Stock held by such holder in
excess of the number of shares which may then be converted as
described in clause (i) shall not be convertible into shares of Class
A Stock until such time, if any, as (and to the extent that) such
shares (A) may be converted without resulting in such holder owning 5%
or more of the shares of Class A Stock outstanding after such
conversion or (B) are held by a person not prohibited from owning
securities constituting or convertible into 5% or more of the
outstanding shares of Class A Stock as described above.
Section 7. Stock To Be Retired. All shares of Series A Preferred
Stock which shall have been issued and reacquired in any manner by the
Corporation shall be restored to the status of authorized but unissued
shares of Series A Preferred Stock.
Section 8. Ranking. Any class or series of stock of the Corporation
shall be deemed to rank:
(a) prior to the Series A Preferred Stock, as to the payment of
dividends and as to the distribution of assets upon liquidation,
dissolution or winding up, if the holders of such class or series
shall be entitled to the receipt of dividends or of amounts
distributable upon liquidation, dissolution or winding up, as the case
may be, in preference or priority to the holders of Series A Preferred
Stock;
(b) on a parity with the Series A Preferred Stock, as to the
payment of dividends and as to the distribution of assets upon
liquidation, dissolution or winding up, whether or not the dividend
rates, dividend payment dates or redemption or liquidation prices per
share thereof shall be different from those of the Series A Preferred
Stock, if the holders of such class or series and the Series A
Preferred Stock shall be entitled to the receipt of dividends and of
amounts distributable upon liquidation, dissolution or winding up in
proportion to their respective amounts of accrued and unpaid dividends
per share or liquidation preferences, without preference or priority
one over the other ("Parity Stock");
(c) junior to the Series A Preferred Stock, as to the payment of
dividends or as to the distribution of assets upon liquidation,
dissolution or winding up, if such class or series shall be Junior
Stock; and
(d) junior to the Series A Preferred Stock, as to the payment of
dividends and as to the distribution of assets upon liquidation,
dissolution or winding up, if such class or series shall be Fully
Junior Stock.
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Section 9. Voting.
(a) So long as any shares of Series A Preferred Stock are
outstanding, in addition to any other vote or consent of stockholders
required by law or by the Corporation's charter, the affirmative vote
or consent of at least a majority of the votes entitled to be cast by
the holders of Series A Preferred Stock at the time outstanding shall
be necessary for effecting or validating:
(i) Any amendment, alteration or repeal of any of the
provisions of subsection C of this Article FOURTH that adversely
affects the powers, rights or preferences of the holders of
Series A Preferred Stock; provided, however, that the amendment
of the provisions of the Corporation's charter so as to authorize
or create or to increase the authorized amount of, any Fully
Junior Stock, Junior Stock that is not senior in any respect to
the Series A Preferred Stock, or any stock of any class ranking
on a parity with the Series A Preferred Stock shall not be deemed
to adversely affect the powers, rights or preferences of the
holders of Series A Preferred Stock; or
(ii) The authorization, reclassification or creation of, or
the increase in the authorized amount of, any stock of any class
or any security convertible into stock of any class ranking prior
to the Series A Preferred Stock in the distribution of assets on
any liquidation, dissolution or winding up of the Corporation or
in the payment of dividends;
provided, however, that no such vote of the holders of Series A
Preferred Stock shall be required pursuant to Section 9(a)(i) or
9(a)(ii) if, at or prior to the time when such amendment, alteration
or repeal is to take effect, or when the issuance of any such prior
stock or convertible security is to be made, as the case may be,
provision is made for the redemption of all shares of Series A
Preferred Stock at the time outstanding and an amount of cash
necessary to effect such redemption is deposited with a bank or trust
company located in the continental United States that has capital and
surplus of at least $50,000,000, in trust for the pro rata benefit of
the holders of the shares called for redemption, with irrevocable
instructions that such cash be applied to the redemption of the shares
of Series A Preferred Stock so called for redemption.
(b) The holders of Series A Preferred Stock shall be entitled to
vote on the matters set forth in this Section (9)(b) (if and only if
the holders of Class A Stock are entitled to vote on any such matter),
voting together as a single class with the holders of Class A Stock
and the holders of any other class or series of stock having the right
to vote together with the holders of Class A Stock on any such matter,
except for matters on which the holders of Series A Preferred Stock
are entitled to vote as a separate class under Section 9(a) or
applicable law. The holder of each share of Series A Preferred Stock
shall be entitled to a number of
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votes equal to the number of shares of Class A Stock into which such
share of Series A Preferred Stock could be converted on the record
date for determining the stockholders entitled to vote, rounded to the
nearest one-tenth of a vote, on the following matters (if and only if
the holders of Class A Stock are entitled to vote on any such matter):
(i) Any amendment, alteration or repeal of any of the
provisions of the Corporation's charter; or
(ii) A consolidation with or merger of the Corporation into
another entity, or a consolidation with or merger of another
entity into the Corporation, or a sale or transfer of all or
substantially all of the Corporation's assets, or the liquidation
or dissolution of the Corporation;
provided, however, that the holders of Series A Preferred Stock shall
not be entitled to vote on the matters set forth in Section 9(b)(i)
if, at or prior to the time when such amendment, alteration or repeal
is to take effect, provision is made for the redemption of all shares
of Series A Preferred Stock at the time outstanding and an amount of
cash necessary to effect such redemption is deposited with a bank or
trust company located in the continental United States that has
capital and surplus of at least $50,000,000, in trust for the pro rata
benefit of the holders of the shares called for redemption, with
irrevocable instructions that such cash be applied to the redemption
of the shares of Series A Preferred Stock so called for redemption.
(c) The holder of each share of Series A Preferred Stock shall be
entitled to a number of votes equal to one-half of the number of
shares of Class A Stock into which such share of Series A Preferred
Stock could be converted on the record date for determining the
stockholders entitled to vote, rounded to the nearest one-tenth of a
vote, on all matters submitted to a vote of the stockholders of the
Corporation except for those matters set forth in Section 9(a) or
9(b), voting together as a single class with the holders of Class A
Stock and the holders of any other class or series of stock having the
right to vote together with the holders of Class A Stock on any such
matter, except for matters on which the holders of Series A Preferred
Stock are entitled to vote as a separate class under Section 9(a) or
applicable law.
(d) For purposes of any matter on which the holders of Series A
Preferred Stock are entitled to vote as a separate class under Section
9(a) or applicable law, each share of Series A Preferred Stock shall
have one vote per share, except that when any other series of
preferred stock shall have the right to vote together with the Series
A Preferred Stock as a single class on any matter under applicable law
(other than on matters specifically set forth in Section 9(a)), then
the Series A Preferred Stock and such other series shall have with
respect to such matters one vote per $1,000 of stated liquidation
preference.
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(e) Notice of any matter which will be submitted to a vote of
the stockholders of the Corporation shall be mailed by first-class
mail to each holder of record of Series A Preferred Stock at the
address of each such holder as shown on the Corporation's records, not
less than 10 nor more than 90 days prior to the record date for
determining the stockholders entitled to vote on such matter.
Section 10. Record Holders. The Corporation and the Transfer Agent
may deem and treat the record holder of any shares of Series A Preferred
Stock as the true and lawful owner thereof for all purposes, and neither
the Corporation nor the Transfer Agent shall be affected by any notice to
the contrary.
Section 11. Sinking Fund. The Series A Preferred Stock shall not be
entitled to the benefits of any retirement or sinking fund.
FIFTH:
Section 1. Definitions. For the purposes of this Article FIFTH, the
following terms shall have the following meanings:
"Adoption Date" shall mean the date on which these Articles of
Amendment and Restatement are filed with, and accepted for record by, the SDAT.
"Beneficial Ownership" shall mean, except as provided below in the
following sentence, ownership of Shares by a Person, or Persons acting as a
group, who would be treated as an owner of such Shares either (i) directly, (ii)
constructively through the application of Section 544 of the Code, as modified
by Section 856(h)(1)(B) of the Code, or (iii) beneficially as defined under Rule
13d-3 promulgated by the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended. However, Section 544 of the Code
will be modified such that no corporate shareholder of an Excluded Holder owning
directly or indirectly less than 10% of the stock of such Excluded Holder will
be treated as owning any of the stock of the Corporation owned by such Excluded
Holder so long as no individual directly or indirectly owns 50 percent or more
in value of the stock of such corporate shareholder. The terms "Beneficial
Owner," "Beneficially Owns," "Beneficially Own" and "Beneficially Owned" shall
have the correlative meanings.
"Charitable Beneficiary" shall mean an organization or organizations
described in Sections 170(b)(1)(A) and 170(c) of the Code and identified by the
Board of Directors as the beneficiary or beneficiaries of the Excess Share
Trust.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Excess Shares" shall mean Shares resulting from an exchange described
in Section 3 of this Article FIFTH; provided, that nothing contained in this
Article FIFTH shall be construed to create a class of securities of the
Corporation separate to the Shares and any
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references to "exchanges" of Shares for Excess Shares shall be solely for
purposes of reference in this Article FIFTH.
"Excess Share Trust" shall mean the trust created pursuant to Section
3 and Section 15 of this Article FIFTH.
"Excess Share Trustee" shall mean a person, who shall be unaffiliated
with the Corporation, any Purported Beneficial Transferee and any Purported
Record Transferee, identified by the Board of Directors as the trustee of the
Excess Share Trust.
"Excluded Holder" shall mean Security Capital U.S. Realty, a
Luxembourg corporation.
"Existing Holder" shall mean any Person (other than an Excluded
Holder) who is, or would be upon the exchange or conversion of any security of
the Corporation, the Beneficial Owner of Shares in excess of the Ownership Limit
both upon and immediately after the Adoption Date, so long as, but only so long
as, such Person Beneficially Owns or would, upon exchange or conversion of any
security of the Corporation, Beneficially Own Shares in excess of the Ownership
Limit.
"Existing Holder Limit" for any Existing Holder shall mean the
percentage of the outstanding Shares Beneficially Owned, or which would be
Beneficially Owned upon the exchange or conversion of any security of the
Corporation, by such Existing Holder upon and immediately after the Adoption
Date, and, after any adjustment pursuant to Section 9 of this Article FIFTH,
shall mean such percentage of the outstanding Shares as so adjusted. Any
Existing Holder Limit shall not be modified except as provided in Section 9 of
this Article FIFTH. From the Adoption Date until the Restriction Termination
Date, the Corporation shall maintain and, upon request, make available to each
Existing Holder, a schedule which sets forth the then current Existing Holder
Limit for each Existing Holder.
"Market Price" shall mean the last reported sales price reported on
the New York Stock Exchange for Shares on the trading day immediately preceding
the relevant date, or if not then traded on the New York Stock Exchange, the
last reported sales price for Shares on the trading day immediately preceding
the relevant date as reported on any exchange or quotation system over or
through which such Shares may be traded, or if not then traded over or through
any exchange or quotation system, then the market price of such Shares on the
relevant date as determined in good faith by the Board of Directors.
"Ownership Limit" shall initially mean 9.8%, in number of Shares or
value, of the outstanding Shares, and after any adjustment as set forth in
Section 9 of this Article FIFTH, shall mean such greater percentage of the
outstanding Shares as so adjusted. The number and value of the outstanding
Shares of the Corporation shall be determined by the Board of Directors in good
faith, which determination shall be conclusive for all purposes hereof.
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"Person" shall mean an individual, corporation, partnership, estate,
trust (including a trust qualified under Section 401(a) or 501(c)(17) of the
Code), portion of a trust permanently set aside for or to be used exclusively
for the purposes described in Section 642(c) of the Code, association, private
foundation within the meaning of Section 509(a) of the Code, joint stock company
or other entity.
"Purported Beneficial Transferee" shall mean, with respect to any
purported Transfer which results in Excess Shares, as defined below in Section 3
of this Article FIFTH, the beneficial holder of the Shares, if such Transfer had
been valid under Section 2 of this Article FIFTH.
"Purported Record Transferee" shall mean, with respect to any
purported Transfer which results in Excess Shares, as defined below in Section 3
of this Article FIFTH, the record holder of the Shares, if such Transfer had
been valid under Section 2 of this Article FIFTH.
"REIT" shall mean a real estate investment trust under Section 856 of
the Code.
"REIT Provisions of the Code" means Sections 856 through 860 of the
Code and any successor or other provisions of the Code relating to real estate
investment trusts (including provisions as to the attribution of ownership of
beneficial interests therein) and the regulations promulgated thereunder.
"Restriction Termination Date" shall mean the first day after the
Adoption Date on which the Board of Directors determines that it is no longer in
the best interests of the Corporation to attempt to, or continue to, assist the
Corporation's investees in qualifying as REITs.
"Shares" shall mean the shares of the Corporation's common stock as
may be authorized and issued from time to time pursuant to Article FOURTH.
"Transfer" shall mean any sale, transfer, gift, assignment, devise or
other disposition of Shares (including (a) the granting of any option or
entering into any agreement for the sale, transfer or other disposition of
Shares, (b) the sale, transfer, assignment or other disposition of any
securities or rights convertible into or exchangeable for Shares, but excluding
the exchange or conversion of any security of the Corporation for Shares and (c)
any transfer or other disposition of any interest in Shares as a result of a
change in the marital status of the holder thereof), whether voluntary or
involuntary, whether of record, constructively or beneficially and whether by
operation of law or otherwise. The terms "Transfers" and "Transferred" shall
have the correlative meanings.
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Section 2. Ownership Limitation.
(A) Except as provided in Section 12 and Section 20 of this Article
FIFTH and subject to clause (E) of this Section 2, from the Adoption Date until
the Restriction Termination Date, no Person or Persons acting as a group (other
than an Excluded Holder or an Existing Holder) shall Beneficially Own Shares in
excess of the Ownership Limit.
(B) Except as provided in Section 12 and Section 20 of this Article
FIFTH and subject to clause (E) of this Section 2, from the Adoption Date until
the Restriction Termination Date, any Transfer that, if effective, would result
in any Person (other than an Excluded Holder or an Existing Holder) Beneficially
Owning Shares in excess of the Ownership Limit shall be void ab initio as to the
Transfer of such Shares which would be otherwise Beneficially Owned by such
Person in excess of the Ownership Limit; and the intended transferee shall
acquire no rights in such Shares.
(C) Except as provided in Section 12 and Section 20 of this Article
FIFTH and subject to clause (E) of this Section 2, from the Adoption Date until
the Restriction Termination Date, any Transfer that, if effective, would result
in any Existing Holder Beneficially Owning Shares in excess of the applicable
Existing Holder Limit shall be void ab initio as to the Transfer of such Shares
which would be otherwise Beneficially Owned by such Existing Holder in excess of
the applicable Existing Holder Limit; and such Existing Holder shall acquire no
rights in such Shares.
(D) Subject to Section 12 of this Article FIFTH from the Adoption Date
until the Restriction Termination Date, any Transfer that, if effective, would
result in the Corporation being "closely held" within the meaning of Section
856(h) of the Code shall be void ab initio as to the Transfer of the Shares
which would cause the Corporation to be "closely held" within the meaning of
Section 856(h) of the Code; and the intended transferee shall acquire no rights
in such Shares.
(E) Nothing contained in this Article FIFTH shall preclude the
settlement of any transaction entered into through the facilities of the New
York Stock Exchange or any other securities exchange or interdealer quotation
system on which the Shares are then listed or traded. The fact that the
settlement of any transaction is permitted shall not negate the effect of any
other provision of this Article FIFTH and any transferee in such a transaction
shall be subject to all of the provisions and limitations set forth in this
Article FIFTH.
Section 3. Excess Shares.
(A) If, notwithstanding the other provisions contained in this Article
FIFTH, at any time after the Adoption Date until the Restriction Termination
Date, there is a purported Transfer such that (i) any Person (other than an
Excluded Holder or an Existing Holder) would Beneficially Own Shares in excess
of the applicable Ownership Limit or (ii) any Existing Holder would Beneficially
Own Shares in excess of the applicable Existing Holder Limit, then, except as
otherwise provided in Section 12 of this Article FIFTH, Shares directly owned by
such
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Person or Existing Holder, as the case may be, shall be automatically exchanged
for an equal number of Excess Shares until such Person or Existing Holder, as
the case may be, does not own Shares in excess of the applicable Ownership Limit
or Existing Holder Limit. Such exchange shall be effective as of the close of
business on the business day prior to the date of the purported Transfer. If,
after exchanging all of the Shares owned directly by a Person or Existing Holder
such Person or Existing Holder still owns Shares in excess of the applicable
Ownership Limit or Existing Holder Limit, Shares owned by such Person or
Existing Holder constructively through the application of Section 544 of the
Code, as modified by Section 856(h)(1)(B) of the Code, shall be exchanged for an
equal number of Excess Shares until such Person or Existing Holder, as the case
may be, does not own Shares in excess of the applicable Ownership Limit or
Existing Holder Limit. Where such Person or Existing Holder owns Shares
constructively through one or more Persons and the Shares held by such other
Persons must be exchanged for an equal number of Excess Shares, the exchange of
Shares by such other Persons shall be pro rata. However, if such Person or
Existing Holder owns Shares constructively through an Excluded Holder, the
Excluded Holder shall not have to exchange its Shares for Excess Shares and the
exchange shall be pro rata among the other Persons.
(B) If, notwithstanding the other provisions contained in this Article
FIFTH, at any time after the Adoption Date until the Restriction Termination
Date, there is a purported Transfer of Shares or any sale, transfer, gift,
assignment, devise or other disposition of shares or other interests of a direct
or indirect shareholder of the Corporation which, if effective, would cause the
Corporation to become "closely held" within the meaning of Section 856(h) of the
Code, then any Shares being Transferred which would cause the Corporation to be
"closely held" within the meaning of Section 856(h) of the Code (rounded up to
the nearest whole Share) shall be automatically exchanged for an equal number of
Excess Shares and be treated as provided in this Article FIFTH. Such
designation and treatment shall be effective as of the close of business on the
business day prior to the date of the purported Transfer. If, after the
exchange of any such Shares, the Corporation is still "closely held" within the
meaning of Section 856(h) of the Code, any individual whose Beneficial Ownership
of Shares in the Corporation increased as a result of the sale, transfer, gift,
assignment, devise or other disposition of shares or other interests of a direct
or indirect shareholder of the Corporation and is one of the five individuals
who caused the Corporation to be "closely held" within the meaning of Section
856(h) of the Code, shall exchange Shares owned directly for an equal number of
Excess Shares until the Corporation is not "closely held" within the meaning of
Section 856(h) of the Code. Where several similarly situated individuals exist,
the exchange shall be pro rata. If, after applying the foregoing provisions the
Corporation is still "closely held" within the meaning of Section 856(h) of the
Code, any Shares constructively owned by such individuals shall be exchanged for
Excess Shares (other than Shares held by an Excluded Holder), on a pro rata
basis among similarly situated individuals, until the Corporation is not
"closely held" within the meaning of Section 856(h) of the Code.
(C) If, at any time after the Adoption Date until the Restriction
Termination Date, an event other than a purported Transfer (an "Event") occurs
which would (i) cause any Person (other than an Excluded Holder or an Existing
Holder) to Beneficially Own Shares in excess of the Ownership Limit or (ii)
cause an Existing Holder to Beneficially Own Shares in
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excess of the Existing Holder Limit, then, except as otherwise provided in
Section 12 of this Article FIFTH, Shares Beneficially Owned by such Person or
Existing Holder, as the case may be, shall be automatically exchanged for an
equal number of Excess Shares to the extent necessary to eliminate such excess
ownership. Such exchange shall be effective as of the close of business on the
business day prior to the date of the Event. In determining which Shares are
exchanged, Shares Beneficially Owned by any Person who caused the Event to occur
shall be exchanged before any Shares not so held are exchanged. Where several
similarly situated Persons exist, the exchange shall be pro rata. If any Person
is required to exchange Shares pursuant to this Clause (C) of this Section 3 of
this Article FIFTH, such Person shall first exchange Shares directly held by
such Person before exchanging Shares held constructively through the application
of Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code.
Where such Person or Existing Holder owns Shares constructively through one or
more Persons and the Shares held by such other Persons must be exchanged for an
equal number of Excess Shares, the exchange of Shares by such other Persons
shall be pro rata. However, if such Person or Existing Holder owns Shares
constructively through an Excluded Holder, the Excluded Holder shall not have to
exchange its Shares for Excess Shares and the exchange shall be pro rata among
the other Persons.
Section 4. Prevention of Transfer. If the Board of Directors or its
designee shall at any time determine in good faith that a Transfer has taken
place in violation of Section 2 of this Article FIFTH or that a Person intends
to acquire or has attempted to acquire Beneficial Ownership or beneficial
ownership (determined without reference to any rules of attribution) of any
Shares in violation of Section 2 of this Article FIFTH, the Board of Directors
or its designee shall take such action as it deems advisable to refuse to give
effect to or to prevent such Transfer, including, but not limited to, refusing
to give effect to such Transfer on the books of the Corporation or instituting
proceedings to enjoin such Transfer; provided, however, that any Transfers or
attempted Transfers in violation of Section 2 of this Article FIFTH shall
automatically result in the designation and treatment described in Section 3 of
this Article FIFTH, irrespective of any action (or non-action) by the Board of
Directors.
Section 5. Notice to Corporation. Any Person who acquires or attempts to
acquire Shares in violation of Section 2 of this Article FIFTH, or any Person
who is a transferee such that Excess Shares result under Section 3 of this
Article FIFTH, shall immediately give written notice or, in the event of a
proposed or attempted Transfer, give at least 30 days prior written notice to
the Corporation of such event and shall provide to the Corporation such other
information as the Corporation may request in order to determine the effect, if
any, of such Transfer or attempted Transfer on the status of the Corporation's
investees as REITs.
Section 6. Information for Corporation. From the Adoption Date until the
Restriction Termination Date, each Person who is a Beneficial Owner of Shares
and each Person (including the stockholder of record) who is holding Shares for
a Beneficial Owner shall provide to the Corporation in writing such information
with respect to direct, indirect and constructive ownership of Shares as the
Board of Directors deems reasonably necessary to comply with the provisions of
the Code applicable to a REIT, to determine the status of the Corporation's
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investees as REITs, to comply with the requirements of any taxing authority or
governmental agency or to determine any such compliance.
Section 7. Other Action by Board. Subject to Section 2 of this Article
FIFTH, nothing contained in this Article FIFTH shall limit the authority of the
Board of Directors to take such other action as it deems necessary or advisable
to protect the Corporation and the interests of its stockholders by preservation
of the status of the Corporation's investees as REITs, provided, however, that
no provision of this Section 7 shall preclude the settlement of any transaction
entered into through the facilities of the New York Stock Exchange.
Section 8. Ambiguities. In the case of an ambiguity in the application of
any of the provisions of this Article FIFTH, including any definition contained
in Section 1, the Board of Directors shall have the power to determine the
application of the provisions of this Article FIFTH with respect to any
situation based on the facts known to it.
Section 9. Modification of Existing Holder Limits. The Existing Holder
Limits may be modified as follows:
(A) Subject to the limitations provided in Section 11 of this Article
FIFTH, the Board of Directors may grant options which result in Beneficial
Ownership of Shares by an Excluded Holder or Existing Holder pursuant to an
option plan approved by the Board of Directors and/or the stockholders. Any
such grant shall increase the Existing Holder Limit for the affected Existing
Holder to the maximum extent possible under Section 11 to permit the Beneficial
Ownership of the Shares issuable upon the exercise of such option.
(B) Subject to the limitations provided in Section 11 of this Article
FIFTH, an Excluded Holder and an Existing Holder may elect to participate in a
dividend reinvestment plan approved by the Board of Directors which results in
Beneficial Ownership of Shares by such participating Excluded Holder or Existing
Holder. Any such participation shall increase the Existing Holder Limit for the
affected Existing Holder to the maximum extent possible under Section 11 of this
Article FIFTH to permit Beneficial Ownership of the Shares acquired as a result
of such participation.
(C) The Board of Directors will reduce the Existing Holder Limit for
any Existing Holder after any Transfer permitted in this Article FIFTH by such
Existing Holder by the percentage of the outstanding Shares so Transferred or
after the lapse (without exercise) of an option described in Clause (A) of this
Section 9 of this Article FIFTH by the percentage of the Shares that the option,
if exercised, would have represented, but in either case no Existing Holder
Limit shall be reduced to a percentage which is less than the Ownership Limit.
Section 10. Increase or Decrease in Ownership Limit. Subject to the
limitations provided in Section 11 of this Article FIFTH, the Board of Directors
may from time to time increase or decrease the Ownership Limit; provided,
however, that any decrease may only be made prospectively as to subsequent
holders (other than a decrease as a result of a retroactive
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change in existing law that would require a decrease to retain the REIT status
of the Corporation's investees, in which case such decrease shall be effective
immediately).
Section 11. Limitations on Changes in Existing Holder and Ownership
Limits.
(A) Neither the Ownership Limit nor any Existing Holder Limit may be
increased (nor may any additional Existing Holder Limit be created) if, after
giving effect to such increase (or creation), five individual Beneficial Owners
of Shares (including all of the then Existing Holders) could Beneficially Own,
in the aggregate, more than 49.9% in number or value of the outstanding Shares.
(B) Prior to the modification of any Existing Holder Limit or
Ownership Limit pursuant to Sections 9 or 10 of this Article FIFTH, the Board of
Directors may require such opinions of counsel, affidavits, undertakings or
agreements as it may deem necessary or advisable in order to determine or ensure
the status of the Corporation's investees as REITs.
(C) No Ownership Limit may be increased to a percentage which is
greater than 9.9%.
Section 12. Waivers by the Board. The Board of Directors with a ruling
from the Internal Revenue Service, an opinion of counsel to the effect that such
exemption will not result in the Corporation being "closely held" within the
meaning of Section 856(h) of the Code, or such other evidence as the Board of
Directors deems necessary in its sole discretion may exempt, on such conditions
and terms as the Board of Directors deems necessary in its sole discretion, a
Person from the Ownership Limit or the Existing Holder Limit, as the case may
be, if the Board of Directors obtains such representations and undertakings from
such Person as the Board of Directors may deem appropriate and such Person
agrees that any violation or attempted violation will result in, to the extent
necessary, the exchange of Shares held by such Person for Excess Shares in
accordance with Section 3 of this Article FIFTH.
Section 13. Legend. Each certificate for Shares shall bear substantially
the following legend:
The securities represented by this certificate are subject to restrictions
on ownership and transfer for the purpose of the Corporation's assistance
in the maintenance of its investees' status as real estate investment
trusts under the Internal Revenue Code of 1986, as amended. Except as
otherwise provided pursuant to the charter of the Corporation, no Person
may Beneficially Own Shares in excess of 9.8% (or such greater percentage
as may be determined by the Board of Directors of the Corporation) of the
number or value of the outstanding Shares of the Corporation (unless such
Person is an Existing Holder or an Excluded Holder). Any Person who
attempts or proposes to Beneficially Own Shares in excess of the above
limitations must notify the Corporation in writing at least 30 days prior
to such proposed or attempted Transfer. All capitalized terms in this
legend have the meanings defined in the charter of the
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Corporation, a copy of which, including the restrictions on transfer, will
be furnished to each stockholder on request and without charge. If the
restrictions on transfer are violated, the securities represented hereby
will be designated and treated as Excess Shares which will be held in trust
by the Excess Share Trustee for the benefit of the Charitable Beneficiary.
Instead of the foregoing legend, the certificate may state that the
Corporation will furnish a full statement of the restrictions on transferability
of the Shares to any stockholder on request and without charge.
Section 14. Severability. If any provision of this Article FIFTH or any
application of any such provision is determined to be void, invalid or
unenforceable by any court having jurisdiction over the issue, the validity and
enforceability of the remaining provisions shall be affected only to the extent
necessary to comply with the determination of such court.
Section 15. Transfer of Excess Shares. Upon any purported Transfer that
results in Excess Shares pursuant to Section 3 of this Article FIFTH, such
Excess Shares shall be deemed to have been transferred to the Excess Share
Trustee, as trustee of a special trust for the exclusive benefit of the
Charitable Beneficiary or Charitable Beneficiaries to whom an interest in such
Excess Shares may later be transferred pursuant to Section 3 of this Article
FIFTH. Excess Shares so held in trust shall be issued and outstanding Shares of
the Corporation. The Purported Record Transferee or Purported Record Holder
shall have no rights in such Excess Shares except as provided in Section 18 of
this Article FIFTH.
Section 16. Distributions on Excess Shares. Any dividends (whether
taxable as a dividend, return of capital or otherwise) on Excess Shares shall be
paid to the Excess Share Trust for the benefit of the Charitable Beneficiary.
Upon liquidation, dissolution or winding up, the Purported Record Transferee
shall receive the lesser of (1) the amount of any distribution made upon
liquidation, dissolution or winding up or (2) the price paid by the Purported
Record Transferee for the Shares, or if the Purported Record Transferee did not
give value for the Shares, the Market Price of the Shares on the day of the
event causing the Shares to be held in trust. Any such dividend paid or
distribution paid to the Purported Record Transferee in excess of the amount
provided in the preceding sentence prior to the discovery by the Corporation
that the Shares with respect to which the dividend or distribution was made had
been exchanged for Excess Shares shall be repaid to the Excess Share Trust for
the benefit of the Charitable Beneficiary.
Section 17. Voting of Excess Shares. The Excess Share Trustee shall be
entitled to vote the Excess Shares for the benefit of the Charitable Beneficiary
on any matter. Subject to applicable law, any vote taken by a Purported Record
Transferee prior to the discovery by the Corporation that the Excess Shares were
held in trust will be rescinded ab initio. The owner of the Excess Shares will
be deemed to have given an irrevocable proxy to the Excess Share Trustee to vote
the Excess Shares for the benefit of the Charitable Beneficiary.
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Section 18. Non-Transferability of Excess Shares. Excess Shares shall be
transferable only as provided in this Section 18. At the direction of the
Corporation, the Excess Share Trustee shall transfer the Shares held in the
Excess Share Trust to a Person whose ownership of the Shares will not violate
the Ownership Limit or Existing Holder Limit. If such a transfer is made to a
Person, the interest of the Charitable Beneficiary shall terminate and proceeds
of the sale shall be payable to the Purported Record Transferee and to the
Charitable Beneficiary. The Purported Record Transferee shall receive the
lesser of (1) the price paid by the Purported Record Transferee for the Shares
or, if the Purported Record Transferee did not give value for the Shares, the
Market Price of the Shares on the day of the event causing the Shares to be held
in trust, and (2) the price received by the Excess Share Trust from the sale or
other disposition of the Shares. Any proceeds in excess of the amount payable
to the Purported Record Transferee will be paid to the Charitable Beneficiary.
Prior to any transfer of any Excess Shares by the Excess Share Trustee, the
Corporation must have waived in writing its purchase rights under Section 19.
It is expressly understood that the Purported Record Transferee may enforce the
provisions of this Section against the Charitable Beneficiary.
If any of the foregoing restrictions on transfer of Excess Shares is
determined to be void, invalid or unenforceable by any court of competent
jurisdiction, then the Purported Record Transferee may be deemed, at the option
of the Corporation, to have acted as an agent of the Corporation in acquiring
such Excess Shares and to hold such Excess Shares on behalf of the Corporation.
Section 19. Call by Corporation on Excess Shares. Excess Shares shall be
deemed to have been offered for sale to the Corporation, or its designee, at a
price per Share equal to the lesser of (a) the price per Share in the
transaction that created such Excess Shares (or, in the case of a devise, gift
or other transaction in which no value was given for such Excess Shares, the
Market Price at the time of such devise, gift or other transaction) and (b) the
Market Price of the Shares to which such Excess Shares relates on the date the
Corporation, or its designee, accepts such offer (the "Redemption Price"). The
Corporation shall have the right to accept such offer for a period of ninety
days after the later of (x) the date of the Transfer which resulted in such
Excess Shares and (y) the date the Board of Directors determines in good faith
that a Transfer resulting in Excess Shares has occurred, if the Corporation does
not receive a notice of such Transfer pursuant to Section 5 of this Article
FIFTH but in no event later than a permitted Transfer pursuant to and in
compliance with the terms of Section 18 of this Article FIFTH. Unless the Board
of Directors determines that it is in the interests of the Corporation to make
earlier payments of all of the amount determined as the Redemption Price per
Share in accordance with the preceding sentence, the Redemption Price may be
payable at the option of the Board of Directors at any time up to but not later
than the five years after the date the Corporation accepts the offer to purchase
the Excess Shares. In no event shall the Corporation have an obligation to pay
interest to the Purported Record Transferee.
Section 20. Underwritten Offerings. The Ownership Limit shall not apply
to the acquisition of Shares or rights, options or warrants for, or securities
convertible into, Shares by an underwriter in a public offering; provided that
the underwriter makes a timely distribution of such Shares or rights, options or
warrants for, or securities convertible into, Shares.
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SIXTH: The Corporation shall have perpetual existence.
SEVENTH: The number of directors of the Corporation is currently nine (9),
which number may be increased or decreased from time to time by the vote of a
majority of the entire Board of Directors, but such number shall in no case be
less than three (3). Any such increase or decrease shall not affect the term of
any director then in office.
The directors shall be divided into three classes, designated Class I,
Class II and Class III. Each class shall consist, as nearly as may be possible,
of one-third of the total number of directors constituting the entire Board of
Directors. At the 1997, 1998 and 1999 annual meetings of stockholders, Class I
directors, Class II directors and Class III directors, respectively, shall be
elected for three-year terms. At each succeeding annual meeting of
stockholders, beginning in 2000, successors to the class of directors whose term
expires at that annual meeting shall be elected for a three-year term. If the
authorized number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in each
class as nearly equal as possible, but in no case will a decrease in the number
of directors shorten the term of any incumbent director. A director shall serve
until the annual meeting for the year in which his or her term expires and until
his or her successor shall be elected and shall qualify, subject, however, to
prior death, resignation or removal. The name and class of each director who is
currently serving are:
Name Class
---- -----
Samuel W. Bodman I
Hermann Buerger I
John P. Frazee, Jr. I
Cyrus F. Freidheim, Jr. II
H. Laurence Fuller II
Ray L. Hunt II
John T. Kelley, III III
William D. Sanders III
Peter S. Willmott III
EIGHTH: The Corporation shall have the power, to the maximum extent
permitted by Maryland law in effect from time to time, to obligate itself to
indemnify and to pay or reimburse reasonable expenses in advance of final
disposition of a proceeding to (a) any individual who is a present or former
director or officer of the Corporation or (b) any individual who, while a
director or officer of the Corporation and at the request of the Corporation,
serves or has served as a director, officer, partner or trustee of another
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise from and against any claim or liability to which such person
may become subject or which such person may incur by reason of his or her status
as a present or former director or officer of the Corporation. The Corporation
shall have the power, with the approval of the Board of Directors, to provide
such indemnification and advancement of expenses to a person who served a
predecessor of the Corporation in any of the
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capacities described in (a) or (b) above and to any employee or agent of the
Corporation or a predecessor of the Corporation.
NINTH: To the maximum extent that Maryland law in effect from time to
time permits limitation of the liability of directors and officers of a Maryland
corporation, no director or officer of the Corporation shall be liable to the
Corporation or its stockholders for money damages. Neither the amendment nor
repeal of this Article NINTH, nor the adoption or amendment of any other
provision of the charter or Bylaws of the Corporation inconsistent with this
Article NINTH, shall apply to or affect in any respect the applicability of the
preceding sentence with respect to any act or failure to act which occurred
prior to such amendment, repeal or adoption.
TENTH: The Corporation reserves the right from time to time to make
any amendment to its charter, now or hereafter authorized by law, including any
amendment altering the contract rights, as expressly set forth in this charter,
of any outstanding shares of stock. All rights and powers conferred by the
charter of the Corporation on stockholders, directors and officers are granted
subject to this reservation. The Board of Directors reserves the power to
adopt, alter and repeal the Bylaws of the Corporation after the organizational
meeting of the Board of Directors.
ELEVENTH: Notwithstanding any provision of law permitting or
requiring any action to be taken or approved by the affirmative vote of the
holders of shares entitled to cast a greater number of votes, any such action
shall be effective and valid if taken or approved by the affirmative vote of
holders of shares entitled to cast a majority of all votes entitled to be cast
on the matter.
TWELFTH: In determining whether a distribution (other than upon
voluntary or involuntary liquidation), by dividend, redemption or other
acquisition of shares or otherwise, is permitted under the MGCL, amounts that
would be needed, if the Corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of holders of
preferred stock whose preferential rights upon dissolution are superior to those
receiving the distribution shall not be added to the Corporation's total
liabilities.
THIRTEENTH: The provisions 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), shall
not apply to any business combination between or among the Corporation and
Security Capital U.S. Realty, a Luxembourg corporation, and their respective
affiliates and successors.
3. The amendment to and restatement of the charter of the Corporation
as hereinabove set forth has been duly advised by the Board of Directors of the
Corporation and approved by the stockholders of the Corporation as required by
law.
4. The current address of the principal office of the Corporation is
as set forth in Article THIRD of the foregoing amendment and restatement of the
charter.
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5. The name and address of the Corporation's current resident agent
is as set forth in Article THIRD of the foregoing amendment and restatement of
the charter.
6. The number of directors of the Corporation and the names of those
currently in office are as set forth in Article SEVENTH of the foregoing
amendment and restatement of the charter.
7. The total number of shares of stock which the Corporation had
authority to issue immediately prior to this amendment was 20,000,000 shares of
Common Stock, $0.01 par value per share. The aggregate par value of all shares
of stock having par value was $200,000.
8. The total number of shares of stock which the Corporation has
authority to issue pursuant to the foregoing amendment and restatement of the
charter of the Corporation is 250,000,000, consisting of 20,000,000 shares of
Class A Common Stock, $0.01 par value per share, 229,861,000 shares of Class B
Common Stock, $0.01 par value per share, and 139,000 shares of Series A
Cumulative Convertible Redeemable Voting Preferred Stock, $0.01 par value per
share. The aggregate par value of all authorized shares of stock having par
value is $2,500,000.
9. The undersigned Chairman acknowledges these Articles of Amendment
and Restatement to be the corporate act of the Corporation and as to all matters
or facts required to be verified under oath, the undersigned Chairman
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.
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IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment and Restatement to be signed in its name and on its behalf by its
Chairman and attested to by its Secretary on this 17th day of April, 1997.
SECURITY CAPITAL GROUP INCORPORATED
By: /s/ WILLIAM D. SANDERS
---------------------- (SEAL)
William D. Sanders
Chairman
ATTEST:
/s/ JEFFREY A. KLOPF
- --------------------
Jeffrey A. Klopf
Secretary
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EXHIBIT 4.2
SECURITY CAPITAL GROUP INCORPORATED
AMENDED AND RESTATED
BYLAWS
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of the Corporation shall
be located at such place or places as the Board of Directors may designate.
Section 2. ADDITIONAL OFFICES. The Corporation may have additional offices
at such places as the Board of Directors may from time to time determine or the
business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE. All meetings of stockholders shall be held at the
principal office of the Corporation or at such other place within the United
States as shall be stated in the notice of the meeting. Unless specifically
invited to attend a meeting by any officer of the Corporation, only stockholders
of record or persons holding a valid proxy of a stockholder of record may attend
any meeting of stockholders.
Section 2. ANNUAL MEETING. An annual meeting of the stockholders for the
election of directors and the transaction of any business within the powers of
the Corporation shall be held on a date and at the time set by the Board of
Directors during the month of [May] in each year.
Section 3. SPECIAL MEETINGS. The Chairman of the Board (or any Co-Chairman
if more than one), President, Chief Executive Officer or Board of Directors may
call special meetings of the stockholders. Special meetings of stockholders
shall also be called by the Secretary of the Corporation upon the written
request of the holders of shares entitled to cast not less than a majority of
the votes entitled to be cast at such meeting. Such request shall state the
purpose of such meeting and the matters proposed to be acted on at such meeting.
The Secretary shall inform such stockholders of the reasonably estimated cost of
preparing and mailing notice of the meeting and, upon payment to the Corporation
by such stockholders of such costs, the Secretary shall give notice to each
stockholder entitled to notice of the meeting. Unless requested by the
stockholders entitled to cast a majority of all the votes entitled to be cast at
such meeting, a special meeting need not be called to consider any matter which
is substantially the same as a matter voted on at any special meeting of the
stockholders held during the preceding twelve months.
<PAGE>
Section 4. NOTICE. Not less than ten nor more than 90 days before each
meeting of stockholders, the Secretary shall give to each stockholder entitled
to vote at such meeting and to each stockholder not entitled to vote who is
entitled to notice of the meeting written or printed notice stating the time and
place of the meeting and, in the case of a special meeting or as otherwise may
be required by any statute, the purpose for which the meeting is called, either
by mail or by presenting it to such stockholder personally or by leaving it at
his or her residence or usual place of business. If mailed, such notice shall be
deemed to be given when deposited in the United States mail addressed to the
stockholder at his or her post office address as it appears on the records of
the Corporation, with postage thereon prepaid.
Section 5. SCOPE OF NOTICE. Any business of the Corporation may be
transacted at an annual meeting of stockholders without being specifically
designated in the notice, except such business as is required by any statute to
be stated in such notice. No business shall be transacted at a special meeting
of stockholders except as specifically designated in the notice.
Section 6. ORGANIZATION. At every meeting of stockholders, the Chairman of
the Board, if there be one (or any Co-Chairman if there be more than one), shall
conduct the meeting or, in the case of vacancy in office or absence of the
Chairman of the Board (or all Co-Chairmen), one of the following officers
present shall conduct the meeting in the order stated: the Vice Chairman of the
Board, if there be one, the President, the Managing Directors in their order of
rank and seniority, the Vice Presidents in their order of rank and seniority, or
a Chairman chosen by the stockholders entitled to cast a majority of the votes
which all stockholders present in person or by proxy are entitled to cast, shall
act as Chairman, and the Secretary, or, in his or her absence, an assistant
secretary, or in the absence of both the Secretary and assistant secretaries, a
person appointed by the Chairman shall act as Secretary.
Section 7. QUORUM. At any meeting of stockholders, the presence in person
or by proxy of stockholders entitled to cast a majority of all the votes
entitled to be cast at such meeting shall constitute a quorum; but this section
shall not affect any requirement under any statute or the charter of the
Corporation for the vote necessary for the adoption of any measure. If, however,
such quorum shall not be present at any meeting of the stockholders, the
stockholders entitled to vote at such meeting, present in person or by proxy,
shall have the power to adjourn the meeting from time to time to a date not more
than 120 days after the original record date without notice other than
announcement at the meeting. At such adjourned meeting at which a quorum shall
be present, any business may be transacted which might have been transacted at
the meeting as originally notified.
Section 8. VOTING. A plurality of all the votes cast at a meeting of
stockholders duly called and at which a quorum is present shall be sufficient to
elect a director. Each share may be voted for as many individuals as there are
directors to be elected and for whose election the share is entitled to be
voted. A majority of the votes cast at a meeting of stockholders duly called and
at which a quorum is present shall be sufficient to approve any other matter
which may properly come before the meeting, unless more than a majority of the
votes cast is required by statute or by the charter of the Corporation. Unless
otherwise provided in the charter, each
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outstanding share, regardless of class, shall be entitled to one vote on each
matter submitted to a vote at a meeting of stockholders.
Section 9. PROXIES. A stockholder may vote the stock owned of record by him
or her, either in person or by proxy executed in writing by the stockholder or
by his or her duly authorized attorney in fact. Such proxy shall be filed with
the Secretary of the Corporation before or at the time of the meeting. No proxy
shall be valid after eleven months from the date of its execution, unless
otherwise provided in the proxy.
Section 10. VOTING OF STOCK BY CERTAIN HOLDERS. Stock of the Corporation
registered in the name of a corporation, partnership, trust or other entity, if
entitled to be voted, may be voted by the president or a vice president, a
general partner or trustee thereof, as the case may be, or a proxy appointed by
any of the foregoing individuals, unless some other person who has been
appointed to vote such stock pursuant to a bylaw or a resolution of the
governing body of such corporation or other entity or agreement of the partners
of a partnership presents a certified copy of such bylaw, resolution or
agreement, in which case such person may vote such stock. Any director or other
fiduciary may vote stock registered in his or her name as such fiduciary, either
in person or by proxy.
Shares of stock of the Corporation directly or indirectly owned by it shall
not be voted at any meeting and shall not be counted in determining the total
number of outstanding shares entitled to be voted at any given time, unless they
are held by it in a fiduciary capacity, in which case they may be voted and
shall be counted in determining the total number of outstanding shares at any
given time.
The Board of Directors may adopt by resolution a procedure by which a
stockholder may certify in writing to the Corporation that any shares of stock
registered in the name of the stockholder are held for the account of a
specified person other than the stockholder. The resolution shall set forth the
class of stockholders who may make the certification, the purpose for which the
certification may be made, the form of certification and the information to be
contained in it; if the certification is with respect to a record date or
closing of the stock transfer books, the time after the record date or closing
of the stock transfer books within which the certification must be received by
the Corporation; and any other provisions with respect to the procedure which
the Board of Directors considers necessary or desirable. On receipt of such
certification, the person specified in the certification shall be regarded as,
for the purposes set forth in the certification, the stockholder of record of
the specified stock in place of the stockholder who makes the certification.
Notwithstanding any other provision of the charter of the Corporation or
these Bylaws, Title 3, Subtitle 7 of the Corporations and Associations Article
of the Annotated Code of Maryland (or any successor statute) shall not apply to
any acquisition by Security Capital U.S. Realty and its affiliates and
successors of shares of stock of the Corporation. This section may be repealed,
in whole or in part, at any time, whether before or after an acquisition of
control shares and, upon such repeal, may, to the extent provided by any
successor bylaw, apply to any prior or subsequent control share acquisition.
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Section 11. INSPECTORS. At any meeting of stockholders, the chairman of the
meeting may, or upon the request of any stockholder shall, appoint one or more
persons as inspectors for such meeting. Such inspectors shall ascertain and
report the number of shares represented at the meeting based upon their
determination of the validity and effect of proxies, count all votes, report the
results and perform such other acts as are proper to conduct the election and
voting with impartiality and fairness to all the stockholders.
Each report of an inspector shall be in writing and signed by him or her or
by a majority of them if there is more than one inspector acting at such
meeting. If there is more than one inspector, the report of a majority shall be
the report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of the voting shall
be prima facie evidence thereof.
Section 12. NOMINATIONS AND STOCKHOLDER BUSINESS.
(a) Annual Meetings of Stockholders.
(1) Nominations of persons for election to the Board of Directors
and the proposal of business to be considered by the stockholders may
be made at an annual meeting of stockholders (i) pursuant to the
Corporation's notice of meeting, (ii) by or at the direction of the
Board of Directors or (iii) by any stockholder of the Corporation who
was a stockholder of record at the time of giving of notice provided
for in this Section 12(a), who is entitled to vote at the meeting and
who complied with the notice procedures set forth in this Section
12(a).
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (iii) of
paragraph (a)(1) of this Section 12, the stockholder must have given
timely notice thereof in writing to the Secretary of the Corporation.
To be timely, a stockholder's notice shall be delivered to the
Secretary at the principal executive offices of the Corporation not
less than 60 days nor more than 90 days prior to the first anniversary
of the preceding year's annual meeting; provided, however, that in the
event that the date of the annual meeting is advanced by more than 30
days or delayed by more than 60 days from such anniversary date,
notice by the stockholder to be timely must be so delivered not
earlier than the 90th day prior to such annual meeting and not later
than the close of business on the later of the 60th day prior to such
annual meeting or the tenth day following the day on which public
announcement of the date of such meeting is first made. Such
stockholder's notice shall set forth (i) as to each person whom the
stockholder proposes to nominate for election or reelection as a
Director all information relating to such person that is required to
be disclosed in solicitations of proxies for election of directors, or
is otherwise required, in each case pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")
(including such
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person's written consent to being named in the proxy statement as a
nominee and to serving as a director if elected); (ii) as to any other
business that the stockholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and of the
beneficial owner, if any, on whose behalf the proposal is made; and
(iii) as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made, (x)
the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner and (y) the number
of shares of each class of stock of the Corporation which are owned
beneficially and of record by such stockholder and such beneficial
owner.
(3) Notwithstanding anything in the second sentence of paragraph
(a)(2) of this Section 12 to the contrary, in the event that the
number of directors to be elected to the Board of Directors is
increased and there is no public announcement naming all of the
nominees for director or specifying the size of the increased Board of
Directors made by the Corporation at least 70 days prior to the first
anniversary of the preceding year's annual meeting, a stockholder's
notice required by this Section 12(a) shall also be considered timely,
but only with respect to nominees for any new positions created by
such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the
close of business on the tenth day following the day on which such
public announcement is first made by the Corporation.
(b) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to the Corporation's notice of meeting.
Nominations of persons for election to the Board of Directors may be made
at a special meeting of stockholders at which directors are to be elected
(i) pursuant to the Corporation's notice of meeting, (ii) by or at the
direction of the Board of Directors or (iii) provided that the Board of
Directors has determined that directors shall be elected at such special
meeting, by any stockholder of the Corporation who is a stockholder of
record at the time of giving of notice provided for in this Section 12(b),
who is entitled to vote at the meeting and who complied with the notice
procedures set forth in this Section 12(b). In the event the Corporation
calls a special meeting of stockholders for the purpose of electing one or
more directors to the Board of Directors, any such stockholder may nominate
a person or persons (as the case may be) for election to such position as
specified in the Corporation's notice meeting, if the stockholder's notice
containing the information required by paragraph (a)(2) of this Section 12
shall be delivered to the Secretary at the principal executive offices of
the Corporation not earlier than the 90th day prior to such special meeting
and not later than the close of business on the later of the 60th day prior
to such special meeting or the tenth day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting.
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(c) General.
-------
(1) Only such persons who are nominated in accordance with the
procedures set forth in this Section 12 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in
accordance with the procedures set forth in this Section 12. The
presiding officer of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought
before the meeting was made in accordance with the procedures set
forth in this Section 12 and, if any proposed nomination or business
is not in compliance with this Section 12, to declare that such
defective nomination or proposal be disregarded.
(2) For purposes of this Section 12, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable news service or in a document
publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 12,
a stockholder shall also comply with all applicable requirements of
Maryland law and of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this Section 12.
Nothing in this Section 12 shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act.
ARTICLE III
DIRECTORS
Section 1. GENERAL POWERS; QUALIFICATIONS. The business and affairs of the
Corporation shall be managed under the direction of its Board of Directors.
Section 2. NUMBER, TENURE AND QUALIFICATIONS. At any regular meeting or at
any special meeting called for that purpose, a majority of the entire Board of
Directors may establish, increase or decrease the number of directors, provided
that the number thereof shall never be less than the minimum number required by
the Maryland General Corporation Law, nor more than 15, and further provided
that the tenure of office of a director shall not be affected by any decrease in
the number of directors.
Section 3. ANNUAL AND REGULAR MEETINGS. An annual meeting of the Board of
Directors shall be held immediately after and at the same place as the annual
meeting of stockholders, no notice other than this Bylaw being necessary. The
Board of Directors may provide, by resolution, the time and place, either within
or without the State of Maryland, for
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the holding of regular meetings of the Board of Directors without other notice
than such resolution.
Section 4. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by or at the request of the Chairman of the Board (or any Co-Chairman
of the Board if more than one), President or by a majority of the directors then
in office. The person or persons authorized to call special meetings of the
Board of Directors may fix any place, either within or without the State of
Maryland, as the place for holding any special meeting of the Board of Directors
called by them.
Section 5. NOTICE. Notice of any special meeting of the Board of Directors
shall be delivered personally or by telephone, facsimile transmission, United
States mail or courier to each director at his or her business or residence
address. Notice by personal delivery, by telephone or a facsimile transmission
shall be given at least two days prior to the meeting. Notice by mail shall be
given at least five days prior to the meeting and shall be deemed to be given
when deposited in the United States mail properly addressed, with postage
thereon prepaid. Telephone notice shall be deemed to be given when the director
is personally given such notice in a telephone call to which he or she is a
party. Facsimile transmission notice shall be deemed to be given upon completion
of the transmission of the message to the number given to the Corporation by the
director and receipt of a completed answer-back indicating receipt. Neither the
business to be transacted at, nor the purpose of, any annual, regular or special
meeting of the Board of Directors need be stated in the notice, unless
specifically required by statute or these Bylaws.
Section 6. QUORUM. A majority of the directors shall constitute a quorum
for transaction of business at any meeting of the Board of Directors, provided
that, if less than a majority of such directors are present at said meeting, a
majority of the directors present may adjourn the meeting from time to time
without further notice, and provided further that if, pursuant to the charter of
the Corporation or these Bylaws, the vote of a majority of a particular group of
directors is required for action, a quorum must also include a majority of such
group.
The directors present at a meeting which has been duly called and convened
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough directors to leave less than a quorum.
Section 7. VOTING. The action of the majority of the directors present at a
meeting at which a quorum is present shall be the action of the Board of
Directors, unless the concurrence of a greater proportion is required for such
action by applicable statute.
Section 8. TELEPHONE MEETINGS. Directors may participate in a meeting by
means of a conference telephone or similar communications equipment if all
persons participating in the meeting can hear each other at the same time.
Participation in a meeting by these means shall constitute presence in person at
the meeting.
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Section 9. INFORMAL ACTION BY DIRECTORS. Any action required or permitted
to be taken at any meeting of the Board of Directors may be taken without a
meeting, if a consent in writing to such action is signed by each director and
such written consent is filed with the minutes of proceedings of the Board of
Directors.
Section 10. VACANCIES. If for any reason any or all the directors cease to
be directors, such event shall not terminate the Corporation or affect these
Bylaws or the powers of the remaining directors hereunder (even if fewer than
three directors remain). Any vacancy on the Board of Directors for any cause
other than an increase in the number of directors shall be filled by a majority
of the remaining directors, although such majority may be less than a quorum.
Any vacancy in the number of directors created by an increase in the number of
directors may be filled by a majority vote of the entire Board of Directors. Any
individual so elected as director shall hold office until the next annual
meeting of stockholders and until his or her successor is elected and qualifies.
Section 11. COMPENSATION. Directors shall not receive any stated salary for
their services as directors but, by resolution of the Board of Directors, may
receive compensation per year and/or per meeting and/or for any service or
activity they performed or engaged in as directors. Directors may be reimbursed
for expenses of attendance, if any, at each annual, regular or special meeting
of the Board of Directors or of any committee thereof and for their expenses, if
any, in connection with each property visit and any other service or activity
they performed or engaged in as directors; but nothing herein contained shall be
construed to preclude any directors from serving the Corporation in any other
capacity and receiving compensation therefor.
Section 12. LOSS OF DEPOSITS. No director shall be liable for any loss
which may occur by reason of the failure of the bank, trust company, savings and
loan association, or other institution with whom moneys or stock have been
deposited.
Section 13. SURETY BONDS. Unless required by law, no director shall be
obligated to give any bond or surety or other security for the performance of
any of his or her duties.
Section 14. RELIANCE. Each director, officer, employee and agent of the
Corporation shall, in the performance of his or her duties with respect to the
Corporation, be fully justified and protected with regard to any act or failure
to act in reliance in good faith upon the books of account or other records of
the Corporation, upon an opinion of counsel or upon reports made to the
Corporation by any of its officers or employees or by the advisor, accountants,
appraisers or other experts or consultants selected by the Board of Directors or
officers of the Corporation, regardless of whether such counsel or expert may
also be a director.
Section 15. CERTAIN RIGHTS OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS.
The directors shall have no responsibility to devote their full time to the
affairs of the Corporation. Any director or officer, employee or agent of the
Corporation, in his or her personal capacity or in a capacity as an affiliate,
employee, or agent of any other person, or
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otherwise, may have business interests and engage in business activities similar
to or in addition to or in competition with those of or relating to the
Corporation.
ARTICLE IV
COMMITTEES
Section 1. NUMBER, TENURE AND QUALIFICATIONS. The Board of Directors may
appoint from among its members an Executive Committee, an Audit Committee, a
Management Development and Compensation Committee, an Investment Committee and
other committees, composed of one or more directors, to serve at the pleasure of
the Board of Directors.
Section 2. POWERS. The Board of Directors may delegate to committees
appointed under Section 1 of this Article any of the powers of the Board of
Directors, except as prohibited by law.
Section 3. MEETINGS. Notice of committee meetings shall be given in the
same manner as notice for special meetings of the Board of Directors. A majority
of the members of the committee shall constitute a quorum for the transaction of
business at any meeting of the committee. The act of a majority of the committee
members present at a meeting shall be the act of such committee. The Board of
Directors may designate a chairman of any committee, and such chairman or any
two members of any committee may fix the time and place of its meeting unless
the Board shall otherwise provide. In the absence of any member of any such
committee, the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint another director to act in the place of such
absent member. Each committee shall keep minutes of its proceedings.
Section 4. TELEPHONE MEETINGS. Members of a committee of the Board of
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
shall constitute presence in person at the meeting.
Section 5. INFORMAL ACTION BY COMMITTEES. Any action required or permitted
to be taken at any meeting of a committee of the Board of Directors may be taken
without a meeting, if a consent in writing to such action is signed by each
member of the committee and such written consent is filed with the minutes of
proceedings of such committee.
Section 6. VACANCIES. Subject to the provisions hereof, the Board of
Directors shall have the power at any time to change the membership of any
committee, to fill all vacancies, to designate alternate members to replace any
absent or disqualified member or to dissolve any such committee.
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<PAGE>
ARTICLE V
OFFICERS
Section 1. ENUMERATION. The officers of the Corporation shall be chosen by
the Board of Directors and shall be a Chairman of the Board (or one or more Co-
Chairmen of the Board), a President, a Chief Financial Officer and a Secretary.
The Board of Directors may also elect one or more Managing Directors, one or
more Vice Presidents, one or more Assistant Secretaries and such other officers
and agents as it shall deem appropriate. Any number of offices may be held by
the same person.
Section 2. CHAIRMAN OF THE BOARD. The Chairman of the Board (or, if there
be one or more Co-Chairmen, in the order of their election), when elected, shall
be the President and chief executive officer of the Corporation and, as such,
shall have general supervision, direction and control of the business and
affairs of the Corporation, subject to the control of the Board of Directors,
shall preside at meetings of stockholders and shall have such other functions,
authority and duties as customarily appertain to the office of the chief
executive of a business corporation or as may be prescribed by the Board of
Directors.
Section 3. PRESIDENT. In the absence of a Chairman of the Board, the
President shall be the chief executive officer of the Corporation and, as such
shall have general supervision, direction and control of the business and
affairs of the Corporation, subject to the control of the Board of Directors,
shall preside at meetings of stockholders and shall have such other functions,
authority and duties as customarily appertain to the office of the chief
executive of a business corporation or as may be prescribed by the Board of
Directors.
Section 4. MANAGING DIRECTOR. The Managing Director, or if there be more
than one, the Managing Directors, shall have such functions, authority and
duties as may be prescribed by the Board of Directors or the Chairman of the
Board (or, if there be more than one, any Co-Chairman of the Board).
Section 5. SECRETARY. The Secretary shall keep a record of all proceedings
of the stockholders of the Corporation and of the Board of Directors, and shall
perform like duties for the standing committees when required. The Secretary
shall give, or cause to be given, notice, if any, of all meetings of the
stockholders and shall perform such other duties as may be prescribed by the
Board of Directors or the Chairman of the Board (or, if there be more than one,
any Co-Chairman of the Board). The Secretary shall have custody of the corporate
seal of the Corporation and the Secretary or, in the absence of the Secretary,
any Assistant Secretary shall have authority to affix the same to any instrument
requiring it, and when so affixed it may be attested by the signature of the
Secretary or any Assistant Secretary. The Board of Directors may give general
authority to any other officer to affix the seal of the Corporation and to
attest such affixing of the seal.
Section 6. ASSISTANT SECRETARY. The Assistant Secretary, or if there be
more than one, the Assistant Secretaries in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election), shall, in the absence of the
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<PAGE>
Secretary or in the event of the Secretary's inability or refusal to act,
perform the duties and exercise the powers of the Secretary and shall perform
such other duties as may from time to time be prescribed by the Board of
Directors, the Chairman of the Board (or, if there be more than one, any Co-
Chairman of the Board), or the Secretary.
Section 7. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall be
the treasurer of the Corporation and shall have the custody of the funds and
securities of the Corporation and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors and shall perform such other duties as may be prescribed by the Board
of Directors or the Chairman of the Board (or, if there be more than one, any
Co-Chairman of the Board).
Section 8. OTHER OFFICERS. Any officer who is elected or appointed from
time to time by the Board of Directors and whose duties are not specified in
these Bylaws shall perform such duties and have such powers as may be prescribed
from time to time by the Board of Directors or the Chairman of the Board (or, if
there be more than one, any Co-Chairman of the Board).
Section 9. REMOVAL AND RESIGNATION. Any officer or agent of the Corporation
may be removed by the Board of Directors if in its judgment the best interests
of the Corporation would be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed. Any officer
of the Corporation may resign at any time by giving written notice of his or her
resignation to the Board of Directors, the Chairman of the Board (or any Co-
Chairman of the Board if more than one), the President or the Secretary. Any
resignation shall take effect at any time subsequent to the time specified
therein or, if the time when it shall become effective is not specified therein,
immediately upon its receipt. The acceptance of a resignation shall not be
necessary to make it effective unless otherwise stated in the resignation. Such
resignation shall be without prejudice to the contract rights, if any, of the
Corporation.
Section 10. VACANCIES. A vacancy in any office may be filled by the Board
of Directors for the balance of the term.
Section 11. SALARIES. The salaries and other compensation of the officers
shall be fixed from time to time by the Board of Directors and no officer shall
be prevented from receiving such salary or other compensation by reason of the
fact that he or she is also a director.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Board of Directors may authorize any officer or
agent to enter into any contract or to execute and deliver any instrument in the
name of and on behalf of the Corporation and such authority may be general or
confined to specific instances. Any
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agreement, deed, mortgage, lease or other document executed by one or more of
the directors or by an authorized person shall be valid and binding upon the
Board of Directors and upon the Corporation when authorized or ratified by
action of the Board of Directors.
Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the Corporation shall be signed by such officer or agent of the Corporation in
such manner as shall from time to time be determined by the Board of Directors.
Section 3. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board of Directors may
designate.
ARTICLE VII
STOCK
Section 1. CERTIFICATES. Each stockholder shall be entitled to a
certificate or certificates which shall represent and certify the number of
shares of each class of stock held by him or her in the Corporation. Each
certificate shall be signed by the Chairman of the Board (or any Co-Chairman of
the Board if more than one), the President or a Vice President and countersigned
by the Secretary or an Assistant Secretary or the Chief Financial Officer or an
Assistant Financial Officer and may be sealed with the seal, if any, of the
Corporation. The signatures may be either manual or facsimile. Certificates
shall be consecutively numbered; and if the Corporation shall, from time to
time, issue several classes of stock, each class may have its own number series.
A certificate is valid and may be issued whether or not an officer who signed it
is still an officer when it is issued. Each certificate representing shares
which are restricted as to their transferability or voting powers, which are
preferred or limited as to their dividends or as to their allocable portion of
the assets upon liquidation or which are redeemable at the option of the
Corporation, shall have a statement of such restriction, limitation, preference
or redemption provision, or a summary thereof, plainly stated on the
certificate. If the Corporation has authority to issue stock of more than one
class, the certificate shall contain on the face or back a full statement or
summary of the designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends and other
distributions, qualifications and terms and conditions of redemption of each
class of stock and, if the Corporation is authorized to issue any preferred or
special class in series, the differences in the relative rights and preferences
between the shares of each series to the extent they have been set and the
authority of the Board of Directors to set the relative rights and preferences
of subsequent series. In lieu of such statement or summary, the certificate may
state that the Corporation will furnish a full statement of such information to
any stockholder upon request and without charge. If any class of stock is
restricted by the Corporation as to transferability, the certificate shall
contain a full statement of the restriction or state that the Corporation will
furnish information about the restrictions to the stockholder on request and
without charge.
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Section 2. CLASS A STOCK LEGEND. Each Certificate representing shares of
the Corporation's Class A Common Stock, $0.01 par value per share (the "Class A
Stock"), shall bear substantially the following legend:
Transfers of shares of the Corporation are subject to certain restrictions
set forth in Article VII, Section 3 of the Bylaws of the Corporation. The
Corporation will furnish a full statement of such restrictions to any
stockholder on request and without charge.
Section 3. CLASS A STOCK RESTRICTIONS ON TRANSFER. No stockholder may sell,
assign, transfer, or otherwise dispose of shares of Class A Stock (collectively
"Transfer"), if the Transfer, taken alone or together with all other Transfers
of shares of Class A Stock would (i) cause the Corporation or an affiliate of
the Corporation to be or become a "bank" or a "bank holding company" within the
meaning of the Bank Holding Company Act of 1956, as amended or any successor
statute thereto, or within the meaning of any state statute defining such terms;
(ii) cause the Corporation or an affiliate of the Corporation to be or become a
"savings association" or a "savings and loan holding company" within the meaning
of the Home Owners' Loan Act, as amended, or any successor statute thereto; or
(iii) cause the Corporation or an affiliate of the Corporation to be or become a
"savings association", "savings and loan association", "savings bank", "savings
and loan holding company" or "savings bank holding company" within the meaning
of any state statute defining such terms.
Section 4. TRANSFERS. Upon surrender to the Corporation or the transfer
agent of the Corporation of a stock certificate duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, the
Corporation shall issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
The Corporation shall be entitled to treat the holder of record of any
share of stock as the holder in fact thereof and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such share or
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the State of
Maryland.
Notwithstanding the foregoing, transfers of shares of any class of stock
will be subject in all respects to the charter of the Corporation and all of the
terms and conditions contained therein.
Section 5. REPLACEMENT CERTIFICATE. Any officer designated by the Board of
Directors may direct a new certificate to be issued in place of any certificate
previously issued by the Corporation alleged to have been lost, stolen or
destroyed upon the making of an affidavit of that fact by the person claiming
the certificate to be lost, stolen or destroyed. When authorizing the issuance
of a new certificate, an officer designated by the Board of Directors may, in
his or her discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate or the owner's
legal representative to advertise the same in such manner as he or she shall
require and/or to give bond, with sufficient surety,
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to the Corporation to indemnify it against any loss or claim which may arise as
a result of the issuance of a new certificate.
Section 6. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The Board of
Directors may set, in advance, a record date for the purpose of determining
stockholders entitled to notice of or to vote at any meeting of stockholders or
determining stockholders entitled to receive payment of any dividend or the
allotment of any other rights, or in order to make a determination of
stockholders for any other proper purpose. Such date, in any case, shall not be
prior to the close of business on the day the record date is fixed and shall be
not more than 90 days and, in the case of a meeting of stockholders, not less
than ten days, before the date on which the meeting or particular action
requiring such determination of stockholders of record is to be held or taken.
In lieu of fixing a record date, the Board of Directors may provide that
the stock transfer books shall be closed for a stated period but not longer than
20 days. If the stock transfer books are closed for the purpose of determining
stockholders entitled to notice of or to vote at a meeting of stockholders, such
books shall be closed for at least ten days before the date of such meeting.
If no record date is fixed and the stock transfer books are not closed for
the determination of stockholders, (a) the record date for the determination of
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day on which the notice of meeting is mailed
or the 30th day before the meeting, whichever is the closer date to the meeting;
and (b) the record date for the determination of stockholders entitled to
receive a payment of a dividend or an allotment of any other rights shall be the
close of business on the day on which the resolution of the directors, declaring
the dividend or allotment of rights, is adopted.
When a determination of stockholders entitled to vote at any meeting of
stockholders has been made as provided in this section, such determination shall
apply to any adjournment thereof, except when (i) the determination has been
made through the closing of the transfer books and the stated period of closing
has expired or (ii) the meeting is adjourned to a date more than 120 days after
the record date fixed for the original meeting, in either of which case a new
record date shall be determined as set forth herein.
Section 7. STOCK LEDGER. The Corporation shall maintain at its principal
office or at the office of its counsel, accountants or transfer agent, an
original or duplicate share ledger containing the name and address of each
stockholder and the number of shares of each class held by such stockholder.
Section 8. FRACTIONAL STOCK; ISSUANCE OF UNITS. The Board of Directors may
issue fractional stock or provide for the issuance of scrip, all on such terms
and under such conditions as they may determine. Notwithstanding any other
provision of the charter or these Bylaws, the Board of Directors may issue units
consisting of different securities of the Corporation. Any security issued in a
unit shall have the same characteristics as any identical
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securities issued by the Corporation, except that the Board of Directors may
provide that for a specified period securities of the Corporation issued in such
unit may be transferred on the books of the Corporation only in such unit.
ARTICLE VIII
ACCOUNTING YEAR
The Board of Directors shall have the power, from time to time, to fix the
fiscal year of the Corporation by a duly adopted resolution.
ARTICLE IX
DISTRIBUTIONS
Section 1. AUTHORIZATION. Dividends and other distributions upon the stock
of the Corporation may be authorized and declared by the Board of Directors,
subject to the provisions of law and the charter of the Corporation. Dividends
and other distributions may be paid in cash, property or stock of the
Corporation, subject to the provisions of law and the charter.
Section 2. CONTINGENCIES. Before payment of any dividends or other
distributions, there may be set aside out of any assets of the Corporation
available for dividends or other distributions such sum or sums as the Board of
Directors may from time to time, in its absolute discretion, think proper as a
reserve fund for contingencies, for equalizing dividends or other distributions,
for repairing or maintaining any property of the Corporation or for such other
purpose as the Board of Directors shall determine to be in the best interest of
the Corporation, and the Board of Directors may modify or abolish any such
reserve in the manner in which it was created.
Section 3. CLASS A STOCK PAYMENTS. Any holder of Class A Stock who was a
purchaser of at least $5,000,000 of securities in that certain offering
("Offering") of 4,000 shares of Class A Common Voting Stock, Class B Common Non-
Voting Stock of Southwest Capital Group Incorporated, $21,000,000 of 8.5%
Convertible Subordinated Debentures of Southwest Capital Group Incorporated,
$75,000,000 of limited partnership interests in Southwest Equity Limited, A
Delaware Limited Partnership and 50,000 shares of Common Stock of Southwest
Realty Investors Incorporated made pursuant to that certain Private Placement
Memorandum dated May 1990, as amended or supplemented, shall be entitled to
receive all payments of cash by wire transfer in accordance with wire transfer
instructions given to the Corporation from time to time.
ARTICLE X
BOOKS; REPORTS
Section 1. The Corporation will maintain or cause to be maintained
separate, full and accurate books and records of the Corporation.
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Section 2. As soon as available, but in any event within ninety (90) days
after the end of each fiscal year of the Corporation, the Corporation shall
deliver to each holder of Class A Stock of record at the close of the preceding
fiscal year copies of the audited consolidated balance sheet of the Corporation
and its subsidiaries together with the related consolidated statements of income
and changes in financial position for such fiscal year. In addition, the
Corporation shall deliver to each holder of Class A Stock of record at the close
of the preceding fiscal year an overview of the business and investments of the
Corporation and its affiliates (collectively, the "Security Capital Group") as a
whole.
Section 3. As soon as available, but in any event within forty-five (45)
days after the end of each fiscal quarter of the Corporation, the Corporation
shall deliver to each holder of Class A Stock of record at the close of the
preceding fiscal quarter copies of the unaudited consolidated balance sheet of
the Corporation and its subsidiaries as at the end of such fiscal quarter and
the related unaudited consolidated statements of income and changes in financial
position for such fiscal quarter and the portion of the fiscal year through such
fiscal quarter.
Section 4. In addition to the financial statements delivered pursuant to
Section 2 and 3, upon the written request of a holder of Class A Stock, the
Corporation shall deliver to such stockholder all reports which relate to the
historical financial performance of any member of the Security Capital Group,
including, without limitation, supporting data relating to such reports which
are available to the directors of the Corporation.
Section 5. As soon as available after the Corporation begins reporting
under the Securities Exchange Act of 1934 or any successor thereto, the
Corporation shall deliver to each holder of Class A Stock (i) a copy of the
annual report to stockholders for the relevant fiscal year and Form 10-K filed
by the Corporation with the Securities and Exchange Commission for the relevant
fiscal year and (ii) a copy of the Form 10-Q filed by the Corporation with the
Securities and Exchange Commission for the relevant quarter. If the Corporation
delivers the reports described in this Section 5 in a timely manner, it shall be
deemed to have complied with Section 2 and Section 3 hereof.
Section 6. In addition to other rights afforded to stockholders under
Maryland law, upon the written request of any holder of Class A Stock, the
Corporation shall furnish to such stockholder, at the Corporation's own cost and
expense, a list of holders of Class A Stock as of the date of such request
within five (5) business days of receipt by the Corporation of such request;
provided that the Corporation shall not be required to comply with any such
request unless such request contains a representation that the request is for
proper corporate purposes. The Corporation acknowledges that organization of two
or more holders of Class A Stock to propose, consent to or oppose any corporate
action upon which the stockholder requesting such list is entitled to vote shall
constitute proper corporate purposes.
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ARTICLE XI
INVESTMENT POLICY
Subject to the provisions of the charter of the Corporation, the Board of
Directors may from time to time adopt, amend, revise or terminate any policy or
policies with respect to investments by the Corporation as it shall deem
appropriate in its sole discretion.
ARTICLE XII
SEAL
Section 1. SEAL. The Board of Directors may authorize the adoption of a
seal by the Corporation. The seal shall contain the name of the Corporation and
the year of its incorporation and the words "Incorporated Maryland." The Board
of Directors may authorize one or more duplicate seals and provide for the
custody thereof.
Section 2. AFFIXING SEAL. Whenever the Corporation is permitted or required
to affix its seal to a document, it shall be sufficient to meet the requirements
of any law, rule or regulation relating to a seal to place the word "(SEAL)"
adjacent to the signature of the person authorized to execute the document on
behalf of the Corporation.
ARTICLE XIII
INDEMNIFICATION AND ADVANCES FOR EXPENSES
To the maximum extent permitted by Maryland law in effect from time to
time, the Corporation shall indemnify and, without requiring a preliminary
determination of the ultimate entitlement to indemnification, shall pay or
reimburse reasonable expenses in advance of final disposition of a proceeding to
(a) any individual who is a present or former director or officer of the
Corporation and who is made a party to the proceeding by reason of his or her
service in that capacity or (b) any individual who, while a director of the
Corporation and at the request of the Corporation, serves or has served another
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise as a director, officer, partner or trustee of such corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise and
who is made a party to the proceeding by reason of his or her service in that
capacity. The Corporation may, with the approval of its Board of Directors,
provide such indemnification and advance for expenses to a person who served a
predecessor of the Corporation in any of the capacities described in (a) or (b)
above and to any employee or agent of the Corporation or a predecessor of the
Corporation.
Neither the amendment nor repeal of this Article, nor the adoption or
amendment of any other provision of the Bylaws or charter of the Corporation
inconsistent with this Article, shall apply to or affect in any respect the
applicability of the preceding paragraph with respect to any act or failure to
act which occurred prior to such amendment, repeal or adoption.
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ARTICLE XIV
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the charter of the
Corporation or these Bylaws or pursuant to applicable law, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice. Neither the business to be transacted at nor the purpose of any
meeting need be set forth in the waiver of notice, unless specifically required
by statute. The attendance of any person at any meeting shall constitute a
waiver of notice of such meeting, except where such person attends a meeting for
the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
ARTICLE XV
AMENDMENT OF BYLAWS
Section 1. AMENDMENTS. These Bylaws may be altered, amended or repealed or
new Bylaws may be adopted by the Board of Directors; provided that (i) no
alteration, amendment or repeal of Section 3 of Article IX, Article X or this
Article XV shall be effected without the approval of the holders of a percentage
of the issued and outstanding shares of Class A Stock equal to a fraction, the
numerator of which is the difference between (A) the number of shares of issued
and outstanding Class A Stock and (B) 6,665 (as adjusted pursuant to Section 2
below) and the denominator of which is the number of issued and outstanding
shares of Class A Stock and (ii) no alteration or amendment of Sections 2 or 3
of Article VII which affects clauses (i), (ii) or (iii) of Section 3 of Article
VII or has the effect of further restricting transfers of shares of the
Corporation shall be effected without the approval of the holders of a
percentage of the issued and outstanding shares of Class A Stock equal to a
fraction, the numerator of which is the difference between (A) the number of
shares of issued and outstanding Class A Stock and (B) 6,665 (as adjusted
pursuant to Section 2 below) and the denominator of which is the number of
issued and outstanding shares of Class A Stock. That certain powers to amend,
alter, repeal or adopt the Bylaws have been conferred upon the Board of
Directors shall not divest the stockholders of the same powers.
Section 2. CERTAIN ADJUSTMENTS. In case the Corporation shall at any time
subdivide the outstanding shares of its Class A Stock, or issue a stock dividend
payable in Class A Stock on its outstanding Class A Stock, the number set forth
in clauses (i) (B) and (ii) (B) of Section 1 of this Article XV immediately
prior to such subdivision or the issuance of such dividend shall be
proportionately increased, and in the case the Corporation shall at any time
combine the outstanding shares of Class A Stock, the number set forth in clauses
(i) (B) and (ii) (B) of Section 1 of this Article XV immediately prior to such
combination shall be proportionately decreased.
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EXHIBIT 4.3
===============================================================================
RIGHTS AGREEMENT
between
SECURITY CAPITAL GROUP INCORPORATED
and
The First National Bank of Boston
as Rights Agent
Dated as of 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
----
<C> <S> <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
</TABLE>
Exhibit A - Form of Articles Supplementary of Security Capital Group
Incorporated
Exhibit B - Form of Right Certificate
<PAGE>
RIGHTS AGREEMENT
----------------
Agreement, dated as of ___________ ___, 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 ___________ ___, 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
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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
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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.
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"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.
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(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.
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(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 ___________ ___, 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
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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
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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
incidental 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.
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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
___________ ___, 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
$__________, and the Purchase Price for each one five-thousandth of a
Participating Preferred Share pursuant to the exercise of a Right shall
initially be $ , 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
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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.
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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
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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)
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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
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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
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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)
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(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)
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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.
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(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
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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,
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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,
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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
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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
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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
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(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
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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
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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),
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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
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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
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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
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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
--------------------------
William D. Sanders
Chairman
Attest:
By
--------------------------
Jeffrey A. Klopf
Secretary
THE FIRST NATIONAL BANK OF BOSTON
By
--------------------------
Name:
--------------------
Title:
--------------------
Attest:
By
--------------------------
Name:
--------------------
Title:
--------------------
34
<PAGE>
Exhibit A
---------
FORM OF
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 ______ __, 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
<PAGE>
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 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 ___________ ___, 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
2
<PAGE>
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 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 ___________ ___, 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
3
<PAGE>
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.
(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
4
<PAGE>
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 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.
5
<PAGE>
(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.
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 ___________
___, 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
6
<PAGE>
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 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
7
<PAGE>
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.
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 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 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 President and
attested to by its Secretary on this ____ day of _______, 1997.
SECURITY CAPITAL GROUP INCORPORATED
By:
-------------------------------(Seal)
William D. Sanders, President
ATTEST:
By:
---------------------------
Jeffrey A. Klopf, Secretary
9
<PAGE>
Exhibit B
---------
[Form of Right Certificate]
Certificate No. R- ________ Rights
NOT EXERCISABLE AFTER ___________ ___, 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 ___________ ___, 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 ___________ ___, 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-
- ----------------
/*/ The portion of the legend in brackets shall be inserted only if
applicable and shall replace the preceding sentence.
<PAGE>
assessable Series A Junior Participating Preferred Share (a "Participating
Preferred Share") of the Corporation, at a purchase price of $_____ per one one-
hundredth of a Participating Preferred Share or $_____ 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 ___________ ___, 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.
2
<PAGE>
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 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 _______________ __, _______
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.
Date:
-----------, ----- -----------------------------------
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 4.6
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE AND MAY
NOT BE SOLD OR TRANSFERRED ABSENT
REGISTRATION THEREUNDER OR
EXEMPTION THEREFROM
-------------------
SECURITY CAPITAL REALTY INCORPORATED
12% CONVERTIBLE SUBORDINATED DEBENTURE
DUE JUNE 30, 2014
<PAGE>
TABLE OF CONTENTS
ARTICLE ONE
DEFINITIONS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1.01. Definitions................................................. 2
SECTION 1.02. Rules of Construction....................................... 6
ARTICLE TWO
THE DEBENTURES
SECTION 2.01. Debentures Part of Series................................... 7
SECTION 2.02. Interest; Payment of Interest............................... 7
SECTION 2.03. The Register................................................ 8
SECTION 2.04. Registered Holders.......................................... 8
SECTION 2.05. Transfers and Exchanges of Debentures;
Lost or Mutilated Debentures................................ 9
SECTION 2.06. New Debentures.............................................. 10
SECTION 2.07. Cancellation of Debentures.................................. 11
ARTICLE THREE
REDEMPTION OF DEBENTURES
SECTION 3.01. Redemption at the Option of the
Company..................................................... 11
SECTION 3.02. Redemption in Part.......................................... 11
SECTION 3.03. Notice of Redemption........................................ 11
SECTION 3.04. Effect of Notice of Redemption.............................. 12
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Debenture........................................ 12
SECTION 4.02. Corporate Existence, Etc.................................... 13
SECTION 4.03. Insurance................................................... 13
SECTION 4.04. Taxes, Claims for Labor and Materials,
Compliance with Laws........................................ 13
SECTION 4.05. Limitation on Dividends and Purchases
of Capital Stock or Subordinated
Indebtedness................................................ 13
SECTION 4.06. Reporting................................................... 14
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 4.07. Incurrence of Additional
Indebtedness................................................ 14
ARTICLE FIVE
CONVERSION
SECTION 5.01. Conversion Privilege........................................ 14
SECTION 5.02. Exercise of Conversion Privilege............................ 15
SECTION 5.03. Adjustments of Conversion Price;
Certain Other Adjustments................................... 16
SECTION 5.04. Notice of Adjustments of Conversion
Price....................................................... 22
SECTION 5.05 Notice of Certain Corporate Action.......................... 22
SECTION 5.06. Company to Reserve Capital Stock............................ 23
SECTION 5.07. Taxes on Conversion......................................... 23
SECTION 5.08. Covenant as to Capital Stock................................ 23
SECTION 5.09. Registration and Listing of Common Stock.................... 23
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default........................................... 24
SECTION 6.02. Acceleration................................................ 25
SECTION 6.03. Other Remedies.............................................. 26
SECTION 6.04. Waiver of Past Defaults..................................... 27
SECTION 6.05. Undertaking for Costs....................................... 27
ARTICLE SEVEN
SUBORDINATION
SECTION 7.01. Subordination of Debentures to
Senior Indebtedness......................................... 27
SECTION 7.02. No Payment on Debenture in
Certain Circumstances....................................... 28
SECTION 7.03. Debenture Subordinated to Prior Payment of
All Senior Indebtedness on Dissolution,
Liquidation or Reorganization of Company.................... 29
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 7.04. Holder of Debenture to Be Subrogated
to Rights of Holders of Senior
Indebtedness................................................ 31
SECTION 7.05. Obligations of the Company
Unconditional............................................... 32
SECTION 7.06. Subordination Rights Not
Impaired by Acts or Omissions of
Company or Holders of Senior
Indebtedness................................................ 32
SECTION 7.07. Article Seven Not to Prevent Events
of Default.................................................. 32
ARTICLE EIGHT
AMENDMENTS AND WAIVERS
SECTION 8.01. With Consent of Holders..................................... 33
SECTION 8.02. Revocation and Effect of
Consents.................................................... 34
SECTION 8.03. Notation on or Exchange of
Debentures.................................................. 34
SECTION 8.04. Effect of Amendment......................................... 34
ARTICLE NINE
MISCELLANEOUS
SECTION 9.01. Notices..................................................... 35
SECTION 9.02. Consents.................................................... 36
SECTION 9.03. Governing Law............................................... 36
SECTION 9.04. No Adverse Interpretation of Other
Agreements.................................................. 36
SECTION 9.05. No Recourse Against Others.................................. 36
SECTION 9.06. Successors.................................................. 36
SECTION 9.07. Severability................................................ 36
SECTION 9.08. Replacement................................................. 36
</TABLE>
(iii)
<PAGE>
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED,
OR THE SECURITIES LAWS OF ANY STATE AND MAY
NOT BE SOLD OR TRANSFERRED ABSENT
REGISTRATION THEREUNDER OR EXEMPTION THEREFROM
----------------------------------------------
The following information is provided solely for the purpose of applying
the original issue discount ("OID") rules of the Internal Revenue Code of 1986,
as amended, to this Debenture. This Debenture is issued with OID on _____ __,
19__ (the "Issue Date"). Information relating to the issue price, the amount of
OID, and the yield to maturity will be available within 10 days of the issue
date by contacting:
Security Capital Realty Incorporated
125 Lincoln Avenue, Suite 300
Santa Fe, New Mexico 87501
Attn: Jeffrey Gottlieb
Telephone No.: (915) 877-3900
12% CONVERTIBLE SUBORDINATED DEBENTURE
DUE JUNE 30, 2014
$ __________________ No. S-______________
PPN: 81414#AB2
Security Capital Realty Incorporated, a Maryland corporation (the
"Company"), for value received, hereby promises to pay to the order of
____________, or its registered assigns, the principal sum of $ ___________ in
U.S. Legal Tender (as defined herein) on June 30, 2014 (the "Maturity Date"),
and to pay Interest (as defined herein) on this Debenture (as defined herein) in
accordance with the provisions of this Debenture in U.S. Legal Tender to the
Registered Holder hereof, beginning to accrue on the Issue Date and semi-
annually thereafter on the last Business Day (as defined herein) of June and
December in each calendar year (each such date an "Interest Payment Date") or,
in the case of principal and Interest due on the Maturity Date, on such Maturity
Date. The principal and Interest payable on any Interest Payment Date will be
paid to the Person (as defined herein) in whose name this Debenture is
registered at the close of business on the immediately preceding December 15 or
June 15 (each such December 15 or June 15, a "Record Date"). Payment of the
principal of and Interest on this Debenture will be mailed to the address of the
Person entitled thereto as such Person's name and address shall appear in the
Register (as defined herein).
<PAGE>
ARTICLE ONE
DEFINITIONS
SECTION 1.01. Definitions. The following terms (except as otherwise
expressly provided or unless the context otherwise clearly requires) for all
purposes of this Debenture and of any amendment hereto shall have the respective
meanings specified in this Section 1.01.
"Acceleration Date" shall have the meaning assigned to such term in Section
6.02.
"Affiliate" of any specified Person shall mean any other Person, directly
or indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" 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; and the terms
"affiliated," "controlling" and "controlled" have meanings correlative to the
foregoing.
"Bankruptcy Law" shall have the meaning assigned to such term in Section
6.01.
"Business Day" shall mean any day of the year (other than any Saturday or
Sunday) on which the Federal Reserve Bank is open for business in New York, New
York.
"Capital Stock" shall mean, collectively, the Company's equity securities
of every class, including, without limitation, the Company's Common Stock.
"Capitalized Lease Obligation" shall mean obligations under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP, and the amount of Indebtedness represented by such obligations shall be
the capitalized amount of such obligations determined in accordance with such
principles.
"Closing Price" shall mean the reported last sale price of a unit of a
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 the security is
not listed or admitted to trading on such exchange, on the American Stock
Exchange Composite Tape, or, if the security is not listed or admitted to
trading on such exchange, 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 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 NASDAQ, 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
-2-
<PAGE>
market value of the security as estimated by the Company using an identical
valuation formula to that used in determining the pricing for the Company's then
most-recent sale of more than $35 million of similar securities to unaffiliated
third parties, or if no such sale has occurred, as determined in good faith by
the Company, which estimate shall be prepared at the expense of the Company;
provided, that any determination of the "Closing Price" of any security
hereunder shall be based on the assumption that such security is freely
transferable without registration under the Securities Act.
"Commission" shall mean the Securities and Exchange Commission or any other
applicable Federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Company's Common Stock, $.01 par value per
share.
"Company" shall mean Security Capital Realty Incorporated and its
successors and assigns.
"Conversion Price" shall have the meaning assigned to such term in Section
5.01(b).
"Convertible Securities" shall have the meaning assigned to such term in
Section 5.03(b).
"Custodian" shall have the meaning assigned to such term in Section 6.01.
"Debenture" shall have the meaning assigned to such term in Section 2.01.
"Debentureholder" shall mean the Registered Holder of a Debenture.
"Default" shall mean any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Default Notice" shall have the meaning assigned to such term in Section
7.02(b).
"Deferred Interest" shall have the meaning assigned to such term in Section
2.02(a).
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" shall have the meaning assigned to such term in Section
6.01.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"GAAP" shall mean generally accepted accounting principles as in effect in
the United States of America on the date of this Debenture.
-3-
<PAGE>
"Holder," "Holder of Debentures," "Debentureholder" or other similar terms
shall mean the Registered Holder of a Debenture.
"Indebtedness" shall mean, with respect to any Person, (i) any liability,
contingent or otherwise, of such Person (A) for borrowed money (whether or not
the recourse of the lender is to the whole of the assets of such Person or only
to a portion thereof), (B) evidenced by a note, debenture or similar instrument
(including a purchase money obligation) or (C) for the payment of money relating
to a Capitalized Lease Obligation; (ii) any liability of others of the kind
described in the preceding clause (i) which the Person has guaranteed or which
is otherwise its legal liability; (iii) any obligation secured by a Lien to
which the property or assets of such Person are subject, whether or not the
obligations secured thereby shall have been assumed by or shall otherwise be
such Person's legal liability; and (iv) any and all deferrals, renewals,
extensions and refundings of, or amendments, modifications or supplements to,
any liability of the kind described in any of the preceding clauses (i), (ii) or
(iii).
"Interest" shall mean all interest accruing hereunder, including Mandatory
Interest and Deferred Interest, together with accrued and unpaid interest on
Deferred Interest as provided in Section 2.02(a).
"Interest Payment Date" shall mean the last Business Day of December and
June of each calendar year following the Issue Date.
"Issue Date" shall have the meaning assigned to such term in the first
paragraph of this Debenture.
"Lien" shall mean any mortgage, pledge, lien (statutory or otherwise),
security interest, encumbrance, charge or adverse claim upon or with respect to
any property of any kind, real or personal, movable or immovable, now owned or
hereafter acquired.
"Mandatory Interest" shall have the meaning assigned to such term in
Section 2.02(a).
"Material Subsidiary" shall mean any Subsidiary in which the aggregate
amount directly or indirectly invested by the Company, whether by way of debt,
equity, guaranty or otherwise, and which remains at risk exceeds $100,000,000.
"Maturity Date" or "Maturity" shall mean June 30, 2014.
"Memorandum" shall mean REALTY's May 17, 1994 Private Placement Memorandum,
as supplemented and amended.
"NASDAQ" shall mean the National Association of Securities Dealers
Automated Quotation System.
-4-
<PAGE>
"New Debenture" shall have the meaning assigned to such term in Section
2.06.
"Notice of Default" shall have the meaning assigned to such term in Section
6.01.
"Old Debenture" shall have the meaning assigned to such term in Section
2.06.
"Person" shall mean any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
other private legal entity or government or other agency or political
subdivision thereof.
"Record Date" shall mean December 15 and June 15 of each calendar year.
"Redemption Date" shall mean the date fixed for redemption pursuant to this
Debenture.
"Redemption Price" shall have the meaning assigned to such term in Section
3.04.
"Reference Date" shall have the meaning assigned to such term in Section
5.03(b).
"Register" shall have the meaning assigned to such term in Section 2.03.
"Registered Holder" shall mean the Holder of a Debenture as set forth in
the Register.
"Registry Office" shall have the meaning assigned to such term in Section
2.03.
"Restricted Payment" shall have the meaning assigned to such term in
Section 4.05.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Senior Indebtedness" shall mean the principal of, premium, if any, and
interest (including interest accruing after the filing of a petition initiating
any proceeding under any state, federal or foreign bankruptcy laws to the extent
allowed in such proceeding) on any Indebtedness of the Company, whether
outstanding on the date of this Debenture or hereafter created, incurred,
assumed, guaranteed or in effect guaranteed by the Company (including all
deferrals, renewals, extensions or refundings of, or amendments, modifications
or supplements to, Indebtedness of the kind described in this clause), unless,
in the case of any particular Indebtedness, deferral, renewal, extension,
refunding, amendment, modification or supplement, the instrument creating or
evidencing the same or the assumption or guarantee thereof expressly provides
that such Indebtedness, deferral, renewal, extension, refunding, amendment,
modification or supplement shall not be senior in right of payment to the
Debentures. Notwithstanding anything to the contrary in the foregoing, however,
Senior Indebtedness shall not include (a) Indebtedness or amounts owed (except
to banks and other financing institutions) for goods or materials purchased in
the ordinary course of business, for compensation to employees, or for services,
(b) in the case of each Debenture, the other Debentures, (c)
-5-
<PAGE>
Indebtedness of the Company to a Subsidiary or (d) Indebtedness to any officer
or director of the Company or of any Subsidiary.
"Subordinated Indebtedness" shall mean all unsecured Indebtedness that by
its terms is subordinate in right of payment, in dissolution, liquidation or
otherwise to the Debentures.
"Subsidiary" shall mean a corporation all of whose capital stock with
voting power, under ordinary circumstances, to elect directors is at the time,
directly or indirectly, owned by the Company, by a Subsidiary of the Company or
by the Company and a Subsidiary of the Company.
"Trading Day" shall mean each Monday, Tuesday, Wednesday, Thursday and
Friday, other than a day on which securities are not traded on the applicable
securities exchange or in the applicable securities market.
"Transfer" shall have the meaning assigned to such term in Section 2.05(b).
"U.S. Legal Tender" shall mean such coin or currency of the United States
of America as at the time of payment shall be legal tender for the payment of
public and private debts in the United States.
SECTION 1.02. Rules of Construction. Unless the context otherwise requires:
(1) a term has the meaning expressly assigned to it hereby;
(2) a technical accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the plural
include the singular;
(5) provisions apply to successive events and transactions;
(6) "herein," "hereof" and other words of similar import refer to this
Debenture as a whole and not to any particular Article, Section or other
subdivision;
(7) references to statutes, regulations and rules include subsequent
amendments and successors thereto unless the context otherwise requires;
-6-
<PAGE>
(8) the various headings of this Debenture are provided herein for
convenience only any shall not affect the meaning or interpretation of this
Debenture or any provision hereof; and
(9) if any payment hereunder shall become due on any day which is not
a Business Day, such payment shall be made on the next succeeding Business
Day.
ARTICLE TWO
THE DEBENTURES
SECTION 2.01. Debentures Part of Series. This Debenture is one of the duly
authorized issues of Debentures of the Company designated as its 12% Convertible
Subordinated Debentures Due June 30, 2014 as described in the Memorandum
(together with any amendments thereto and substitutions therefor, individually a
"Debenture" and collectively the "Debentures"). The Debentures are unsecured
debt obligations of the Company that are subordinated to its Senior
Indebtedness. All Debentures will be treated equally and all payments (whether
for principal, Interest or otherwise) will be made pro rata among Registered
Holders based upon the aggregate amount which the Company is obligated to pay at
such time to such Registered Holders. If any Registered Holder of any Debenture
obtains any payment (whether voluntary, involuntary, by application of offset or
otherwise) of principal of or Interest on any Debenture in excess of such
Registered Holder's pro rata share of payments obtained by all Registered
Holders of the Debentures, such Registered Holder will return such excess
payment to the Company and the Company shall pay such excess to the other
Registered Holders of the Debentures as is necessary to cause such Registered
Holders to share the excess payment ratably among each of them as provided in
this Section 2.01.
SECTION 2.02. Interest; Payment of Interest. This Debenture shall bear
Interest for the period from the Issue Date to the Maturity Date (or in the case
of redemption in accordance with Article Three hereof, to the Redemption Date,
or in the case of conversion, in accordance with Article Five hereof, to the
date of such conversion) at a rate of 12% per annum calculated on the basis of a
360 day year consisting of twelve 30 day months. Payments of Interest on this
Debenture will be made on the Interest Payment Dates of each calendar year
(except in the case of a special Record Date) prior to the Maturity Date or
redemption or conversion and on the Maturity Date and Redemption Date and the
date of conversion to the Holder of record at the close of business on the
immediately preceding Record Date as follows:
(a) Interest. This Debenture shall bear interest at a rate of twelve
percent (12%) per annum on the outstanding principal balance hereunder, of
which the current payment of three and one-half percent (3.5%) per annum is
mandatory ("Mandatory Interest") and of which eight and one-half percent
(8.5%) per annum may be deferred at the election of the Company ("Deferred
Interest"). Unless otherwise provided in Section 5.01, all
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Interest must be paid in U.S. Legal Tender. Interest on the amount of
Deferred Interest which is unpaid on any Interest Payment Date shall accrue
and compound annually at the rate of twelve percent (12%) per annum.
Deferred Interest and Interest thereon will be payable in all events on the
Maturity Date, the Redemption Date or the conversion date (in accordance
with Section 5.01(a) and the other provisions hereof), as the case may be,
or earlier if the Company so elects. Notwithstanding any other provision of
this Section or any other Debenture, the Company may elect, in its sole and
absolute discretion, to pay, on any Interest Payment Date, Interest in
excess of the amount required hereunder provided that (i) the aggregate
amount of Interest paid at any time and from time to time, when added to
all amounts of Interest previously paid, shall not exceed an amount which
provides the Holder hereof a return of twelve percent (12%) compounded
annually through the date of such payment; and (ii) any such payments are
made on a pro rata basis to each Holder of a Debenture.
(b) Payment Upon Maturity Date. At the Maturity Date, the Holder of
this Debenture will be entitled to receive (i) payment of the outstanding
principal balance hereunder plus (ii) any accrued and unpaid Interest.
(c) Payment Upon Redemption Date. At the Redemption Date, the Holder
of this Debenture will be entitled to receive (i) payment of the
outstanding principal balance hereunder to be redeemed in accordance with
Article III hereof plus (ii) any accrued and unpaid Interest thereon to and
including the Redemption Date.
(d) Payment Upon Conversion. Upon conversion of this Debenture into
Capital Stock pursuant to Section 5.02, accrued and unpaid Interest shall
be paid as provided in Section 5.01(a).
Except as otherwise provided in this Debenture, the Company will not pay any
additional amount to the Holder in respect of any deduction or other
governmental charges of any taxing authority imposed upon or as a result of any
payment of the principal of, or Interest on or any other payment under this
Debenture.
SECTION 2.03. The Register. The Company will keep at its principal office
(the "Registry Office") one or more books (the "Register") for the registration
of the Debentures (including all transfers) and the names and addresses of the
Registered Holders of the Debentures. All transfers of the Debentures and the
names and addresses of the transferees of the Debentures shall be registered in
the Register under such reasonable regulations as the Company may prescribe.
SECTION 2.04. Registered Holders. The Company will deem and treat the
Registered Holder of this Debenture as the absolute owner hereof and will not be
affected by any notice to the contrary. Payment of the principal of and Interest
on this Debenture shall be made only to the Registered Holder hereof. All such
payments so made shall be valid and
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effectual to satisfy and discharge the liability of the Company upon this
Debenture to the extent of the sum or sums so paid. For the purpose of any
request, direction or consent hereunder, the Company may deem and treat the
Registered Holder of this Debenture as the Holder without production of such
Debenture.
SECTION 2.05. Transfers and Exchanges of Debentures; Lost or Mutilated
Debentures.
(a) Subject to Section 2.05(b), the Registered Holder hereof may from time
to time assign or transfer in the manner provided in this Section 2.05 to one or
more Persons all or any part of this Debenture, and to the extent of any such
assignment or transfer (unless otherwise stated therein), the transferee of such
assignment or transfer (unless otherwise stated therein), shall become a
Registered Holder of this Debenture. Each transferee so becoming a Registered
Holder shall be vested with all rights and powers under this Debenture of a
Registered Holder hereunder and shall take and hold its Debenture subject to the
provisions of this Debenture and to any request made, waiver or consent given or
other action taken hereunder by each previous Registered Holder of this
Debenture.
(b) No Holder may sell, assign, transfer, or otherwise dispose of this
Debenture (collectively "Transfer"), if the Transfer, taken alone or together
with all other Transfers of Debentures, would (i) violate or result in a
violation of, any provision of the Securities Act, applicable state securities
or "blue sky" laws, as amended, or any other applicable provision of law; (ii)
subject the Company or an Affiliate to regulation as an Investment Company under
the Investment Company Act of 1940, as amended; (iii) subject the Company or an
Affiliate to duties and liabilities under ERISA; (iv) cause the Company or an
Affiliate of the Company to be or become a "bank" or a "bank holding company"
within the meaning of the Bank Holding Company Act of 1956, as amended, or any
successor statute thereto or within the meaning of any state statute defining
such terms; (v) cause the Company or an Affiliate of the Company to be or become
a "savings association" or a "savings and loan holding company" within the
meaning of the Home Owners' Loan Act, as amended or any successor statute
thereto; (vi) cause the Company or an Affiliate of the Company to be or become a
"savings association," "savings and loan association", "savings bank", "savings
and loan holding company" or "savings bank holding company" within the meaning
of any state statute defining such terms; (vii) cause the Company to no longer
qualify as a "domestically controlled real estate investment trust" for purposes
of the United States Foreign Investment in Real Property Tax Act of 1980; or
(viii) result in any Person beneficially owning more than 9.8% of the Common
Stock unless, in the case of this clause (viii), the Company, in its sole
discretion, grants its prior written consent to such Transfer. In determining
whether a Transfer would cause the Company or an Affiliate of the Company to be
a "bank", "bank holding company", "savings association", "savings and loan
association", "savings bank", "savings and loan holding company", "savings bank
holding company" or "not a domestically controlled real estate investment trust"
the Company may assume that upon Transfer the Debenture would be converted to
Common Stock.
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(c) The Registered Holder may Transfer this Debenture upon the surrender of
this Debenture at the Registry Office, and no such Transfer shall be effective
until such surrender to the Company of the Debenture to be transferred has been
made. Upon such surrender the Company shall execute in the name of the
transferee(s) a new Debenture or Debentures in denominations not less than
$1,000 each and in aggregate principal amount equal to the original principal
amount of the Debenture so surrendered.
(d) If this Debenture is presented or surrendered for exchange or Transfer,
it shall be accompanied by a written instrument or instruments of assignment or
transfer, duly executed by the Registered Holder and the transferee or by their
respective attorneys duly authorized in writing (which instrument shall contain
appropriate warranties of the transferee), and an opinion of counsel addressed
to the Company, each in form and substance and furnished by counsel reasonably
satisfactory to the Company, and which opinion shall state that such Transfer or
assignment does not violate, or result in the violation of, any provision of the
Securities Act, applicable state securities or "blue sky" laws, as amended, or
any other applicable provision of law, and as to such other matters as the
Company reasonably may request. The Company shall not be required to make a
transfer or an exchange of this Debenture for a period of ten (10) Business Days
preceding any Interest Payment Date.
(e) No notarial act shall be necessary for the Transfer or exchange of this
Debenture pursuant to this Section 2.05, and the Holder of any Debenture issued
as provided in this Section 2.05 shall be entitled to any and all rights and
privileges granted under this Debenture to a Registered Holder.
(f) If this Debenture shall become mutilated or be destroyed, lost or
stolen, the Company, upon the written request of the Registered Holder, shall
execute and deliver to the Registered Holder a new Debenture in exchange and
substitution for the mutilated Debenture, or in lieu of and in substitution for
the Debenture so destroyed, lost or stolen, in either case in a principal amount
equal to the original principal amount of the Debenture so mutilated, destroyed,
lost or stolen, as reflected in the Register. The applicant for a substituted
Debenture shall furnish to the Company such security or indemnity or such
combination thereof as may be reasonably required by the Company to save the
Company harmless from all risks, and the applicant shall also furnish to the
Company evidence to its reasonable satisfaction of the mutilation, destruction,
loss or theft of the applicant's Debenture and of the applicant's ownership
thereof.
SECTION 2.06. New Debentures.
(a) Each new Debenture ("New Debenture") issued pursuant to Section 2.05 in
exchange for, in substitution for or in lieu of a Debenture ("Old Debenture")
shall be dated the date of such Old Debenture. The Company shall mark on each
New Debenture (i) the date and the extent to which principal and Interest has
been paid on such Old Debenture and (ii) all payments and prepayments of
principal made on such Old Debenture which are allocable to such
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New Debenture. Interest and principal shall be deemed to have been paid on such
New Debenture to the date and to the extent to which Interest and principal was
paid on such Old Debenture.
(b) Any New Debenture issued pursuant to Section 2.05 in exchange for or
in substitution for or in lieu of an Old Debenture shall be the valid obligation
of the Company evidencing the same debt as such Old Debenture and shall be
entitled to the benefits of this Debenture. No service charge shall be made for
any exchange or transfer of this Debenture, but the Company may require payment
of a sum to cover any tax or governmental charge imposed with respect thereto.
SECTION 2.07. Cancellation of Debentures. If this Debenture is surrendered
to the Company for the purpose of payment, transfer or exchange, it shall be
cancelled by the Company, and no Debentures shall be issued in lieu hereof
except as expressly required or permitted by this Debenture.
ARTICLE THREE
REDEMPTION OF DEBENTURES
SECTION 3.01. Redemption at the Option of the Company. The Company may
redeem Debentures (including this Debenture), in whole or in part, at any time
upon not less than sixty (60) days' and not more than ninety (90) days' prior
written notice to the Holders of the Debentures at a price, payable in U.S.
Legal Tender only, equal to one hundred percent (100%) of the outstanding
principal amount thereof, plus the amount of any accrued and unpaid Interest on
such principal and Interest thereon to the Redemption Date; provided that any
Debenture called for redemption may at the option of the Holder, be converted
into Common Stock in accordance with Article Five, during the period commencing
on the 50th day prior to the Redemption Date and ending on the 3rd day prior to
the Redemption Date, regardless of whether the conversion privilege pursuant to
Article Five is otherwise exercisable.
SECTION 3.02. Redemption in Part. Debentures may be redeemed in part in
denominations of $1,000 or any integral multiple thereof. In case of a
redemption in part, the Debentures to be redeemed shall be selected pro rata and
there shall be redeemed from each Holder that portion of principal amount of all
Debentures being redeemed which the outstanding principal amount of Debentures
held by such Holder bears to the total principal amount of Debentures then
outstanding.
SECTION 3.03. Notice of Redemption. At least sixty (60) days but not more
than ninety (90) days before a Redemption Date, the Company shall provide notice
of redemption to each Holder at such Holder's latest address set forth in the
Register. Failure to give notice by
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mail, or any defect in the notice to the Holder of any Debenture shall not
affect the validity of the proceedings for the redemption of any other
Debentures. The notice shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) that Debentures called for redemption must be surrendered to the
Company to collect the Redemption Price;
(4) that, unless the Company defaults in making the redemption
payment on the Redemption Date, Interest on Debentures called for
redemption shall cease to accrue on and after the Redemption Date and,
unless the Holder has timely converted its Debentures in accordance with
Article Five hereof, in which case the rights of such Holder shall be
determined in accordance with said Article, the only remaining right of the
Holder of such Debentures is to receive payment of the Redemption Price
upon surrender of the Debentures redeemed to the Company;
(5) if any Debenture is being redeemed in part, the portion of the
principal amount of such Debenture to be redeemed and that, after the
Redemption Date, and upon surrender of such Debenture, a new Debenture or
Debentures in aggregate principal amount equal to the unredeemed portion
thereof will be issued; and
(6) if less than the entire principal amount of Debentures is to be
redeemed, the aggregate principal amount of Debentures to be redeemed and
the aggregate principal amount of Debentures estimated to be outstanding
after such partial redemption.
SECTION 3.04. Effect of Notice of Redemption. Once notice of redemption is
mailed, all Debentures called for redemption in whole or in part become due and
payable only to the extent of the principal amount being redeemed and unpaid
Interest accrued on such principal amount and Interest thereon through the
Redemption Date (such principal and Interest being referred to herein as the
"Redemption Price") on the Redemption Date and at the Redemption Price. Upon
surrender to the Company, such Debentures called for redemption shall be paid at
the Redemption Price.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Debenture. The Company shall pay the principal of
and Interest on this Debenture on the dates and in the manner provided in
Article Two, Article Three, and Article Five hereof.
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SECTION 4.02. Corporate Existence, Etc. The Company will preserve and keep
in force and effect its corporate existence and all material licenses and
permits reasonably necessary to the proper conduct of its business; provided
that nothing contained in this Section 4.02 shall prevent the Company from
consolidating with, selling all or substantially all of its properties and
assets to, or being a party to a merger with any other Person if: (i) no Default
exists or would result therefrom and (ii) the surviving Person is organized
under the laws of the United States and expressly and unconditionally assumes in
writing the due and punctual performance of all obligations hereunder and under
the Debentures.
SECTION 4.03. Insurance. The Company will maintain insurance coverage by
financially sound and reputable insurers in such forms and amounts and against
such risks as are reasonable for corporations of established reputation engaged
in the same or similar business and owning and operating similar assets.
SECTION 4.04. Taxes, Claims for Labor and Materials, Compliance with Laws.
(a) The Company will promptly pay and discharge all lawful taxes,
assessments and governmental charges or levies imposed upon the Company, or upon
or in respect of all or any part of the property or business of the Company, all
trade accounts payable in accordance with usual and customary business terms,
and all claims for work, labor or materials, which if unpaid would become a lien
or charge upon any property of the Company; provided that the Company shall not
be required to pay any such tax, assessment, charge, levy, account payable or
claim if (1) the validity, applicability or amount thereof is being contested in
good faith by appropriate actions or proceedings and (2) the Company shall set
aside on its books, reserves deemed by it to be adequate with respect thereto.
(b) The Company will promptly comply with all applicable laws, ordinances
or governmental rules and regulations to which it is subject the penalty for
violation of which would materially and adversely affect the properties,
business, prospects, profits or condition of the Company.
SECTION 4.05. Limitation on Dividends and Purchases of Capital Stock or
Subordinated Indebtedness. The Company will not, directly or indirectly, declare
or pay any dividend on, or make any distribution to the holders of, Capital
Stock of the Company with respect to such Capital Stock (other than dividends in
Capital Stock or rights to acquire Capital Stock) and neither the Company nor
any Subsidiary may purchase, redeem, or otherwise acquire or retire for value
any of the Capital Stock of the Company or Subordinated Indebtedness of the
Company (collectively, a "Restricted Payment") unless at the time of such
Restricted Payment, (a) no Default exists or would result therefrom, (b)
immediately before and immediately after giving effect to such payment, its
consolidated shareholder's equity, determined in accordance with GAAP, exceeds
$300 million and (c) immediately before and immediately after giving effect to
such payment, the Company could incur $1.00 of additional Indebtedness under the
provisions of Section 4.07 (without giving effect to the proviso contained in
such Section 4.07).
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SECTION 4.06. Reporting.
(a) As soon as available, but in any event within one hundred twenty (120)
days after the end of each fiscal year of the Company, the Company shall deliver
to each Holder copies of the audited consolidated balance sheet of the Company
and its Subsidiaries together with the related consolidated statements of income
and cash flows for such fiscal year prepared in accordance with GAAP
consistently followed throughout the period involved and presenting fairly the
financial condition of the Company and its Subsidiaries.
(b) As soon as available, but in any event within sixty (60) days after
the end of each fiscal quarter of the Company, the Company shall deliver to each
Holder copies of the unaudited consolidated balance sheet of the Company and its
Subsidiaries as at the end of such fiscal quarter and the related unaudited
consolidated statements of income and cash flows for such fiscal quarter and the
portion of the fiscal year through such fiscal quarter.
SECTION 4.07. Incurrence of Additional Indebtedness. The Company will not,
and will not permit any of its Subsidiaries to, create, issue, assume, guarantee
or otherwise in any manner become liable for or with respect to or otherwise
incur (collectively, "incur" and with correlative meaning "incurrence" and
"incurred") any Indebtedness unless immediately before and immediately after
giving effect to such incurrence (a) its consolidated shareholder's equity,
determined in accordance with GAAP, exceeds $300 million and (b) the ratio of
Indebtedness to its consolidated shareholder's equity, determined in accordance
with GAAP (utilizing a fair market value accounting convention), as increased by
any unfunded, irrevocable subscriptions for Common Stock, would not equal or
exceed the ratio of 5:00 to 1:00; provided that notwithstanding the foregoing,
the Company shall be permitted to incur additional Indebtedness not to exceed in
the aggregate ten percent (10%) of its consolidated shareholders' equity,
determined in accordance with GAAP, at any time that this covenant would not
otherwise be complied with until the Company has satisfied this covenant for
twelve (12) consecutive months, at which time this proviso shall no longer
become operative until the next time that the Company fails to meet this
covenant and at least 360 days have elapsed.
ARTICLE FIVE
CONVERSION
SECTION 5.01. Conversion Privilege.
(a) Subject to and upon compliance with the provisions of this Article
Five, the entire outstanding principal amount of this Debenture, or any portion
thereof, is convertible into Common Stock at the option of the Holder at any
time after the earlier to occur of (i) the first anniversary of the Company's
initial public offering of its Common Stock, (ii) July 1, 1999, or (iii) an
event described in Section 5.03(f). In addition, if this Debenture is called for
redemption
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pursuant to the terms of Article Three hereof, the entire outstanding principal
amount of this Debenture, or any portion thereof that is then called for
redemption, is convertible into Common Stock at any time during the period
commencing on the 50th day prior to the Redemption Date and ending on the 3rd
day prior to the Redemption Date. On conversion of the entire outstanding
principal amount of this Debenture, or any portion thereof, (x) any Mandatory
Interest that is past due on the principal amount of such Debenture that is
being converted shall be paid in U.S. Legal Tender, and (y) that portion of
accrued and unpaid Deferred Interest attributable to the period from the Issue
Date to the date of conversion with respect to the principal amount of this
Debenture that is being converted and Interest thereon shall not be cancelled,
extinguished or forfeited, but rather shall be deemed to be paid in full to the
Holder thereof through the delivery of the Common Stock in exchange for the
Debenture being converted pursuant to the terms hereof.
(b) The total number of shares of Common Stock issuable upon conversion
shall be determined by dividing the principal amount of this Debenture being
converted by the conversion price then in effect (the "Conversion Price"). The
initial Conversion Price shall be $1,046. The Conversion Price shall be adjusted
in certain instances as provided in Section 5.03.
(c) Nothing in this Debenture shall grant, or shall be deemed to
constitute the incurrence, creation, assumption or sufferance by the Company of,
and the Holder of this Debenture shall not assert, any mortgage, pledge, lien,
charge or other encumbrance of any nature whatsoever on the Capital Stock
deliverable upon conversion of this Debenture.
(d) The Company covenants that if, at any time during which the conversion
privilege has not terminated, the Common Stock becomes (or is required to be)
registered under Section 12(b) or Section 12(g) of the Exchange Act, the Company
will file a registration statement for the Common Stock to be reserved for
issuance to the Holders upon conversion pursuant to this Article Five in
accordance with the requirements of such act as promptly as practicable.
SECTION 5.02. Exercise of Conversion Privilege.
(a) In order to exercise the conversion privilege, the Holder of this
Debenture shall surrender this Debenture, duly endorsed or assigned to the
Company or in blank, at the Registry Office or any other office or agency
designated in writing by the Company to the Holder of this Debenture,
accompanied by written notice to the Company at such office or agency that the
Holder of this Debenture elects to convert such Debenture.
(b) This Debenture shall be deemed to have been converted immediately
prior to the close of business on the day of surrender of this Debenture for
conversion in accordance with the foregoing provisions, and at such time the
rights of the Holder of this Debenture as a Holder shall cease, and the Person
or Persons entitled to receive the Capital Stock issuable upon conversion shall
be treated for all purposes as the record holder or holders of such Capital
Stock at such time. As promptly as practicable on or after the day of
conversion, the Company shall
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issue and shall deliver at its principal office or other office or agency which
it may designate in writing to the Holder of this Debenture or agency a
certificate or certificates for the number of shares of Capital Stock issuable
upon conversion (which may include fractional shares, as applicable).
(c) If this Debenture is converted in part only, upon such conversion the
Company shall execute and deliver to the Holder hereof, at the expense of the
Company, a new Debenture or Debentures of authorized denominations in aggregate
principal amount equal to the unconverted portion of the principal amount of
this Debenture.
SECTION 5.03. Adjustments of Conversion Price; Certain Other Adjustments.
(a) In case the Company shall issue or sell any shares of Capital Stock or
is deemed to have issued or sold such shares pursuant to Section 5.03(b) (except
as provided in Section 5.03(e)) for a consideration per share less than 94% (or
100% if a stand-by underwriter is used and charges the Company a commission) of
the Closing Price per share of such Capital Stock immediately prior to such
issuance or sale, then immediately after such issuance or sale the Conversion
Price shall be determined by multiplying (I) the Conversion Price in effect
immediately prior to such issuance or sale by (II) a fraction, the numerator of
which shall be the sum of (A) the number of shares of Capital Stock outstanding
(and deemed to be outstanding pursuant to Section 5.03(b)) immediately prior to
such issuance or sale and (B) the number of shares (rounded up to the nearest
share) that the Company could purchase with the aggregate gross proceeds
received from the issuance or sale of such shares at 94% of the Closing Price
per share of such Capital Stock immediately prior to such issuance or sale (or
100% in the case of a stand-by underwriting) and the denominator of which shall
be the total number of shares of Capital Stock outstanding (and deemed to be
outstanding pursuant to Section 5.03(b)) immediately after such issuance or
sale. For purposes of this Section 5.03, the shares of Capital Stock into which
the Debentures are convertible shall not be deemed to be outstanding.
Notwithstanding the foregoing, no adjustment of the Conversion Price shall be
required pursuant to this Section 5.03(a) unless such adjustment would require a
decrease of at least one percent in the Conversion Price but any lesser
adjustment shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall require a decrease of at least one percent
in the Conversion Price.
(b) For the purposes of Section 5.03(a), the following paragraphs (1) to
(7), inclusive, shall also be applicable:
(1) In case the Company shall grant, (whether directly or by
assumption in a merger or otherwise) to holders of Capital Stock any rights
(including options and warrants) to subscribe for, or any rights, options
or warrants to purchase, Capital Stock or any stock or other securities
convertible into or exchangeable for Capital Stock (such convertible or
exchangeable stock or securities being herein called "Convertible
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Securities"), whether or not such rights, options or warrants or the right
to convert or exchange any such Convertible Securities are immediately
exercisable, and the price per share for which Capital Stock is issuable
upon the exercise of such rights or options or upon conversion or exchange
of such Convertible Securities (determined by dividing (A) the total
amount, if any, received or receivable by the Company as consideration for
the granting of such rights, options or warrants, plus, in the case of any
such rights, options or warrants which relate to such Convertible
Securities, the minimum aggregate amount of additional consideration, if
any, payable upon the issue or sale of such Convertible Securities and upon
the conversion or exchange thereof, by (B) the total maximum number of
shares of Capital Stock issuable upon the exercise of such rights, options
or warrants or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such rights, options or warrants)
shall be less than ninety-four percent (94%) of the Closing Price per share
of such Capital Stock in effect immediately prior to the time of the
granting of such rights, options or warrants, then the total maximum number
of shares of Capital Stock issuable upon the exercise of such rights,
options or warrants or upon conversion or exchange of the total maximum
amount of such Convertible Securities issuable upon the exercise of such
rights, options or warrants shall (as of the date of granting of such
rights, options or warrants) be deemed to be outstanding and to have been
issued for such price per share. Except as provided in Section 5.03(d), no
further adjustments of the Conversion Price shall be made upon the actual
issue of such Capital Stock or of such Convertible Securities upon exercise
of such rights, options or warrants or upon the actual issue of such
Capital Stock upon conversion or exchange of such Convertible Securities.
(2) In case at any time the Company shall issue (whether directly or
by assumption in a merger or otherwise, but not by way of a dividend or
other similar type of distribution) or sell any Convertible Securities,
whether or not the rights to exchange or convert thereunder are immediately
exercisable, and the price per share for which Capital Stock is issuable
upon such conversion or exchange (determined by dividing (A) the total
amount received or receivable by the Company as consideration for the issue
or sale of such Convertible Securities, plus the minimum aggregate amount
of additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (B) the total maximum number of shares
of Capital Stock issuable upon the conversion or exchange of all such
Convertible Securities) shall be less than ninety-four percent (94%) of the
Closing Price per share of such Capital Stock in effect immediately prior
to the time of such issuance or sale, then the total maximum number of
shares of Capital Stock issuable upon conversion or exchange of all such
Convertible Securities shall (as of the date of the issue or sale of such
Convertible Securities) be deemed to be outstanding and to have been issued
for such price per share, provided that (i) except as provided in Section
5.03(d), no further adjustments of the Conversion Price shall be made upon
the actual issue of such Capital Stock upon conversion or exchange of such
Convertible Securities, and (ii) if any such issue or sale of such
Convertible Securities is made upon exercise of any rights to subscribe for
or to purchase or any option to
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purchase any such Convertible Securities for which adjustments of the
Conversion Price have been or are to be made pursuant to other provisions
of Section 5.03(b), no further adjustment of the Conversion Price shall be
made by reason of such issue or sale.
(3) In case at any time the Company shall declare a dividend or make
any other distribution upon any Capital Stock of the Company payable in
Capital Stock, any Capital Stock issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold with zero
consideration.
(4) Subject to the last sentence of this paragraph (4), in case the
Company shall, by dividend or otherwise, distribute to all holders of its
Common Stock and/or any other class of Capital Stock, evidences of its
indebtedness, shares of any class of Capital Stock, cash or assets
(including securities, but excluding (x) any rights, options or warrants
referred to in paragraph (1) of this Section 5.03(b), (y) any dividend or
distribution paid exclusively in cash out of the retained earnings of the
Company and (z) any dividend or distribution referred to in paragraph (3)
of this Section 5.03(b)), then, in lieu of the adjustments provided for in
Section 5.03(a), the Conversion Price shall be reduced so that the same
shall equal the price determined by multiplying the Conversion Price in
effect immediately prior to the effectiveness of the Conversion Price
reduction contemplated by this paragraph by a fraction of which the
numerator shall be the current market price per share (determined as
provided in paragraph (7) of this Section 5.03(b)) of the Common Stock on
the date of such effectiveness less the fair market value (as determined by
the Company), on the date of such effectiveness, of the portion of the
evidences of indebtedness, shares of Capital Stock, cash and assets so
distributed applicable to one share of Common Stock and the denominator
shall be such current market price per share of the Common Stock on the
date of such effectiveness, such reduction to become effective immediately
prior to the opening of business on the day following the date fixed for
the determination of stockholders entitled to receive such distribution
(the "Reference Date"). If the Company determines the fair market value of
any distribution for purposes of this paragraph (4) by reference to the
actual or when issued trading market value for any securities comprising
such distribution, it must in doing so consider the prices in such market
over the same period used in computing the current market price per share
pursuant to paragraph (7) of this Section 5.03(b). For purposes of this
paragraph (4), any dividend or distribution that includes shares of Capital
Stock, rights, options or warrants to subscribe for or purchase shares of
Capital Stock or other securities convertible into or exchangeable for
shares of Capital Stock shall be deemed instead to be (a) (i) a dividend or
distribution of the evidences of indebtedness, cash, assets or shares of
Capital Stock other than such shares of Capital Stock, such rights, options
or warrants or such other convertible or exchangeable securities (making
any Conversion Price reduction required by paragraph (4) of this Section
5.03(b)) immediately followed by (ii) in the case of such shares of Capital
Stock or such rights, options or warrants, a dividend or distribution
thereof (making any further Conversion Price reduction required by
paragraph (1) or (3) of this Section 5.03(b), and
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any shares of Capital Stock included in such dividend or distribution shall
be deemed to be "outstanding" within the meaning of Section 5.03(a)) or (b)
in the case of such other convertible or exchangeable securities, a
dividend or distribution of such number of shares of Capital Stock as would
then be issuable upon the conversion or exchange thereof, whether or not
the conversion or exchange of such securities is subject to any conditions
(making any further Conversion Price reduction required by paragraph (3) of
this Section 5.03(b), and any shares deemed to constitute such dividend or
distribution shall be deemed to be "outstanding" within the meaning of
Section 5.03(a)).
(5) In case at any time any shares of Capital Stock or Convertible
Securities or any rights or options to purchase any such Capital Stock or
Convertible Securities shall be issued or sold for cash, the consideration
received therefor shall be deemed to be the amount paid by the purchaser
therefor, without deduction therefrom of any expenses incurred or any
underwriting commissions or concessions or discounts paid or allowed by the
Company in connection therewith. In case at any time any shares of Capital
Stock or Convertible Securities or any rights or options to purchase any
such Capital Stock or Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration other than
cash received by the Company shall be deemed to be the fair value of such
consideration as determined reasonably and in good faith by the Company,
without deduction therefrom of any expenses incurred or any underwriting
commissions or concessions or discounts paid or allowed by the Company in
connection therewith. In case any shares of Capital Stock or Convertible
Securities or any rights or options to purchase any such Capital Stock or
Convertible Securities shall be issued in connection with any merger of
another corporation into the Company, the amount of consideration therefor
shall be deemed to be the fair value of such consideration as determined
reasonably and in good faith by the Company. In case at any time any rights
or options to purchase any shares of Capital Stock or Convertible
Securities shall be issued in connection with the issue and sale of other
securities of the Company, together comprising one integral transaction in
which no consideration is allocated to such rights or options by the
parties thereto, such rights or options shall be deemed to have been issued
for an amount of consideration equal to the fair value thereof as
determined reasonably and in good faith by the Company.
(6) In case at any time the Company shall take a record of the
holders of Capital Stock for the purpose of entitling them (i) to receive a
dividend or other distribution payable in Capital Stock or in Convertible
Securities, or (ii) to subscribe for or purchase Capital Stock or
Convertible Securities, then such record date shall be deemed to be the
date of the issue or sale of the shares of Capital Stock deemed to have
been issued or sold upon the declaration of such dividend or the making of
such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
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(7) For the purpose of any computation under paragraph (4) above, the
current market price per share of Common Stock on any date shall be deemed
to be the average of the daily Closing Prices for 30 consecutive Trading
Days commencing 45 days before such date (or if less than 30 consecutive
days, for the maximum number of consecutive Trading Days elapsed commencing
45 days before such date).
(c) In case at any time the Company shall subdivide its outstanding shares
of Capital Stock into a greater number of shares, the Conversion Price in effect
immediately prior to such subdivision shall be proportionately reduced and
conversely, in case the outstanding shares of Capital Stock of the Company shall
be combined into a smaller number of shares, the Conversion Price in effect
immediately prior to such combination shall be proportionately increased.
(d) If the purchase price provided for in any right or option referred to
in paragraph (1) of Section 5.03(b), or the rate at which any Convertible
Securities referred to in paragraphs (1) or (2) of Section 5.03(b) are
convertible into or exchangeable for Capital Stock, shall change or a different
purchase price or rate shall become effective at any time or from time to time
(other than under or by reason of provisions designed to protect against
dilution), then, upon such change becoming effective, the Conversion Price then
in effect hereunder shall forthwith be increased or decreased to such Conversion
Price as would have obtained had the adjustments made upon the granting or
issuance of such right or options or Convertible Securities been made upon the
basis of (1) the issuance of the number of shares of Capital Stock theretofore
actually delivered upon the exercise of such options or rights or upon the
conversion or exchange of such Convertible Securities, and the total
consideration received therefor, and (2) the granting or issuance at the time of
such change of any such options, rights, or Convertible Securities then still
outstanding for the consideration, if any, received by the Company therefor and
to be received on the basis of such changed price. On the expiration of any
right or option referred to in paragraph (1) of Section 5.03(b), or on the
termination of any right to convert or exchange any Convertible Securities
referred to in paragraphs (1) or (2) of Section 5.03(b), the Conversion Price
shall forthwith be readjusted to such amount as would have obtained had the
adjustment made upon the granting or issuance of such rights or options or
Convertible Securities been made upon the basis of the issuance or sale of only
the number of shares of Capital Stock actually issued upon the exercise of such
options or rights or upon the conversion or exchange of such Convertible
Securities. If the purchase price provided for in any such right or option, or
the rate at which any such Convertible Securities are convertible into or
exchangeable for Capital Stock, shall change at any time under or by reason of
provisions with respect thereto designed to protect against dilution, then in
case of the delivery of Capital Stock upon the exercise of any such right or
option or upon conversion or exchange of any such Convertible Security, the
Conversion Price then in effect hereunder shall forthwith be decreased to such
Conversion Price as would have obtained had the adjustments made upon the
issuance of such right or option or Convertible Security been made upon the
basis of the issuance of (and the total consideration received for) the shares
of Capital Stock delivered as aforesaid.
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(e) The Company shall not be required to make any adjustment of the
Conversion Price in the case of:
(1) the issuance of any shares of Capital Stock in exchange for, or
on conversion of (in either case, on a one-for-one basis), any shares of
Capital Stock of another class or series, provided that the only material
differences between (i) the shares of Capital Stock surrendered in exchange
or converted, and (ii) the shares of another class or series of Capital
Stock thereupon issued, with respect to their relative powers,
designations, preferences, and relative, participating, optional or other
rights, if any, or the qualifications, limitations or restrictions of such
powers, preferences or rights, are differences in voting rights,
(2) the issuance of any shares of Capital Stock (or securities
convertible into Capital Stock) upon satisfaction of either the Company's
7.25% Convertible Debentures due December 31, 1999 or the Company's 7.00%
Convertible Debentures due December 31, 2000,
(3) the issuance of any shares of Capital Stock (or securities
convertible into Capital Stock) pursuant to the offering described in the
Company's private placement memorandum dated May 17, 1994, as amended or
supplemented from time to time, and the issuance of any shares of Capital
Stock upon satisfaction of any such securities convertible into Capital
Stock, or
(4) the issuance of Capital Stock pursuant to the exercise of stock
options or warrants currently (i) outstanding or authorized or (ii) issued
by an entity as to which or with which the Company merges, combines or
consolidates or, prior to date hereof, has merged, combined or
consolidated.
(f) In case of any consolidation or merger of the Company with or into any
other corporation or any merger of another Person into the Company (other than a
merger in which the Company is the surviving Person) or any statutory exchange
of securities with another Person or the sale or other disposition of all or
substantially all of the properties and assets of the Company to any other
Person, there shall be no adjustment of the Conversion Price pursuant to Section
5.03, but the Holder of this Debenture shall have the right after such
consolidation, merger, statutory exchange, sale or conveyance to convert this
Debenture into the kind and amount of securities, cash or other property
receivable upon such consolidation, merger, statutory exchange, sale or
conveyance by a holder of the number of shares of Capital Stock into which this
Debenture might have been converted immediately prior to such consolidation,
merger, statutory exchange, sale or conveyance (assuming for the purpose of this
sentence only that this Debenture was convertible at such time under this
Article Five), assuming such holder of Capital Stock exercises his rights of
election, if any, as to the kind or amount of securities, cash or other property
receivable upon such consolidation, merger, statutory exchange, sale or
conveyance in the same manner as did the holders of a majority (or if there
shall be no majority,
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in the same manner as did the holders of a plurality) of the shares of Common
Stock in such transaction. The Company shall provide to the Registered Holder at
least thirty (30) days prior written notice of the scheduled occurrence of an
event described in this Section 5.03(f).
The above provisions of this Section 5.03(f) shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers, sales or
other dispositions.
SECTION 5.04. Notice of Adjustments of Conversion Price. Whenever the
Conversion Price is adjusted as herein provided:
(a) the Company shall compute the adjusted Conversion Price in accordance
with Section 5.03 and shall prepare a certificate signed by the secretary of the
Company setting forth the adjusted Conversion Price and showing in reasonable
detail the facts upon which such adjustment is based, and such certificate shall
forthwith be filed in the minute book of the Company;
(b) a notice stating that the Conversion Price has been adjusted and
setting forth the adjusted conversion price shall forthwith be required, and as
soon as practicable after it is required, such notice shall be mailed by the
Company to the Holder at the address appearing in the Register; and
(c) the certificate of the secretary of the Company setting forth the
adjusted Conversion Price shall be conclusive evidence that the adjustment is
correct absent manifest error.
SECTION 5.05. Notice of Certain Corporate Action. In case:
(a) the Company shall declare a dividend (or any other distribution) on
its Capital Stock payable otherwise than in cash out of its capital surplus; or
(b) the Company shall authorize the granting of its Capital Stock of (i)
rights or warrants to subscribe for or purchase any shares of Capital Stock of
any class, or (ii) any other rights; or
(c) of any reclassification of the Capital Stock of the Company (other
than a subdivision or combination of its outstanding shares of Capital Stock),
or of any consolidation or merger to which the Company is a party and for which
approval of any stockholders of the Company is required, or of the sale or
transfer of all or substantially all of the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or winding-up
of the Company;
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then the Company shall cause to be filed in the minute book of the Company and
shall cause to be mailed to the Holder of this Debenture at the Holder's last
address appearing in the Register, at least thirty (30) days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, rights or warrants, or, if a record is not to be taken, the date
as of which the holders of Capital Stock of record to be entitled to such
dividend, distribution, rights or warrants are to be determined, or (y) the date
on which such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up is expected to become effective, and the
date as of which it is expected that holders of Capital Stock of record shall be
entitled to exchange their shares of Capital Stock for securities, cash or other
property deliverable upon such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up.
SECTION 5.06. Company to Reserve Capital Stock. The Company shall at all
times reserve and keep available, free from preemptive rights, out of its
authorized but unissued Capital Stock, for the purpose of effecting the
conversion of the Debentures, the full number of shares of Capital Stock then
issuable upon the conversion of all outstanding Debentures, and the Company will
maintain at all times all other rights and privileges sufficient to enable it to
fulfill all its obligations hereunder.
SECTION 5.07. Taxes on Conversion. The Company will pay any and all stamp
and transfer taxes that may be payable in respect of the issue or delivery of
shares of Capital Stock on conversion of this Debenture pursuant to the terms
hereof. The Company shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issue and delivery of shares
of Capital Stock in a name other than that of the Holder of this Debenture or
Debentures to be converted, and no such issue or delivery shall be made unless
and until the Person requesting such issue has paid to the Company the amount of
any such tax, or has established to the satisfaction of the Company that such
tax has been paid.
SECTION 5.08. Covenant as to Capital Stock. The Company covenants that all
shares of Capital Stock which may be issued upon conversion of this Debenture
will upon issue be duly authorized, validly issued, fully paid and
nonassessable.
SECTION 5.09. Registration and Listing of Common Stock. If any shares of
Common Stock required to be reserved for purposes of conversions of Debentures
hereunder require registration with or approval of any governmental authority
under any Federal or state law (other than the Securities Act) before such
shares may be issued upon conversion, the Company will, at its expense and as
expeditiously as possible, use commercially reasonable efforts to cause such
shares to be duly registered or approved, as the case may be. If and so long as
the Common Stock is listed on any national securities exchange, the Company
will, at its expense, obtain promptly and maintain the approval for listing on
each such exchange upon official notice of issuance, of shares of Common Stock
issuable upon conversion of the then outstanding Debentures and maintain the
listing of such shares after their issuance; and the Company will also list on
the national securities exchange, will register under the Exchange Act
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and will maintain such listing of, any other securities that at any time are
issuable upon conversion of the Debentures, if and at the time that any
securities of the same class shall be listed on such national securities
exchange by the Company or shall require registration under the Exchange Act.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default. An "Event of Default" with respect to this
Debenture occurs if:
(a) the Company defaults in the payment of Interest on this Debenture or
any other Debenture when the same becomes due and payable and the default
continues for a period of 5 days after an Interest Payment Date.
(b) the Company defaults in the payment of the principal of this Debenture
or any other Debenture when the same becomes due and payable at maturity, upon
redemption or otherwise;
(c) the Company fails to comply with any of its covenants or other
agreements contained in this Debenture and the default continues for the period
and after the notice specified below;
(d) there shall be a default under any bond, debenture, note or other
evidence of Indebtedness of the Company or any Subsidiary or under any mortgage,
debenture or other instrument under which there may be issued or by which there
may be secured or evidenced any Indebtedness of the Company or any Subsidiary or
under any guarantee of the payment by the Company or any Subsidiary of
Indebtedness, whether such Indebtedness or guarantee now exists or shall
hereafter be created, which default relates to (i) the obligation to pay the
principal of or interest on any such Indebtedness or guarantee which default
shall have resulted in such Indebtedness becoming or being declared due and
payable prior to its stated maturity or (ii) an obligation other than the
obligations to pay the principal of or interest on any such Indebtedness and
which default shall have resulted in such Indebtedness becoming or being
declared due and payable prior to its stated maturity; provided that no default
under this clause (d) shall exist if all such defaults do not relate to such
Indebtedness or such guarantees with an aggregate principal amount of at least
$10,000,000;
(e) the Company or any Material Subsidiary pursuant to or within the
meaning of any Bankruptcy Law (as defined below) (A) becomes insolvent, (B)
fails generally to pay its debts as they become due, (C) admits in writing its
inability to pay its debts as they become due, (D) commences a voluntary case or
proceeding, (E) consents to the entry of a judgment, decree or
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order for relief against it in an involuntary case or proceeding, (F) consents
to the appointment of a Custodian (as defined below) of it or for any material
part of its property, (G) consents to or acquiesces in the institution of
bankruptcy or insolvency proceedings to or against it, (H) applies for, consents
to or acquiesces in the appointment of or taking possession by a Custodian of
the Company or any such Material Subsidiary or for any material part of the
Company's or any such Material Subsidiary's property, or (I) makes a general
assignment for the benefit of its creditors;
(f) a court of competent jurisdiction enters a judgment, decree or order
for relief in respect of the Company or any Material Subsidiary in an
involuntary case or proceeding under any Bankruptcy Law which shall (A) approve
as properly filed a petition seeking reorganization, arrangement, adjustment or
composition in respect of the Company or any Material Subsidiary, (B) appoint a
Custodian of the Company or any Material Subsidiary or for any material part of
its property or (C) order the winding-up or liquidation of its affairs, and such
judgment, decree or order shall remain unstayed and in effect for a period of
thirty (30) consecutive days; or any warrant of attachment is issued against any
portion of the property of the Company or any Material Subsidiary which is not
released within 60 days of service; or
(g) uninsured final judgments for the payment of money which in the
aggregate at any one time exceed $10,000,000 shall be rendered against the
Company or any Material Subsidiary by a court of competent jurisdiction, and
shall remain undischarged for a period (during which execution shall not be
effectively stayed) of 30 days after such judgment becomes final and
nonappealable.
The term "Bankruptcy Law" means Title 11 of the United States Code or any
similar federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, sequestrator or similar
official under any Bankruptcy Law.
A Default under clause (c) is not an Event of Default until the Holders of
at least a majority in aggregate principal amount of the then outstanding
Debentures (excluding any Debentures held by the Company or any of its
Affiliates) notify the Company of the Default and the Company does not cure the
Default within 30 days after receipt of the notice. The notice must specify the
Default, demand that it be remedied and state that the notice is a "Notice of
Default." When a Default is cured, it ceases.
SECTION 6.02. Acceleration. If an Event of Default (other than an Event of
Default specified in Section 6.01(a), Section 6.01(b), Section 6.01(e) or
Section 6.01(f)) occurs and is continuing, the Holders of at least a majority in
aggregate principal amount of the Debentures then outstanding (excluding any
Debentures held by the Company or any of its Affiliates) may, by notice to the
Company, declare all unpaid principal and accrued Interest to the date of
acceleration on the Debentures then outstanding (if not then due and payable) to
be due and payable on the "Acceleration Date," which shall be the first to occur
of (x) an acceleration of any Senior Indebtedness in an aggregate amount in
excess of $500,000, or (y)
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the fifth Business Day after the receipt of notice of such declaration by the
Company; provided that in the event the condition giving rise to such Event of
Default shall have ceased to exist or payment shall have been made prior to the
Acceleration Date, such declaration shall be automatically rescinded and such
amounts shall no longer become due and payable pursuant hereto. If an Event of
Default specified in Section 6.01(a) or Section 6.01(b) occurs and is
continuing, (i) any Holder may, by notice to the Company, declare all unpaid
principal and accrued Interest to the date of acceleration on its Debenture (if
not then due and payable) to be due and payable on the Acceleration Date;
provided that in the event the condition giving rise to such Event of Default
shall have ceased to exist or payment shall have been made prior to the
Acceleration Date, such declaration shall be automatically rescinded and such
amounts shall no longer become due and payable pursuant hereto and (ii) the
Holders of at least 25% in aggregate principal amount of the Debentures then
outstanding may, by notice to the Company, declare all unpaid principal and
accrued Interest to the date of acceleration on the Debentures then outstanding
(if not then due and payable) to be due and payable on the Acceleration Date;
provided that in the event the condition giving rise to such Event of Default
shall have ceased to exist or payment shall have been made prior to the
Acceleration Date, such declaration shall automatically be rescinded and such
amounts shall no longer become due and payable pursuant hereto. If an Event of
Default specified in Section 6.01(e) or Section 6.01(f) occurs, all unpaid
principal and accrued Interest on this Debenture then outstanding shall become
immediately due and payable without any declaration or other act on the part of
any Person. Upon payment of such principal amount and Interest, all of the
Company's obligations under this Debenture shall terminate. The Holders of a
majority in aggregate principal amount of the then outstanding Debentures
(excluding any Debentures held by the Company or any of its Affiliates) by
notice to the Company may rescind an acceleration and its consequences if (i)
all existing Events of Default, other than the non-payment of the principal of
the Debentures which has become due solely by such declaration of acceleration,
have been cured or waived, (ii) to the extent the payment of such interest is
lawful, interest on overdue installments of interest and overdue principal,
which has become due otherwise than by such declaration of acceleration, has
been paid, and (iii) the rescission would not conflict with any judgment or
decree of a court of competent jurisdiction. It is expressly understood and
agreed that the decision so to waive any Default and so to rescind and annul any
consequences thereof is within the sole judgment and control of the Holders and
such Holders shall be under no obligation to do so.
SECTION 6.03. Other Remedies. If an Event of Default with respect to this
Debenture occurs and is continuing and, except in the case of Defaults under
Sections 6.01(e) and 6.01(f), the Indebtedness represented hereby has been
declared due and payable pursuant to Section 6.02 hereof, the Holder hereof may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or Interest on this Debenture or to enforce the
performance of any provision of this Debenture.
A delay or omission by the Holder of this Debenture in exercising any right
or remedy accruing upon Event of Default shall not impair the right or remedy or
constitute a waiver of
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or acquiescence in the Event of Default. No remedy is exclusive of any other
remedy. All available remedies are cumulative to the extent permitted by law.
SECTION 6.04. Waiver of Past Defaults. The Holders of a majority in
aggregate principal amount of the then outstanding Debentures (excluding any
Debentures held by the Company or any of its Affiliates) on behalf of the
Holders of all the Debentures, including this Debenture, by notice to the
Company, may waive an existing Default or Event of Default and its consequences;
except a Default or an Event of Default in the payment of the principal of or
Interest on any Debenture, or in respect of a covenant or provision hereof which
under Article Eight cannot be modified or amended without the consent of the
Holder of each outstanding Debenture affected. When a Default or Event of
Default is waived, it is cured and ceases; but no such waiver shall extend to
any subsequent default or impair any right consequent thereon.
SECTION 6.05. Undertaking for Costs. In any suit for the enforcement of
any right or remedy under this Debenture, a court in its discretion may require
the filing by any party litigant in the suit of an undertaking to pay the costs
of the suit, and the court in its discretion may assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in the suit,
having due regard to the merits and good faith of the claims or defenses made by
the party litigant. This Section 6.05 does not apply to a suit by a Holder or
Holders of more than 10% in aggregate principal amount of the then outstanding
Debentures.
ARTICLE SEVEN
SUBORDINATION
SECTION 7.01. Subordination of Debentures to Senior Indebtedness. The
Company, for itself and its successors, and the Holder, by acceptance of this
Debenture agree that the payment of the principal and Interest on this Debenture
is subordinated, to the extent and in the manner provided in this Article Seven,
to the prior payment in full of all Senior Indebtedness.
This Article Seven shall constitute a continuing offer to all Persons who,
in reliance upon such provisions, become holders of, or continue to hold, Senior
Indebtedness, and such provisions are made for the benefit of the holders of
Senior Indebtedness, and such holders are made obligees hereunder and they or
any of them may enforce such provisions.
The expressions "prior payment in full," "payment in full" and "paid in
full" and any other similar term or phrase when used in this Article Seven with
respect to Senior Indebtedness shall mean the payment in full of the principal
of and premium, if any, and Interest (including post-petition interest on such
Senior Indebtedness to the extent and only to the extent, that such post-
petition interest is an allowed claim against the Company which is enforceable
against the Company in a bankruptcy case under Title 11 of the United States
Code) on such Senior Indebtedness.
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SECTION 7.02. No Payment on Debenture in Certain Circumstances.
(a) No payment shall be made on account of principal of or Interest on
this Debenture or any of the Debentures, or to acquire this Debenture or any of
the Debentures for cash or property other than Capital Stock of the Company, or
on account of the redemption provisions contained in this Debenture or any of
the Debentures (i) upon the maturity of any Senior Indebtedness in an aggregate
amount in excess of $500,000 by lapse of time, acceleration or otherwise, unless
and until all principal thereof and interest thereon shall first be paid in full
in cash or cash equivalents, or such payment is duly provided for in a manner
satisfactory to the holders of a majority in aggregate principal amount of the
then outstanding Senior Indebtedness or (ii) in the event that the Company shall
default in the payment of any principal of, premium, if any, or interest on any
Senior Indebtedness in an aggregate amount in excess of $500,000 when the same
becomes due and payable, whether at maturity or at a date fixed for prepayment
or by declaration or otherwise, unless and until such default shall have been
cured or waived or shall have ceased to exist or payment has been made;
provided, however, that clause (ii) of this paragraph (a) shall not prevent the
making of any payment for more than 179 days after the Default Notice (as
defined in Section 7.02(b) shall have been given unless the Senior Indebtedness
in respect of which such event of default exists has been declared due and
payable in its entirety, in which case no such payment may be made until such
acceleration has been rescinded or annulled (by cure of the default giving rise
thereto or otherwise) or such Senior Indebtedness has been paid in full. In the
event that such payments in respect of principal of or Interest on this
Debenture or any other Debenture are or were suspended pursuant to clause (ii)
of this paragraph (a), such payments may not be suspended again under this
paragraph (a) until 360 days after the date of the Default Notice which caused
the next preceding 179-day payment suspension period unless the Senior
Indebtedness in respect of which such event of default exists has been declared
due and payable in its entirety, in which case no payment on account of
principal of or interest on this Debenture or any other Debenture may be made
until such acceleration has been rescinded or annulled (by cure of the default
giving rise thereto or otherwise) or such Senior Indebtedness has been paid in
full. Notwithstanding the foregoing, no event of default which existed or was
continuing on the date of any Default Notice shall be made the basis for the
giving of a second Default Notice.
(b) Upon the happening of an event of default (or if an event of default
would result upon any payment with respect to this Debenture or any of the
Debentures) with respect to any Senior Indebtedness in an aggregate amount in
excess of $500,000, as such event of default is defined therein or in the
instrument under which it is outstanding, permitting the holders to accelerate
the maturity thereof upon written notice thereof given to the Company by any
holders of such Senior Indebtedness or their authorized representative ("Default
Notice"), then, unless and until such event of default shall have been cured or
waived by the holders of such Senior Indebtedness or their authorized
representative or shall have ceased to exist, no direct or indirect payment
shall be made by the Company with respect to the principal of or Interest on
this Debenture or any of the Debentures or to acquire or redeem this Debenture
or any of the Debentures on account of the redemption provisions contained in
this Debenture or any of the
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Debentures; provided, however, that this paragraph (b) shall not prevent the
making of any payment for more than 179 days after the Default Notice shall have
been given unless the Senior Indebtedness in respect of which such event of
default exists has been declared due and payable in its entirety, in which case
no such payment may be made until such acceleration has been rescinded or
annulled (by cure of the default giving rise thereto or otherwise) or such
Senior Indebtedness has been paid in full. In the event that payments in respect
of principal of or Interest on this Debenture or any other Debenture are or were
suspended pursuant to this paragraph (b), such payments may not be suspended
again under this paragraph (b) until 360 days after the date of the Default
Notice which caused the next preceding 179-day payment suspension period unless
the Senior Indebtedness in respect of which such event of default exists has
been declared due and payable in its entirety, in which case no payment on
account of principal of or Interest on this Debenture or any other Debenture may
be made until such acceleration has been rescinded or annulled (by cure of the
default giving rise thereto or otherwise) or such Senior Indebtedness has been
paid in full. Notwithstanding the foregoing, no event of default which existed
or was continuing on the date of any Default Notice shall be made the basis of
the giving of a second Default Notice.
(c) In furtherance of the provisions of Section 7.01, in the event that,
notwithstanding the foregoing provisions of this Section 7.02, any payment on
account of principal of or Interest on this Debenture or any of the Debentures
or on account of redemption of this Debenture or any of the Debentures shall be
made by or on behalf of the Company and received by the Holder of this Debenture
or any of the Debentures or money for any such payment shall be segregated and
held in trust, at a time when such payment was prohibited by the provisions of
this Section 7.02, then, unless and until such payment is no longer prohibited
by this Section 7.02, such payment shall be held in trust for the benefit of and
shall upon demand be immediately paid over to, the holders of Senior
Indebtedness or their authorized representative, ratably according to the
aggregate amount remaining unpaid on account of the principal of and interest on
the Senior Indebtedness held or represented by each, for application to the
payment of all Senior Indebtedness remaining unpaid to the extent necessary to
pay all Senior Indebtedness in full in accordance with its terms in cash or cash
equivalents or such payment is duly provided for in a manner satisfactory to the
holders of such Senior Indebtedness, after giving effect to any concurrent
payment or distribution or provision therefor to or for the holders of Senior
Indebtedness. The Company shall give prompt written notice to the Holder of this
Debenture and the Holders of all other Debentures of any default or failure to
make payments of principal or interest on such Senior Indebtedness or a default
which results in the acceleration of such Senior Indebtedness, under any Senior
Indebtedness or under any agreement pursuant to which Senior Indebtedness may
have been issued. Failure to give such notice shall not affect the subordination
of this Debenture or any of the Debentures to the Senior Indebtedness as
provided in this Article Seven.
SECTION 7.03. Debenture Subordinated to Prior Payment of All Senior
Indebtedness on Dissolution, Liquidation or Reorganization of Company. Upon any
payment or distribution of assets of the Company upon any dissolution, winding
up, liquidation or reorganization of the
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<PAGE>
Company (whether in bankruptcy, insolvency or receivership proceedings or upon
any assignment for the benefit of the creditors or otherwise):
(a) the holders of all Senior Indebtedness shall first be entitled to
receive payment in full (or to have such payment duly provided for) of the
principal and interest due thereon before the Holder of this Debenture or the
Holder of any other Debenture is entitled to receive any payment on account of
the principal of or Interest on this Debenture or any of the Debentures (for
such purpose, Senior Indebtedness shall be deemed paid in full if all amounts
due thereon have been recovered (x) in cash, or (y) in property (other than
cash), stock, obligations or any combination thereof, with or without cash,
valued as being payment in full by an independent and disinterested third party
selected by mutual agreement of the holders of a majority in aggregate principal
amount of the then outstanding Senior Indebtedness and the Holders of a majority
in aggregate principal amount of the then outstanding Debentures,
(b) any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, to which the Holder of this
Debenture or the Holders of any of the Debentures would be entitled except for
the provisions of this Article Seven shall be paid by the liquidating trustee or
agent or other Person making such a payment or distribution, directly to the
holders of Senior Indebtedness of their authorized representative, to the extent
necessary to make payment in full of all Senior Indebtedness remaining unpaid
determined in accordance with subsection (a) of this Section 7.03, after giving
effect to any concurrent payment or distribution or provision thereof to the
holders of such Senior Indebtedness, provided that in the event that a
determination in accordance herewith is made that the Senior Indebtedness has
been paid in full based on the receipt by the holders of the Senior Indebtedness
of any property (other than cash), stock or obligations or any combination
thereof with or without cash, then any payment or delivery of cash by the
Company to the Holder of this Debenture or to the Holders of any other
Debentures shall be paid to the holders of the Senior Indebtedness until such
time as the holders of the Senior Indebtedness shall have received payment in
full solely in cash and, in exchange therefor, the holders of the Senior
Indebtedness shall pay over to the Holders of the Debentures an equivalent
value, as determined by the independent third party selected by mutual agreement
of the holders of a majority in aggregate principal amount of the then
outstanding Senior Indebtedness and the Holders of a majority in aggregate
principal amount of the then outstanding Debentures, of such property, stock or
obligations as the holders of the Senior Indebtedness shall have received from
the Company such payment of equivalent value to be allocated among the Holders
of the Debentures pro rata according to their share of aggregate principal
outstanding under the then outstanding Debentures; and provided further,
(i) in the event that payment or delivery by the Company of such
property, cash, stock or obligations to the Holders of the
Debentures is authorized by an order or decree giving effect, and
stating in such order or decree that effect is given, to the
subordination of the Debentures to Senior Indebtedness, and made
by a court of competent jurisdiction in a
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reorganization proceeding under any applicable bankruptcy or
reorganization law, no payment or delivery by the Company of such
property (other than cash), stock or obligations payable or
deliverable with respect to such Debentures shall be made to the
holders of Senior Indebtedness; and
(ii) no such delivery shall be made to holders of Senior Indebtedness
of stock or obligations which are issued in respect of the
Debentures pursuant to reorganization proceedings, or upon any
merger, consolidation, sale, lease transfer or other disposal not
prohibited by the provisions of this Debenture by the Company, as
reorganized, or by the corporation succeeding to the Company or
acquiring its property and assets, if such stock or obligations
are subordinate and junior at least to the extent provided in
this Section to the payment of any stock or obligations which are
issued in exchange or substitution for any Senior Indebtedness
then outstanding;
(c) in the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities shall be received by the Holder of this Debenture or any
such payment or distribution shall be segregated or held in trust on account of
principal of or Interest on this Debenture before all Senior Indebtedness is
paid in full, or provision made for its payment, such payment or distribution
shall be received and held in trust for and shall be paid over to the holders of
the Senior Indebtedness remaining unpaid or provided for (pro rata as to each of
such holders on the basis of the respective amount of Senior Indebtedness held
by them) or their authorized representative, for application to the payment of
such Senior Indebtedness until all such Senior Indebtedness shall have been paid
in full, after giving effect to any concurrent payment or distribution or
provision therefor to the holders of such Senior Indebtedness.
The Company shall give prompt written notice to the Holder of this
Debenture and all other Holders of the Debentures of any dissolution, winding
up, liquidation or reorganization of the Company or assignment for the benefit
of creditors. Failure to give such notice shall not affect the subordination of
this Debenture or any other Debenture to the Senior Indebtedness as provided in
this Article Seven.
SECTION 7.04. Holder of Debenture to Be Subrogated to Rights of Holders of
Senior Indebtedness. Subject to the indefeasible payment in full of all Senior
Indebtedness, the Holder of this Debenture and all other Holders of the
Debentures shall be subrogated to the rights of the holders of Senior
Indebtedness to receive payments or distributions of assets of the Company
applicable to the Senior Indebtedness until all amounts owing on this Debenture
and all other Debentures shall be paid in full, and for the purpose of such
subrogation no such payments or distributions to the holders of Senior
Indebtedness by or on behalf of the Company or by or on behalf of the Holder of
this Debenture and the Holders of all other Debentures by virtue of
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<PAGE>
Article Seven which otherwise would have been made to the Holder of this
Debenture shall, as between the Company and the Holder of this Debenture, be
deemed to be payment by the Company to or on account of the Senior Indebtedness,
it being understood that the provisions of this Article Seven are and are
intended solely for the purpose of defining the relative rights of the Holder of
this Debenture and the Holders of all other Debentures, on the one hand, and the
holders of Senior Indebtedness, on the other hand.
SECTION 7.05. Obligations of the Company Unconditional. Nothing contained
in this Article Seven or elsewhere in this Debenture or any other Debenture is
intended to or shall impair, as between the Company and the Holder of this
Debenture, the obligation of the Company which is absolute and unconditional, to
pay to the Holder of this Debenture the principal of and Interest on this
Debenture as and when the same shall become due and payable in accordance with
the terms hereof, or is intended to or shall affect the relative rights of the
Holder of this Debenture and creditors of the Company other than the holders of
the Senior Indebtedness, nor shall anything herein or therein prevent the Holder
of this Debenture from exercising all remedies otherwise permitted by applicable
law upon default under this Debenture, subject to the rights, if any, under this
Article Seven of the holders of Senior Indebtedness in respect of cash, property
or securities of the Company received or receivable upon the exercise of any
such remedy. Upon any distribution of assets of the Company referred to in this
Article Seven, the Company and the Holder of this Debenture shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction in
which such dissolution, winding up, liquidation or reorganization proceedings
are pending, or a certificate of the liquidating trustee or agent or other
Person making any distribution to the Holder of this Debenture for the purpose
of ascertaining the Persons entitled to participate in such distribution, the
holders of the Senior Indebtedness and other indebtedness of the Company, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article Seven.
SECTION 7.06. Subordination Rights Not Impaired by Acts or Omissions of
Company or Holders of Senior Indebtedness. No right of any present or future
holders of any Senior Indebtedness to enforce subordination as provided herein
shall at any time in any way be prejudiced or impaired by an act or failure to
act on the part of the Company or by any act or failure to act, in good faith,
by any such holder, or by any noncompliance by the Company with the terms of
this Debenture, regardless of any knowledge thereof which any such holder may
have or with which such holder otherwise may be charged. The holders of Senior
Indebtedness may extend, renew, modify or amend the terms of the Senior
Indebtedness or any security therefor and release, sell or exchange such
security and otherwise deal freely with the Company, all without affecting the
liabilities and obligations of the parties to this Debenture.
SECTION 7.07. Article Seven Not to Prevent Events of Default. The failure
to make a payment on account of principal of or Interest on this Debenture or
any of the other Debentures by reason of any provision of this Article Seven
shall not be construed as preventing the occurrence of an Event of Default under
Article Six hereof.
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<PAGE>
ARTICLE EIGHT
AMENDMENTS AND WAIVERS
SECTION 8.01. With Consent of Holders. The Company, when having provided
at least 15 days' prior written notice to all Holders, with the written consent
of the Holder or Holders of at least a majority in aggregate principal amount of
the then outstanding Debentures (excluding any Debentures held by the Company or
any of its Affiliates) may amend or supplement such Debentures (including this
Debenture); provided that no provision of Article Five may be amended or
supplemented without the written consent of the Holder or Holders of at least
75% in aggregate principal amount of Debentures then outstanding (excluding any
Debentures held by the Company or any of its Affiliates). The Holder or Holders
of a majority in aggregate principal amount of the then outstanding Debentures
may waive compliance by the Company with any provision of such Debentures as it
relates to such Holder or Holders provided such Holder or Holders provide
written notice to each other Debentureholder. However, without the consent of
each Debentureholder, no amendment, supplement or waiver, including a waiver
pursuant to Section 8.04 may:
(1) reduce the principal amount of such Debentures whose Holders must
consent to an amendment, supplement or waiver of any provision of
Debenture;
(2) reduce the rate of Interest on any Debenture;
(3) reduce the principal amount due on any Debenture;
(4) change the Maturity Date of Debentures or alter the redemption
provisions with respect thereto in a manner adverse to such Holder;
(5) make any changes in Section 6.04 or this Section 8.01, except to
increase any such percentage or to provide that certain other provisions of
this Debenture cannot be modified or waived without the consent of the
Holder of each Debenture affected thereby;
(6) make the principal of any Debenture payable with anything other
than U.S. Legal Tender and the Interest payable in anything other than U.S.
Legal Tender or, in the case of conversion, Common Stock; or
(7) modify the provisions of Article Five or Article Seven in a
manner adverse to any Holder of any Debenture.
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<PAGE>
It shall not be necessary for the consent of the Holders of Debentures
under this Section 8.01 to approve the particular form of any proposed
amendment, supplement or waiver, but it shall be sufficient if such consent
approves the substance thereof.
After an amendment, supplement or waiver under this Section 8.01 becomes
effective, the Company shall provide notice, pursuant to Section 9.01 to the
Holders affected thereby setting forth the amendment, supplement or waiver. Any
failure of the Company to give such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any amendment.
SECTION 8.02. Revocation and Effect of Consents. Until an amendment or
waiver becomes effective, a consent to it by a Holder of a Debenture is a
continuing consent by such Holder and every subsequent Holder of such Debenture
or portion of such Debenture that evidences the same debt as the consenting
Holder's Debenture, even if notation of the consent is not made on any
Debenture. However, any such Holder or subsequent Holder may revoke the consent
as to his Debenture or portion of a Debenture. Such revocation shall be
effective only if the Company receives the notice of such revocation before the
date on which the Company receives the consent of Holders of the requisite
principal amount of the then outstanding Debentures to such amendment,
supplement or waiver.
The Company may, but shall not be obligated to, fix a Record Date for the
purpose of determining the Holders of the Debentures entitled to consent to any
amendment, supplement or waiver. If a Record Date is fixed, then
notwithstanding the last two sentences of the immediately preceding paragraph,
those Persons who were Holders of the Debentures at such Record Date (or their
duly designated proxies), and only those Persons, shall be entitled to revoke
any consent previously given, whether or not such Persons continue to be Holders
after such Record Date.
After an amendment, supplement or waiver becomes effective, it shall bind
every Holder of the Debentures, unless it makes a change described in any of
clauses (1) through (7) of Section 8.01, in which case the amendment, supplement
or waiver shall bind only each Holder of a Debenture who has consented to it and
every subsequent Holder of a Debenture or portion of a Debenture that evidences
the same debt as the consenting Holder's Debenture.
SECTION 8.03. Notation on or Exchange of Debentures. If an amendment,
supplement or waiver changes the terms of a Debenture, the Company may require
the Holder of this Debenture to deliver it to the Company. The Company may
place an appropriate notation on the Debenture about the changed terms and
return it to the Holder. Alternatively, if the Company has so determined, the
Company in exchange for this Debenture may issue a new Debenture that reflects
the changed terms.
SECTION 8.04. Effect of Amendment. Upon the execution of any amendment
pursuant to the provisions hereof, this Debenture shall be and be deemed to be
modified and
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<PAGE>
amended in accordance therewith and the respective rights, limitations of
rights, obligations and duties under this Debenture of the Company and the
Holders of this Debenture shall thereafter be determined, exercised and enforced
hereunder subject in all respects to such modifications and amendments, and all
the terms and conditions of any such amendment shall be and be deemed to be part
of the terms and conditions of this Debenture for any and all purposes.
ARTICLE NINE
MISCELLANEOUS
SECTION 9.01. Notices. Any notices or other communications required or
permitted hereunder shall be in writing, and shall be sufficiently given if made
by hand delivery, by telecopier by a nationally recognized express courier or
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
if to the Company: Security Capital Realty Incorporated
125 Lincoln Avenue, Suite 300
Santa Fe, New Mexico 87501
Attn: Paul E. Szurek
if to the Holder of
this Debenture: At its address listed in the Register.
Any notice or communication to the Company or the Holder of this Debenture
shall be deemed to have been given or made as of the date so delivered if
personally delivered; when receipt is acknowledged, if telecopied; one (1) day
(three (3) days in the case of international deliveries) after dispatch if sent
by a nationally recognized express courier for overnight delivery; and five (5)
calendar days (seven (7) days in the case of international deliveries) after
mailing if sent by registered or certified mail (except that a notice of change
of address shall not be deemed to have been given until actually received by the
addressee).
Where this Debenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed by first-class mail, postage prepaid to such Registered
Holders as their names and addresses appear in the Register. Where this
Debenture provides for notice in any manner, such notice may be waived in
writing by the person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Holders shall be filed with the Company, but such filing shall not be
a condition precedent to the validity of any action taken in reliance upon such
waiver. In any case where notice to Holders is given by mail, neither the
failure to mail such notices nor any defect in any notice so mailed to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders, and
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<PAGE>
any notice which is mailed in the manner herein provided shall be conclusively
presumed to have been duly given.
SECTION 9.02. Consents. Failure to respond to any notice given pursuant
to the terms of this Debenture shall not be deemed consent to any proposed
action described in such notice.
SECTION 9.03. Governing Law. This Debenture and the Debentures of any
series shall be governed and construed in accordance with the laws of the State
of Maryland without regard to principles of conflicts of law.
SECTION 9.04. No Adverse Interpretation of Other Agreements. This
Debenture may not be used to interpret any debenture, loan or debt agreement of
the Company or any of its Subsidiaries. Any such debenture, loan or debt
agreement may not be used to interpret this Debenture.
SECTION 9.05. No Recourse Against Others. A director, officer, employee,
stockholder or incorporator, as such, of the Company shall not have any
liability for any obligations of the Company under this Debenture or under any
other Debenture or for any claim based on, in respect of or by reason of such
obligations. The Holder of this Debenture, by accepting this Debenture, waives
and releases all such liability. Such waiver and release are part of the
consideration for the issuance of the Debentures.
SECTION 9.06. Successors. All agreements of the Company in this Debenture
shall bind its successor.
SECTION 9.07. Severability. In case any provision in this Debenture shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby, and a Holder shall have no claim therefor against any party hereto.
This Debenture shall be construed to give economic effect to the intent of the
parties hereto. Without limiting the foregoing, in the event and to the extent
that payment of any portion of Interest shall at any time be unlawful or
unenforceable, such portion of such Interest (including, without limitation, any
Interest as to which interest thereon is payable hereunder) as may be necessary
to give economic effect to the intent of the parties hereto, shall be deemed to
be principal.
SECTION 9.08. Replacement. In the event (a) any Holder exercises its
rights under a registration rights agreement with the Company to have this
Debenture registered under the Securities Act, or, (b) if earlier, at the
election of the Company at any time after the Company becomes listed for trading
on a national securities exchange, the Company will take all such actions
reasonably required to issue to the Holders, at no additional consideration, in
replacement of the Debentures, debentures of the Company of like principal
amount identical in all material respects to the Debentures, to be issued
pursuant to an indenture to be qualified under the Trust Indenture Act of 1939,
as amended, and to be between the Company and a
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<PAGE>
trustee to be selected by the Company that is also qualified under the Trust
Indenture Act of 1939, as amended.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed, and its corporate seal to be hereunto affixed and attested, all as of
the date first written above.
The principal amount of this Debenture is $_______________.
Dated as of _________ __, 1994
SECURITY CAPITAL REALTY INCORPORATED
By:
--------------------------------
Paul E. Szurek,
Secretary
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<PAGE>
EXHIBIT 4.7
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE AND MAY
NOT BE SOLD OR TRANSFERRED ABSENT
REGISTRATION THEREUNDER OR
EXEMPTION THEREFROM
-------------------
SECURITY CAPITAL GROUP INCORPORATED
6.50% CONVERTIBLE SUBORDINATED DEBENTURE
DUE MARCH 29, 2016
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE ONE
DEFINITIONS
<C> <S> <C>
SECTION 1.01. Definitions................................................. 2
SECTION 1.02. Rules of Construction....................................... 6
ARTICLE TWO
THE DEBENTURES
SECTION 2.01. Debentures Part of Series................................... 7
SECTION 2.02. Interest; Payment of Interest............................... 7
SECTION 2.03. The Register................................................ 8
SECTION 2.04. Registered Holders.......................................... 8
SECTION 2.05. Transfers and Exchanges of Debentures;
Lost or Mutilated Debentures................................ 8
SECTION 2.06. New Debentures.............................................. 10
SECTION 2.07. Cancellation of Debentures.................................. 10
ARTICLE THREE
REDEMPTION OF DEBENTURES
SECTION 3.01. Redemption at the Option of the Company..................... 11
SECTION 3.02. Redemption in Part.......................................... 11
SECTION 3.03. Notice of Redemption........................................ 11
SECTION 3.04. Effect of Notice of Redemption.............................. 12
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Debenture........................................ 12
SECTION 4.02. Corporate Existence, Etc.................................... 12
SECTION 4.03. Insurance................................................... 12
SECTION 4.04. Taxes, Claims for Labor and Materials, Compliance with Laws. 13
SECTION 4.05. Limitation on Dividends and Purchases of Capital Stock or
Subordinated Indebtedness................................... 13
SECTION 4.06. Reporting................................................... 13
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
SECTION 4.07. Incurrence of Additional Indebtedness....................... 14
ARTICLE FIVE
CONVERSION
SECTION 5.01. Conversion Privilege........................................ 14
SECTION 5.02. Exercise of Conversion Privilege............................ 15
SECTION 5.03. Adjustments of Conversion Price; Certain Other Adjustments.. 16
SECTION 5.04. Notice of Adjustments of Conversion Price................... 22
SECTION 5.05. Notice of Certain Corporate Action.......................... 23
SECTION 5.06. Company to Reserve Common Stock............................. 24
SECTION 5.07. Taxes on Conversion......................................... 24
SECTION 5.08. Covenant as to Common Stock................................. 24
SECTION 5.09. Registration and Listing of Common Stock.................... 24
SECTION 5.10 Notice of Default........................................... 24
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default........................................... 25
SECTION 6.02. Acceleration................................................ 26
SECTION 6.03. Other Remedies.............................................. 28
SECTION 6.04. Waiver of Past Defaults..................................... 28
SECTION 6.05. Undertaking for Costs....................................... 28
ARTICLE SEVEN
SUBORDINATION
SECTION 7.01. Subordination of Debentures to Senior Indebtedness.......... 28
SECTION 7.02. No Payment on Debenture in Certain Circumstances............ 29
SECTION 7.03. Debenture Subordinated to Prior Payment of All Senior
Indebtedness on Dissolution, Liquidation or
Reorganization of Company................................... 31
SECTION 7.04. Holder of Debenture to Be Subrogated to Rights of Holders
of Senior Indebtedness...................................... 33
SECTION 7.05. Obligations of the Company Unconditional.................... 33
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
SECTION 7.06. Subordination Rights Not Impaired by Acts or Omissions
of Company or Holders of Senior Indebtedness................ 33
SECTION 7.07. Article Seven Not to Prevent Events of Default.............. 34
ARTICLE EIGHT
AMENDMENTS AND WAIVERS
SECTION 8.01. With Consent of Holders..................................... 34
SECTION 8.02. Revocation and Effect of Consents........................... 35
SECTION 8.03. Notation on or Exchange of Debentures....................... 35
SECTION 8.04. Effect of Amendment......................................... 36
ARTICLE NINE
MISCELLANEOUS
SECTION 9.01. Notices..................................................... 36
SECTION 9.02. Consents.................................................... 37
SECTION 9.03. Governing Law............................................... 37
SECTION 9.04. No Adverse Interpretation of Other Agreements............... 37
SECTION 9.05. No Recourse Against Others.................................. 37
SECTION 9.06. Successors.................................................. 37
SECTION 9.07. Severability................................................ 37
SECTION 9.08. Replacement................................................. 37
</TABLE>
(iii)
<PAGE>
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE AND MAY
NOT BE SOLD OR TRANSFERRED ABSENT
REGISTRATION THEREUNDER OR
EXEMPTION THEREFROM
-------------------
6.50% CONVERTIBLE SUBORDINATED DEBENTURE
DUE MARCH 29, 2016
$_______________ No. __-__________
PPN: 81414* AB 6
Security Capital Group Incorporated, a Maryland corporation (the
"Company"), for value received, hereby promises to pay to the order of
_____________________________, or its registered assigns, the principal sum of
______________________________ DOLLARS ($_______________) in U.S. Legal Tender
(as defined herein) on March 29, 2016 (the "Maturity Date"), and to pay Interest
(as defined herein) on this Debenture (as defined herein) in accordance with the
provisions of this Debenture in U.S. Legal Tender to the Registered Holder (as
defined herein) hereof, beginning to accrue on the Issue Date (as defined
herein) and semi-annually thereafter on the last Business Day (as defined
herein) of June and December in each calendar year (each such date, an "Interest
Payment Date") or, in the case of principal and Interest due on the Maturity
Date, on such Maturity Date. The principal and Interest payable on any Interest
Payment Date will be paid to the Person (as defined herein) in whose name this
Debenture is registered at the close of business on the immediately preceding
December 15 or June 15 (each such December 15 or June 15, a "Record Date").
Payment of the principal of and Interest on this Debenture will be mailed to the
address of the Person entitled thereto as such Person's name and address shall
appear in the Register (as defined herein).
<PAGE>
ARTICLE ONE
DEFINITIONS
SECTION 1.01. Definitions. The following terms (except as otherwise
expressly provided or unless the context otherwise clearly requires) for all
purposes of this Debenture and of any amendment hereto shall have the respective
meanings specified in this Section 1.01.
"Acceleration Date" shall have the meaning assigned to such term in Section
6.02.
"Affiliate" of any specified Person shall mean any other Person, directly
or indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" 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; and the terms
"affiliated," "controlling" and "controlled" have meanings correlative to the
foregoing.
"Bankruptcy Law" shall have the meaning assigned to such term in Section
6.01.
"Business Day" shall mean any day of the year (other than any Saturday or
Sunday) on which the Federal Reserve Bank is open for business in New York, New
York.
"Capital Stock" shall mean, collectively, the Company's equity securities
of every class, including, without limitation, the Company's Common Stock.
"Capitalized Lease Obligation" shall mean obligations under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP, and the amount of Indebtedness represented by such obligations shall be
the capitalized amount of such obligations determined in accordance with such
principles.
"Closing Price" shall mean the reported last sale price of a unit of a
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 the security is
not listed or admitted to trading on such exchange, on the American Stock
Exchange Composite Tape, or, if the security is not listed or admitted to
trading on such exchange, 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 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 NASDAQ, 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
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market value of the security as estimated by the Company using an identical
valuation formula to that used in determining the pricing for the Company's then
most-recent sale of more than $35 million of similar securities to unaffiliated
third parties, or if no such sale has occurred, as determined in good faith by
the Company, which estimate shall be prepared at the expense of the Company;
provided that any determination of the "Closing Price" of any security hereunder
shall be based on the assumption that such security is freely transferable
without registration under the Securities Act.
"Commission" shall mean the Securities and Exchange Commission or any other
applicable Federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Company's common stock, $.01 par value per
share.
"Company" shall mean Security Capital Group Incorporated and its successors
and assigns.
"Conversion Price" shall have the meaning assigned to such term in Section
5.01(b).
"Convertible Securities" shall have the meaning assigned to such term in
Section 5.03(b).
"Custodian" shall have the meaning assigned to such term in Section 6.01.
"Debenture" shall have the meaning assigned to such term in Section 2.01.
"Debentureholder" shall mean the Registered Holder of a Debenture.
"Default" shall mean any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Default Notice" shall have the meaning assigned to such term in Section
7.02(b).
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" shall have the meaning assigned to such term in Section
6.01.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"GAAP" shall mean generally accepted accounting principles as in effect in
the United States of America on the date of this Debenture.
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"Holder," "Holder of Debentures," "Debentureholder" or other similar terms
shall mean the Registered Holder of a Debenture.
"Indebtedness" shall mean, with respect to any Person, (i) any liability,
contingent or otherwise, of such Person (A) for borrowed money (whether or not
the recourse of the lender is to the whole of the assets of such Person or only
to a portion thereof), (B) evidenced by a note, debenture or similar instrument
(including a purchase money obligation) or (C) for the payment of money relating
to a Capitalized Lease Obligation; (ii) any liability of others of the kind
described in the preceding clause (i) which the Person has guaranteed or which
is otherwise its legal liability; (iii) any obligation secured by a Lien to
which the property or assets of such Person are subject, whether or not the
obligations secured thereby shall have been assumed by or shall otherwise be
such Person's legal liability; and (iv) any and all deferrals, renewals,
extensions and refundings of, or amendments, modifications or supplements to,
any liability of the kind described in any of the preceding clauses (i), (ii) or
(iii).
"Interest" shall mean all interest accruing hereunder, as provided in
Section 2.02.
"Interest Payment Date" shall mean the last Business Day of December and
June of each calendar year following the Issue Date.
"Issue Date" shall mean the date of issuance of this Debenture as set forth
above the Company's signature on the last page hereof.
"Lien" shall mean any mortgage, pledge, lien (statutory or otherwise),
security interest, encumbrance, charge or adverse claim upon or with respect to
any property of any kind, real or personal, movable or immovable, now owned or
hereafter acquired.
"Material Subsidiary" shall mean any Subsidiary in which the aggregate
amount directly or indirectly invested by the Company, whether by way of debt,
equity, guaranty or otherwise, and which remains at risk exceeds $100,000,000.
"Maturity Date" or "Maturity" shall mean March 29, 2016.
"Memorandum" shall mean the Company's December 1995 Private Placement
Memorandum, as supplemented and amended.
"NASDAQ" shall mean the National Association of Securities Dealers
Automated Quotation System.
"New Debenture" shall have the meaning assigned to such term in Section
2.06.
"Notice of Default" shall have the meaning assigned to such term in Section
6.01.
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"Old Debenture" shall have the meaning assigned to such term in Section
2.06.
"Person" shall mean any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company, trust,
unincorporated organization or other private legal entity or government or other
agency or political subdivision thereof.
"Record Date" shall mean December 15 and June 15 of each year.
"Redemption Date" shall mean the date fixed for redemption pursuant to this
Debenture.
"Redemption Price" shall have the meaning assigned to such term in Section
3.04.
"Reference Date" shall have the meaning assigned to such term in Section
5.03(b)(4).
"Register" shall have the meaning assigned to such term in Section 2.03.
"Registered Holder" shall mean the Holder of a Debenture as set forth in
the Register.
"Registry Office" shall have the meaning assigned to such term in Section
2.03.
"Restricted Payment" shall have the meaning assigned to such term in
Section 4.05.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Senior Indebtedness" shall mean the principal of, premium, if any, and
interest (including interest accruing after the filing of a petition initiating
any proceeding under any Bankruptcy Law whether or not allowed in such
proceeding) on any Indebtedness of the Company, whether outstanding on the date
of this Debenture or hereafter created, incurred, assumed, guaranteed or in
effect guaranteed by the Company (including all deferrals, renewals, extensions
or refundings of, or amendments, modifications or supplements to, Indebtedness
of the kind described in this clause), unless, in the case of any particular
Indebtedness, deferral, renewal, extension, refunding, amendment, modification
or supplement, the instrument creating or evidencing the same or the assumption
or guarantee thereof expressly provides that such Indebtedness, deferral,
renewal, extension, refunding, amendment, modification or supplement shall
expressly provide that it is pari passu with, or subordinate in right of payment
to, the Debentures. Notwithstanding anything to the contrary in the foregoing,
however, Senior Indebtedness shall not include (a) Indebtedness or amounts owed
(except to banks and other financing institutions) for goods or materials
purchased in the ordinary course of business, for compensation to employees, or
for services, (b) in the case of each Debenture, the other Debentures, (c) the
Company's 12% Convertible Subordinated Debentures due June 30, 2014 or (d) the
Company's Series 1995 12% Convertible Subordinated Debentures due June 30, 2014
which may be issued upon exercise of options granted to employees.
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"Subordinated Indebtedness" shall mean all unsecured Indebtedness that by
its terms is subordinate in right of payment to the Debentures.
"Subsidiary" shall mean a corporation all of whose capital stock with
voting power, under ordinary circumstances, to elect directors is at the time,
directly or indirectly, owned by the Company, by a Subsidiary of the Company or
by the Company and a Subsidiary of the Company.
"Trading Day" shall mean each Monday, Tuesday, Wednesday, Thursday and
Friday, other than a day on which securities are not traded on the applicable
securities exchange or in the applicable securities market.
"Transfer" shall have the meaning assigned to such term in Section 2.05(b).
"U.S. Legal Tender" shall mean such coin or currency of the United States
of America as at the time of payment shall be legal tender for the payment of
public and private debts in the United States.
SECTION 1.02. Rules of Construction. Unless the context otherwise requires:
(1) a term has the meaning expressly assigned to it hereby;
(2) a technical accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the plural
include the singular;
(5) provisions apply to successive events and transactions;
(6) "herein," "hereof" and other words of similar import refer to
this Debenture as a whole and not to any particular Article, Section or
other subdivision;
(7) references to statutes, regulations and rules include subsequent
amendments and successors thereto unless the context otherwise requires;
(8) the various headings of this Debenture are provided herein for
convenience only and shall not affect the meaning or interpretation of this
Debenture or any provision hereof; and
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(9) if any payment hereunder shall become due on any day which is not
a Business Day, such payment shall be made on the next succeeding Business
Day.
ARTICLE TWO
THE DEBENTURES
SECTION 2.01. Debentures Part of Series. This Debenture is one of the duly
authorized issues of Debentures of the Company designated as its 6.50%
Convertible Subordinated Debentures Due March 29, 2016 (together with any
amendments thereto and substitutions therefor, individually a "Debenture" and
collectively the "Debentures"). The Debentures are unsecured debt obligations of
the Company that are subordinated to its Senior Indebtedness. All Debentures
will be treated equally and all payments (whether for principal, Interest or
otherwise) will be made pro rata among Registered Holders based upon the
aggregate amount which the Company is obligated to pay at such time to such
Registered Holders. If any Registered Holder of any Debenture obtains any
payment (whether voluntary, involuntary, by application of offset or otherwise)
of principal of or Interest on any Debenture in excess of such Registered
Holder's pro rata share of payments obtained by all Registered Holders of the
Debentures, such Registered Holder will return such excess payment to the
Company and the Company shall pay such excess to the other Registered Holders of
the Debentures as is necessary to cause such Registered Holders to share the
excess payment ratably among each of them as provided in this Section 2.01.
SECTION 2.02. Interest; Payment of Interest. This Debenture shall bear
Interest for the period from the Issue Date to the Maturity Date (or in the case
of redemption in accordance with Article Three, to the Redemption Date, or in
the case of conversion in accordance with Article Five, to the date of such
conversion) at a rate of 6.50% per annum on the outstanding principal amount
hereunder calculated on the basis of a 360 day year consisting of twelve 30 day
months. Unless otherwise provided in Section 5.01, all Interest must be paid in
U.S. Legal Tender. Payments of Interest on this Debenture will be made on the
Interest Payment Dates of each calendar year (except in the case of a special
Record Date) prior to the Maturity Date or redemption or conversion and on the
Maturity Date and Redemption Date and the date of conversion to the Holder of
record at the close of business on the immediately preceding Record Date as
follows:
(a) Payment Upon Maturity Date. At the Maturity Date, the Holder of
this Debenture will be entitled to receive (i) payment of the outstanding
principal amount hereunder plus (ii) any accrued and unpaid Interest.
(b) Payment Upon Redemption Date. At the Redemption Date, the Holder
of this Debenture will be entitled to receive (i) payment of the
outstanding principal amount
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hereunder to be redeemed in accordance with Article Three plus (ii) any
accrued and unpaid Interest thereon to and including the Redemption Date.
(c) Payment Upon Conversion. Upon conversion of this Debenture into
Capital Stock pursuant to Section 5.02, accrued and unpaid Interest shall
be paid as provided in Section 5.01(a).
Except as otherwise provided in this Debenture, the Company will not pay any
additional amount to the Holder in respect of any deduction or other
governmental charges of any taxing authority imposed upon or as a result of any
payment of the principal of, or Interest on or any other payment under this
Debenture.
SECTION 2.03. The Register. The Company will keep at its principal office
(the "Registry Office") one or more books (the "Register") for the registration
of the Debentures (including all transfers) and the names and addresses of the
Registered Holders of the Debentures. All transfers of the Debentures and the
names and addresses of the transferees of the Debentures shall be registered in
the Register under such reasonable regulations as the Company may prescribe.
SECTION 2.04. Registered Holders. The Company will deem and treat the
Registered Holder of this Debenture as the absolute owner hereof and will not be
affected by any notice to the contrary. Payment of the principal of and Interest
on this Debenture shall be made only to the Registered Holder hereof. All such
payments so made shall be valid and effectual to satisfy and discharge the
liability of the Company upon this Debenture to the extent of the sum or sums so
paid. For the purpose of any request, direction or consent hereunder, the
Company may deem and treat the Registered Holder of this Debenture as the Holder
without production of such Debenture.
SECTION 2.05. Transfers and Exchanges of Debentures; Lost or Mutilated
Debentures.
(a) Subject to Section 2.05(b), the Registered Holder hereof may from time
to time assign or transfer in the manner provided in this Section 2.05 to one or
more Persons all or any part of this Debenture, and to the extent of any such
assignment or transfer (unless otherwise stated therein), the transferee of such
assignment or transfer (unless otherwise stated therein), shall become a
Registered Holder of this Debenture. Each transferee so becoming a Registered
Holder shall be vested with all rights and powers under this Debenture of a
Registered Holder hereunder and shall take and hold its Debenture subject to the
provisions of this Debenture and to any request made, waiver or consent given or
other action taken hereunder by each previous Registered Holder of this
Debenture.
(b) No Holder may sell, assign, transfer, or otherwise dispose of this
Debenture (collectively "Transfer"), if the Transfer, taken alone or together
with all other Transfers of
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Debentures, would (i) violate or result in a violation of, any provision of the
Securities Act, applicable state securities or "blue sky" laws or any other
applicable provision of law; (ii) subject the Company or an Affiliate of the
Company to regulation as an investment company under the Investment Company Act
of 1940, as amended; (iii) subject the Company or an Affiliate of the Company to
duties and liabilities under ERISA; (iv) cause the Company or an Affiliate of
the Company to be or become a "bank" or a "bank holding company" within the
meaning of the Bank Holding Company Act of 1956, as amended, or any successor
statute thereto or within the meaning of any state statute defining such terms;
(v) cause the Company or an Affiliate of the Company to be or become a "savings
association" or a "savings and loan holding company" within the meaning of the
Home Owners' Loan Act, as amended, or any successor statute thereto; (vi) cause
the Company or an Affiliate of the Company to be or become a "savings
association," "savings and loan association", "savings bank", "savings and loan
holding company" or "savings bank holding company" within the meaning of any
state statute defining such terms; or (vii) result in any Person beneficially
owning more than 9.8% of the Common Stock unless, in the case of this clause
(vii), the Company, in its sole discretion, grants its prior written consent to
such Transfer. In determining whether a Transfer would cause the Company or an
Affiliate of the Company to be a "bank", "bank holding company", "savings
association", "savings and loan association", "savings bank", "savings and loan
holding company" or "savings bank holding company," the Company may assume that
upon Transfer the Debenture would be converted to Common Stock.
(c) The Registered Holder may Transfer this Debenture upon the surrender of
this Debenture at the Registry Office, and no such Transfer shall be effective
until such surrender to the Company of the Debenture to be transferred has been
made. Upon such surrender the Company shall execute in the name of the
transferee(s) a new Debenture or Debentures in denominations not less than
$1,000 each and in aggregate principal amount equal to the original principal
amount of the Debenture so surrendered.
(d) If this Debenture is presented or surrendered for exchange or
Transfer, it shall be accompanied by a written instrument or instruments of
assignment or transfer, duly executed by the Registered Holder and the
transferee or by their respective attorneys duly authorized in writing (which
instrument shall contain appropriate warranties of the transferee), and an
opinion of counsel addressed to the Company, each in form and substance and
furnished by counsel reasonably satisfactory to the Company, and which opinion
shall state that such Transfer or assignment does not violate, or result in the
violation of, any provision of the Securities Act, applicable state securities
or "blue sky" laws or any other applicable provision of law, and as to such
other matters as the Company reasonably may request. The Company shall not be
required to make a transfer or an exchange of this Debenture for a period of ten
Business Days preceding any Interest Payment Date.
(e) No notarial act shall be necessary for the Transfer or exchange of
this Debenture pursuant to this Section 2.05, and the Holder of any Debenture
issued as provided in this Section
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2.05 shall be entitled to any and all rights and privileges granted under this
Debenture to a Registered Holder.
(f) If this Debenture shall become mutilated or be destroyed, lost or
stolen, the Company, upon the written request of the Registered Holder, shall
execute and deliver to the Registered Holder a new Debenture in exchange and
substitution for the mutilated Debenture, or in lieu of and in substitution for
the Debenture so destroyed, lost or stolen, in either case in a principal amount
equal to the original principal amount of the Debenture so mutilated, destroyed,
lost or stolen, as reflected in the Register. The applicant for a substituted
Debenture shall furnish to the Company such security or indemnity or such
combination thereof as may be reasonably required by the Company to save the
Company harmless from all risks, and the applicant shall also furnish to the
Company evidence to its reasonable satisfaction of the mutilation, destruction,
loss or theft of the applicant's Debenture and of the applicant's ownership
thereof.
SECTION 2.06. New Debentures.
(a) Each new Debenture ("New Debenture") issued pursuant to Section 2.05
in exchange for, in substitution for or in lieu of a Debenture ("Old Debenture")
shall be dated the date of such Old Debenture. The Company shall mark on each
New Debenture (i) the date and the extent to which principal and Interest has
been paid on such Old Debenture and (ii) all payments and prepayments of
principal made on such Old Debenture which are allocable to such New Debenture.
Interest and principal shall be deemed to have been paid on such New Debenture
to the date and to the extent to which Interest and principal was paid on such
Old Debenture.
(b) Any New Debenture issued pursuant to Section 2.05 in exchange for or
in substitution for or in lieu of an Old Debenture shall be the valid obligation
of the Company evidencing the same debt as such Old Debenture and shall be
entitled to the benefits of this Debenture. No service charge shall be made for
any exchange or transfer of this Debenture, but the Company may require payment
of a sum sufficient to cover any tax or governmental charge imposed with respect
thereto.
SECTION 2.07. Cancellation of Debentures. If this Debenture is surrendered
to the Company for the purpose of payment, transfer or exchange, it shall be
cancelled by the Company, and no Debentures shall be issued in lieu hereof
except as expressly required or permitted by this Debenture.
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ARTICLE THREE
REDEMPTION OF DEBENTURES
SECTION 3.01. Redemption at the Option of the Company. The Company may
redeem Debentures (including this Debenture), in whole or in part, at any time
after March 29, 1999, upon not less than 60 days' and not more than 90 days'
prior written notice to the Holders of the Debentures at a price, payable in
U.S. Legal Tender only, equal to 100% of the outstanding principal amount
thereof, plus the amount of any accrued and unpaid Interest on such principal
and Interest thereon to the Redemption Date; provided that any Debenture called
for redemption may at the option of the Holder, be converted into Common Stock
in accordance with Article Five, during the period commencing on the 50th day
prior to the Redemption Date and ending on the 3rd day prior to the Redemption
Date, regardless of whether the conversion privilege pursuant to Article Five is
otherwise exercisable.
SECTION 3.02. Redemption in Part. Debentures may be redeemed in part in
denominations of $1,000 or any integral multiple thereof. In case of a
redemption in part, the Debentures to be redeemed shall be selected pro rata and
there shall be redeemed from each Holder that portion of principal amount of all
Debentures being redeemed which the outstanding principal amount of Debentures
held by such Holder bears to the total principal amount of Debentures then
outstanding.
SECTION 3.03. Notice of Redemption. At least 60 days but not more than 90
days before a Redemption Date, the Company shall provide notice of redemption to
each Holder at such Holder's latest address set forth in the Register. Failure
to give notice by mail, or any defect in the notice to the Holder of any
Debenture shall not affect the validity of the proceedings for the redemption of
any other Debentures. The notice shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) that Debentures called for redemption must be surrendered to the
Company to collect the Redemption Price;
(4) that, unless the Company defaults in making the redemption
payment on the Redemption Date, Interest on Debentures called for
redemption shall cease to accrue on and after the Redemption Date and,
unless the Holder has timely converted its Debentures in accordance with
Article Five, in which case the rights of such Holder shall be determined
in accordance with Article Five, the only remaining right of the Holder of
such Debentures is to receive payment of the Redemption Price upon
surrender of the Debentures redeemed to the Company;
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(5) if any Debenture is being redeemed in part, the portion of the
principal amount of such Debenture to be redeemed and that, after the
Redemption Date, and upon surrender of such Debenture, a new Debenture or
Debentures in aggregate principal amount equal to the unredeemed portion
thereof will be issued; and
(6) if less than the entire principal amount of Debentures is to be
redeemed, the aggregate principal amount of Debentures to be redeemed and
the aggregate principal amount of Debentures estimated to be outstanding
after such partial redemption.
SECTION 3.04. Effect of Notice of Redemption. Once notice of redemption is
mailed, all Debentures called for redemption in whole or in part become due and
payable only to the extent of the principal amount being redeemed and unpaid
Interest accrued on such principal amount and Interest thereon through the
Redemption Date (such principal and Interest being referred to herein as the
"Redemption Price") on the Redemption Date and at the Redemption Price. Upon
surrender to the Company, such Debentures called for redemption shall be paid at
the Redemption Price.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Debenture. The Company shall pay the principal of
and Interest on this Debenture on the dates and in the manner provided in
Article Two, Article Three and Article Five.
SECTION 4.02. Corporate Existence, Etc. The Company will preserve and keep
in force and effect its corporate existence and all material licenses and
permits reasonably necessary to the proper conduct of its business; provided
that nothing contained in this Section 4.02 shall prevent the Company from
consolidating with, selling all or substantially all of its properties and
assets to, or being a party to a merger with any other Person if: (i) no Default
exists or would result therefrom and (ii) the surviving Person is organized
under the laws of the United States and expressly and unconditionally assumes in
writing the due and punctual performance of all obligations hereunder and under
the Debentures.
SECTION 4.03. Insurance. The Company will maintain insurance coverage by
financially sound and reputable insurers in such forms and amounts and against
such risks as are reasonable for corporations of established reputation engaged
in the same or similar business and owning and operating similar assets.
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SECTION 4.04. Taxes, Claims for Labor and Materials, Compliance with Laws.
(a) The Company will promptly pay and discharge all lawful taxes,
assessments and governmental charges or levies imposed upon the Company, or upon
or in respect of all or any part of the property or business of the Company, all
trade accounts payable in accordance with usual and customary business terms,
and all claims for work, labor or materials, which if unpaid would become a lien
or charge upon any property of the Company; provided that the Company shall not
be required to pay any such tax, assessment, charge, levy, account payable or
claim if (1) the validity, applicability or amount thereof is being contested in
good faith by appropriate actions or proceedings and (2) the Company shall set
aside on its books, reserves deemed by it to be adequate with respect thereto.
(b) The Company will promptly comply with all applicable laws, ordinances
or governmental rules and regulations to which it is subject the penalty for
violation of which would materially and adversely affect the properties,
business, prospects, profits or condition of the Company.
SECTION 4.05. Limitation on Dividends and Purchases of Capital Stock or
Subordinated Indebtedness. The Company will not, directly or indirectly, declare
or pay any dividend on, or make any distribution to the holders of, Capital
Stock of the Company with respect to such Capital Stock (other than dividends in
Capital Stock or rights to acquire Capital Stock) and neither the Company nor
any Subsidiary may purchase, redeem, or otherwise acquire or retire for value
any of the Capital Stock of the Company or Subordinated Indebtedness of the
Company (collectively, a "Restricted Payment") unless at the time of such
Restricted Payment, (a) no Default exists or would result therefrom, (b)
immediately before and immediately after giving effect to such payment, its
consolidated shareholder's equity, determined in accordance with GAAP, exceeds
$300 million and (c) immediately before and immediately after giving effect to
such payment, the Company could incur $1.00 of additional Indebtedness under the
provisions of Section 4.07 (without giving effect to the proviso contained in
Section 4.07).
SECTION 4.06. Reporting.
(a) As soon as available, but in any event within 120 days after the end
of each fiscal year of the Company, the Company shall deliver to each Holder
copies of the audited consolidated balance sheet of the Company and its
Subsidiaries together with the related consolidated statements of income and
cash flows for such fiscal year prepared in accordance with GAAP consistently
followed throughout the period involved and presenting fairly the financial
condition of the Company and its Subsidiaries.
(b) As soon as available, but in any event within 60 days after the end of
each fiscal quarter of the Company, the Company shall deliver to each Holder
copies of the unaudited consolidated balance sheet of the Company and its
Subsidiaries as at the end of such fiscal
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quarter and the related unaudited consolidated statements of income and cash
flows for such fiscal quarter and the portion of the fiscal year through such
fiscal quarter.
SECTION 4.07. Incurrence of Additional Indebtedness. The Company will not,
and will not permit any of its Subsidiaries to, create, issue, assume, guarantee
or otherwise in any manner become liable for or with respect to or otherwise
incur (collectively, "incur" and with correlative meaning "incurrence" and
"incurred") any Indebtedness unless immediately before and immediately after
giving effect to such incurrence (a) its consolidated shareholder's equity,
determined in accordance with GAAP, exceeds $300 million and (b) the ratio of
Indebtedness to its consolidated shareholder's equity, determined in accordance
with GAAP (utilizing a fair market value accounting convention), as increased by
any unfunded, irrevocable subscriptions for Common Stock, would not equal or
exceed the ratio of 5 to 1; provided that, notwithstanding the foregoing, the
Company shall be permitted to incur additional Indebtedness not to exceed in the
aggregate ten percent of its consolidated shareholders' equity, determined in
accordance with GAAP, at any time that this covenant would not otherwise be
complied with, until the Company has satisfied this covenant for twelve
consecutive months.
ARTICLE FIVE
CONVERSION
SECTION 5.01. Conversion Privilege.
(a) Subject to and upon compliance with the provisions of this Article
Five, the entire outstanding principal amount of this Debenture, or any portion
thereof, is convertible into Common Stock at the option of the Holder at any
time after the earliest to occur of (i) the first anniversary of the Company's
initial public offering of its Common Stock, (ii) March 29, 2001, or (iii) an
event described in Section 5.03(f) or (iv) upon the recommendation by the
Company's Board of Directors of any tender offer or exchange offer for 50% or
more of the Company's outstanding shares of Common Stock or the granting by the
Board of Directors of its approval for such offer under the provisions of clause
(b)(ii) of Article FIFTH of the Company's Amended and Restated Articles of
Incorporation; provided, however, that this clause (iv) shall only apply if the
Company's 12% Convertible Subordinated Debentures due June 30, 2014 have become
convertible pursuant to their terms at such time. In addition, if this Debenture
is called for redemption pursuant to the terms of Article Three, the entire
outstanding principal amount of this Debenture, or any portion thereof that is
then called for redemption, is convertible into Common Stock at any time during
the period commencing on the 50th day prior to the Redemption Date and ending on
the 3rd day prior to the Redemption Date. On conversion of the entire
outstanding principal amount of this Debenture, or any portion thereof, (x) any
Interest that is past due on the principal amount of such Debenture that is
being converted shall be paid in U.S. Legal Tender and (y) that portion of
accrued and unpaid Interest attributable to the period from the most recent
Interest Payment Date to the date of conversion with respect to the
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principal amount of this Debenture that is being converted and Interest thereon
shall not be cancelled, extinguished or forfeited, but rather shall be deemed to
be paid in full to the Holder thereof through the delivery of the Common Stock
in exchange for the Debenture being converted pursuant to the terms hereof.
(b) The total number of shares of Common Stock issuable upon conversion
shall be determined by dividing the principal amount of this Debenture being
converted by the conversion price then in effect (the "Conversion Price"). The
initial Conversion Price shall be $1,153.90. The Conversion Price shall be
adjusted in certain instances as provided in Section 5.03.
(c) Nothing in this Debenture shall grant, or shall be deemed to
constitute the incurrence, creation, assumption or sufferance by the Company of,
and the Holder of this Debenture shall not assert, any mortgage, pledge, lien,
charge or other encumbrance of any nature whatsoever on the Common Stock
deliverable upon conversion of this Debenture.
(d) The Company covenants that if, at any time after the conversion
privilege has become exercisable and during which the conversion privilege has
not terminated, the Common Stock becomes (or is required to be) registered under
Section 12(b) or Section 12(g) of the Exchange Act, the Company will file a
registration statement under the Securities Act for the Common Stock to be
reserved for issuance to the Holders upon conversion pursuant to this Article
Five in accordance with the requirements of such act as promptly as practicable
and upon usual and customary terms and conditions for selling securityholders.
SECTION 5.02. Exercise of Conversion Privilege.
(a) In order to exercise the conversion privilege, the Holder of this
Debenture shall surrender this Debenture, duly endorsed or assigned to the
Company or in blank, at the Registry Office or any other office or agency
designated in writing by the Company to the Holder of this Debenture,
accompanied by written notice to the Company at such office or agency that the
Holder of this Debenture elects to convert such Debenture.
(b) This Debenture shall be deemed to have been converted immediately
prior to the close of business on the day of surrender of this Debenture for
conversion in accordance with the foregoing provisions, and at such time the
rights of the Holder of this Debenture as a Holder shall cease, and the Person
or Persons entitled to receive the Common Stock issuable upon conversion shall
be treated for all purposes as the record holder or holders of such Common Stock
at such time. As promptly as practicable on or after the day of conversion, the
Company shall issue and shall deliver at its principal office or other office or
agency which it may designate in writing to the Holder of this Debenture or
agency a certificate or certificates for the number of shares of Common Stock
issuable upon conversion (which may include fractional shares, as applicable).
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(c) If this Debenture is converted in part only, upon such conversion the
Company shall execute and deliver to the Holder hereof, at the expense of the
Company, a new Debenture or Debentures of authorized denominations in aggregate
principal amount equal to the unconverted portion of the principal amount of
this Debenture.
SECTION 5.03. Adjustments of Conversion Price; Certain Other Adjustments.
(a) In case the Company shall issue or sell any shares of Capital Stock or
is deemed to have issued or sold such shares pursuant to Section 5.03(b) (except
as provided in Section 5.03(e)) for a consideration per share less than 94% (or
100% if a stand-by underwriter is used and charges the Company a commission) of
the Closing Price per share of such Capital Stock immediately prior to such
issuance or sale, then immediately after such issuance or sale the Conversion
Price shall be determined by multiplying (I) the Conversion Price in effect
immediately prior to such issuance or sale by (II) a fraction, the numerator of
which shall be the sum of (A) the number of shares of Capital Stock outstanding
(and deemed to be outstanding pursuant to Section 5.03(b)) immediately prior to
such issuance or sale and (B) the number of shares (rounded up to the nearest
share) that the Company could purchase with the aggregate gross proceeds
received from the issuance or sale of such shares at 94% (or 100% in the case of
a stand-by underwriting) of the Closing Price per share of such Capital Stock
immediately prior to such issuance or sale and the denominator of which shall be
the total number of shares of Capital Stock outstanding (and deemed to be
outstanding pursuant to Section 5.03(b)) immediately after such issuance or
sale. For purposes of this Section 5.03, the shares of Capital Stock into which
the Debentures are convertible shall not be deemed to be outstanding.
Notwithstanding the foregoing, no adjustment of the Conversion Price shall be
required pursuant to this Section 5.03(a) unless such adjustment would require a
decrease of at least one percent in the Conversion Price but any lesser
adjustment shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall require a decrease of at least one percent
in the Conversion Price.
(b) For the purposes of Section 5.03(a), the following paragraphs (1) to
(7), inclusive, shall also be applicable:
(1) In case the Company shall grant, (whether directly or by
assumption in a merger or otherwise) to holders of Capital Stock any rights
(including options and warrants) to subscribe for, or any rights, options
or warrants to purchase, Capital Stock or any stock or other securities
convertible into or exchangeable for Capital Stock (such convertible or
exchangeable stock or securities being herein called "Convertible
Securities"), whether or not such rights, options or warrants or the right
to convert or exchange any such Convertible Securities are immediately
exercisable, and the price per share for which Capital Stock is issuable
upon the exercise of such rights or options or upon conversion or exchange
of such Convertible Securities (determined by dividing (A) the total
amount, if any, received or receivable by the Company as consideration for
the
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granting of such rights, options or warrants, plus, in the case of any such
rights, options or warrants which relate to such Convertible Securities,
the minimum aggregate amount of additional consideration, if any, payable
upon the issue or sale of such Convertible Securities and upon the
conversion or exchange thereof, by (B) the total maximum number of shares
of Capital Stock issuable upon the exercise of such rights, options or
warrants or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such rights, options or warrants)
shall be less than 94% of the Closing Price per share of such Capital Stock
in effect immediately prior to the time of the granting of such rights,
options or warrants, then the total maximum number of shares of Capital
Stock issuable upon the exercise of such rights, options or warrants or
upon conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such rights, options or warrants
shall (as of the date of granting of such rights, options or warrants) be
deemed to be outstanding and to have been issued for such price per share.
Except as provided in Section 5.03(d), no further adjustments of the
Conversion Price shall be made upon the actual issue of such Capital Stock
or of such Convertible Securities upon exercise of such rights, options or
warrants or upon the actual issue of such Capital Stock upon conversion or
exchange of such Convertible Securities.
(2) In case at any time the Company shall issue (whether directly or
by assumption in a merger or otherwise, but not by way of a dividend or
other similar type of distribution) or sell any Convertible Securities,
whether or not the rights to exchange or convert thereunder are immediately
exercisable, and the price per share for which Capital Stock is issuable
upon such conversion or exchange (determined by dividing (A) the total
amount received or receivable by the Company as consideration for the issue
or sale of such Convertible Securities, plus the minimum aggregate amount
of additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (B) the total maximum number of shares
of Capital Stock issuable upon the conversion or exchange of all such
Convertible Securities) shall be less than 94% of the Closing Price per
share of such Capital Stock in effect immediately prior to the time of such
issuance or sale, then the total maximum number of shares of Capital Stock
issuable upon conversion or exchange of all such Convertible Securities
shall (as of the date of the issue or sale of such Convertible Securities)
be deemed to be outstanding and to have been issued for such price per
share; provided that (i) except as provided in Section 5.03(d), no further
adjustments of the Conversion Price shall be made upon the actual issue of
such Capital Stock upon conversion or exchange of such Convertible
Securities and (ii) if any such issue or sale of such Convertible
Securities is made upon exercise of any rights to subscribe for or to
purchase or any option to purchase any such Convertible Securities for
which adjustments of the Conversion Price have been or are to be made
pursuant to other provisions of Section 5.03(b), no further adjustment of
the Conversion Price shall be made by reason of such issue or sale.
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(3) In case at any time the Company shall declare a dividend or make
any other distribution upon any Capital Stock of the Company payable in
Capital Stock, any Capital Stock issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold with zero
consideration.
(4) Subject to the last sentence of this paragraph (4), in case the
Company shall, by dividend or otherwise, distribute to all holders of its
Common Stock and/or any other class of Capital Stock, evidences of its
Indebtedness, shares of any class of Capital Stock, cash or assets
(including securities, but excluding (x) any rights, options or warrants
referred to in paragraph (1) of this Section 5.03(b), (y) any dividend or
distribution paid exclusively in cash out of the retained earnings of the
Company and (z) any dividend or distribution referred to in paragraph (3)
of this Section 5.03(b)), then, in lieu of the adjustments provided for in
Section 5.03(a), the Conversion Price shall be reduced so that the same
shall equal the price determined by multiplying the Conversion Price in
effect immediately prior to the effectiveness of the Conversion Price
reduction contemplated by this paragraph (4) by a fraction of which the
numerator shall be the current market price per share (determined as
provided in paragraph (7) of this Section 5.03(b)) of the Common Stock on
the date of such effectiveness less the fair market value (as determined by
the Company), on the date of such effectiveness, of the portion of the
evidences of indebtedness, shares of Capital Stock, cash and assets so
distributed applicable to one share of Common Stock and the denominator
shall be such current market price per share of the Common Stock on the
date of such effectiveness, such reduction to become effective immediately
prior to the opening of business on the day following the date fixed for
the determination of stockholders entitled to receive such distribution
(the "Reference Date"). If the Company determines the fair market value of
any distribution for purposes of this paragraph (4) by reference to the
actual or when issued trading market value for any securities comprising
such distribution, it must in doing so consider the prices in such market
over the same period used in computing the current market price per share
pursuant to paragraph (7) of this Section 5.03(b). For purposes of this
paragraph (4), any dividend or distribution that includes shares of Capital
Stock, rights, options or warrants to subscribe for or purchase shares of
Capital Stock or other securities convertible into or exchangeable for
shares of Capital Stock shall be deemed instead to be (a) (i) a dividend or
distribution of the evidences of Indebtedness, cash, assets or shares of
Capital Stock other than such shares of Capital Stock, such rights, options
or warrants or such other convertible or exchangeable securities (making
any Conversion Price reduction required by paragraph (4) of this Section
5.03(b)) immediately followed by (ii) in the case of such shares of Capital
Stock or such rights, options or warrants, a dividend or distribution
thereof (making any further Conversion Price reduction required by
paragraph (1) or (3) of this Section 5.03(b), and any shares of Capital
Stock included in such dividend or distribution shall be deemed to be
"outstanding" within the meaning of Section 5.03(a)) or (b) in the case of
such other convertible or exchangeable securities, a dividend or
distribution of such number of shares of Capital Stock as would then be
issuable upon the conversion or exchange
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thereof, whether or not the conversion or exchange of such securities is
subject to any conditions (making any further Conversion Price reduction
required by paragraph (3) of this Section 5.03(b), and any shares deemed to
constitute such dividend or distribution shall be deemed to be
"outstanding" within the meaning of Section 5.03(a)).
(5) In case at any time any shares of Capital Stock or Convertible
Securities or any rights, options or warrants to purchase any such Capital
Stock or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount paid by
the purchaser therefor, without deduction therefrom of any expenses
incurred or any underwriting commissions or concessions or discounts paid
or allowed by the Company in connection therewith. In case at any time any
shares of Capital Stock or Convertible Securities or any rights, options or
warrants to purchase any such Capital Stock or Convertible Securities shall
be issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Company shall be deemed to be
the fair value of such consideration as determined reasonably and in good
faith by the Company, without deduction therefrom of any expenses incurred
or any underwriting commissions or concessions or discounts paid or allowed
by the Company in connection therewith. In case any shares of Capital Stock
or Convertible Securities or any rights, options or warrants to purchase
any such Capital Stock or Convertible Securities shall be issued in
connection with any merger of another corporation into the Company, the
amount of consideration therefor shall be deemed to be the fair value of
such consideration as determined reasonably and in good faith by the
Company. In case at any time any rights, options or warrants to purchase
any shares of Capital Stock or Convertible Securities shall be issued in
connection with the issue and sale of other securities of the Company,
together comprising one integral transaction in which no consideration is
allocated to such rights, options or warrants by the parties thereto, such
rights, options or warrants shall be deemed to have been issued for an
amount of consideration equal to the fair value thereof as determined
reasonably and in good faith by the Company.
During the period beginning on the date on which the Company's 12%
Convertible Subordinated Debentures due June 30, 2014 have become
convertible pursuant to their terms and ending on the date on which this
Debenture becomes convertible pursuant to its terms, in case the Company
shall distribute to all holders of its Common Stock any dividend or
distribution paid exclusively in cash out of the retained earnings of the
Company in an amount per calendar year (based on the declaration date)
exceeding 5% of the Closing Price of a share of Common Stock on the date on
which the last such dividend or distribution in such calendar year is
declared, then, in lieu of the adjustments provided for in Section 5.03(a),
the Conversion Price shall be reduced so that the same shall equal the
price determined by multiplying the Conversion Price in effect immediately
prior to the effectiveness of the Conversion Price reduction contemplated
by this paragraph (5) by a fraction of which the numerator shall be the
current market price per share (determined as provided in paragraph (8) of
this
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Section 5.03(b)) of the Common Stock on the date of such effectiveness less
the value of the portion of the cash so distributed applicable to one share
of Common Stock and the denominator shall be such current market price per
share of the Common Stock on the date of such effectiveness, such reduction
to become effective immediately prior to the opening of business on the day
following the date fixed for the determination of stockholders entitled to
receive such distribution.
(6) In case at any time the Company shall take a record of the
holders of Capital Stock for the purpose of entitling them (i) to receive a
dividend or other distribution payable in Capital Stock or in Convertible
Securities, or (ii) to subscribe for or purchase Capital Stock or
Convertible Securities, then such record date shall be deemed to be the
date of the issue or sale of the shares of Capital Stock deemed to have
been issued or sold upon the declaration of such dividend or the making of
such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(7) For the purpose of any computation under paragraph (4) above, the
current market price per share of Common Stock on any date shall be deemed
to be the average of the daily Closing Prices for 30 consecutive Trading
Days commencing 45 days before such date (or if less than 30 consecutive
days, for the maximum number of consecutive Trading Days elapsed commencing
45 days before such date).
(c) In case at any time the Company shall subdivide its outstanding shares
of Capital Stock into a greater number of shares, the Conversion Price in effect
immediately prior to such subdivision shall be proportionately reduced and
conversely, in case the outstanding shares of Capital Stock of the Company shall
be combined into a smaller number of shares, the Conversion Price in effect
immediately prior to such combination shall be proportionately increased.
(d) If the purchase price provided for in any right, option or warrant
referred to in paragraph (1) of Section 5.03(b), or the rate at which any
Convertible Securities referred to in paragraphs (1) or (2) of Section 5.03(b)
are convertible into or exchangeable for Capital Stock, shall change or a
different purchase price or rate shall become effective at any time or from time
to time (other than under or by reason of provisions designed to protect against
dilution), then, upon such change becoming effective, the Conversion Price then
in effect hereunder shall forthwith be increased or decreased to such Conversion
Price as would have obtained had the adjustments made upon the granting or
issuance of such right, option, warrant or Convertible Securities been made upon
the basis of (1) the issuance of the number of shares of Capital Stock
theretofore actually delivered upon the exercise of such right, option or
warrant or upon the conversion or exchange of such Convertible Securities, and
the total consideration received therefor, and (2) the granting or issuance at
the time of such change of any such right, option, warrant or Convertible
Securities then still outstanding for the consideration, if any, received by the
Company therefor and to be received on the basis of such changed price. On the
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expiration of any right, option or warrant referred to in paragraph (1) of
Section 5.03(b), or on the termination of any right to convert or exchange any
Convertible Securities referred to in paragraphs (1) or (2) of Section 5.03(b),
the Conversion Price shall forthwith be readjusted to such amount as would have
obtained had the adjustment made upon the granting or issuance of such right,
option, warrant or Convertible Securities been made upon the basis of the
issuance or sale of only the number of shares of Capital Stock actually issued
upon the exercise of such right, option or warrant or upon the conversion or
exchange of such Convertible Securities. If the purchase price provided for in
any such right, option or warrant, or the rate at which any such Convertible
Securities are convertible into or exchangeable for Capital Stock, shall change
at any time under or by reason of provisions with respect thereto designed to
protect against dilution, then in case of the delivery of Capital Stock upon the
exercise of any such right, option or warrant or upon conversion or exchange of
any such Convertible Security, the Conversion Price then in effect hereunder
shall forthwith be decreased to such Conversion Price as would have obtained had
the adjustments made upon the issuance of such right, option, warrant or
Convertible Security been made upon the basis of the issuance of (and the total
consideration received for) the shares of Capital Stock delivered as aforesaid.
(e) The Company shall not be required to make any adjustment of the
Conversion Price in the case of:
(1) the issuance of any shares of Capital Stock in exchange for, or
on conversion of (in either case, on a one-for-one basis), any shares of
Capital Stock of another class or series; provided that the only material
differences between (i) the shares of Capital Stock surrendered in exchange
or converted, and (ii) the shares of another class or series of Capital
Stock thereupon issued, with respect to their relative powers,
designations, preferences, and relative, participating, optional or other
rights, if any, or the qualifications, limitations or restrictions of such
powers, preferences or rights, are differences in voting rights;
(2) the issuance of any shares of Capital Stock (or securities
convertible into Capital Stock) upon satisfaction of the Company's 12%
Convertible Subordinated Debentures due June 30, 2014 and the Company's
Series 1995 12% Convertible Subordinated Debentures due June 30, 2014;
(3) the issuance of any shares of Capital Stock (or securities
convertible into Capital Stock) pursuant to the offering described in the
Memorandum and the issuance of any shares of Capital Stock upon
satisfaction of any such securities convertible into Capital Stock; or
(4) the issuance of Capital Stock pursuant to the exercise of stock
options or warrants currently (i) outstanding or authorized or (ii) issued
by an entity as to which or with which the Company merges, combines or
consolidates or, prior to date hereof, has merged, combined or
consolidated.
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(f) In case of any consolidation or merger of the Company with or into any
other corporation or any merger of another Person into the Company (other than a
merger in which the Company is the surviving Person) or any statutory exchange
of securities with another Person or the sale or other disposition of all or
substantially all of the properties and assets of the Company to any other
Person, there shall be no adjustment of the Conversion Price pursuant to Section
5.03, but the Holder of this Debenture shall have the right after such
consolidation, merger, statutory exchange, sale or conveyance to convert this
Debenture into the kind and amount of securities, cash or other property
receivable upon such consolidation, merger, statutory exchange, sale or
conveyance by a holder of the number of shares of Capital Stock into which this
Debenture might have been converted immediately prior to such consolidation,
merger, statutory exchange, sale or conveyance (assuming for the purpose of this
sentence only that this Debenture was convertible at such time under this
Article Five), assuming such holder of Capital Stock exercises his rights of
election, if any, as to the kind or amount of securities, cash or other property
receivable upon such consolidation, merger, statutory exchange, sale or
conveyance in the same manner as did the holders of a majority (or if there
shall be no majority, in the same manner as did the holders of a plurality) of
the shares of Common Stock in such transaction. The Company shall provide to the
Registered Holder at least 30 days' prior written notice of the scheduled
occurrence of an event described in this Section 5.03(f).
The above provisions of this Section 5.03(f) shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers, sales or
other dispositions.
(g) During the period beginning on the date on which the Company's 12%
Convertible Subordinated Debentures due June 30, 2014 have become convertible
pursuant to their terms and ending on the date on which this Debenture becomes
convertible pursuant to its terms, in case of any merger of another Person into
the Company in which the Company is the surviving Person, there shall be no
adjustment of the Conversion Price pursuant to Section 5.03, but the Holder of
this Debenture shall have the right after such merger to convert this Debenture
into the kind and amount of securities, cash or other property receivable upon
such merger by a holder of the number of shares of Capital Stock into which this
Debenture might have been converted immediately prior to such merger (assuming
for the purpose of this sentence only that this Debenture was convertible at
such time under Article Five), assuming such holder of Capital Stock exercises
his rights of election, if any, as to the kind or amount of securities, cash or
other property receivable upon such merger, in the same manner as did the
holders of a majority (or if there shall be no majority, in the same manner as
did the holders of a plurality) of the shares of Common Stock in such
transaction. The Company shall provide to the Registered Holder at least 30
days' prior written notice of the scheduled occurrence of an event described in
this Section 5.03(g).
The above provisions of this Section 5.03(g) shall similarly apply to
successive mergers.
SECTION 5.04. Notice of Adjustments of Conversion Price. Whenever the
Conversion Price is adjusted as herein provided:
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(a) the Company shall compute the adjusted Conversion Price in accordance
with Section 5.03 and shall prepare a certificate signed by the Secretary of the
Company setting forth the adjusted Conversion Price and showing in reasonable
detail the facts upon which such adjustment is based, and such certificate shall
forthwith be filed in the minute book of the Company;
(b) a notice stating that the Conversion Price has been adjusted and
setting forth the adjusted Conversion Price shall forthwith be prepared, and as
soon as practicable after it is prepared, such notice shall be mailed by the
Company to the Holder at the address appearing in the Register; and
(c) the certificate of the Secretary of the Company setting forth the
adjusted Conversion Price shall be conclusive evidence that the adjustment is
correct absent manifest error.
SECTION 5.05. Notice of Certain Corporate Action. In case:
(a) the Company shall declare a dividend (or any other distribution) on
its Capital Stock, other than cash dividends payable from current earnings; or
(b) the Company shall authorize the granting of its Capital Stock of (i)
rights or warrants to subscribe for or purchase any shares of Capital Stock of
any class, or (ii) any other rights; or
(c) of any reclassification of the Capital Stock of the Company (other
than a subdivision or combination of its outstanding shares of Capital Stock),
or of any consolidation or merger to which the Company is a party and for which
approval of any stockholders of the Company is required, or of the sale or
transfer of all or substantially all of the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or winding-up
of the Company;
then the Company shall cause to be filed in the minute book of the Company and
shall cause to be mailed to the Holder of this Debenture at the Holder's last
address appearing in the Register, at least 30 days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
rights or warrants, or, if a record is not to be taken, the date as of which the
holders of Capital Stock of record to be entitled to such dividend,
distribution, rights or warrants are to be determined, or (y) the date on which
such reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up is expected to become effective, and the date as of
which it is expected that holders of Capital Stock of record shall be entitled
to exchange their
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shares of Capital Stock for securities, cash or other property deliverable upon
such reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up.
SECTION 5.06. Company to Reserve Common Stock. The Company shall at all
times reserve and keep available, free from preemptive rights, out of its
authorized but unissued Common Stock, for the purpose of effecting the
conversion of the Debentures, the full number of shares of Common Stock then
issuable upon the conversion of all outstanding Debentures, and the Company will
maintain at all times all other rights and privileges sufficient to enable it to
fulfill all its obligations hereunder.
SECTION 5.07. Taxes on Conversion. The Company will pay any and all stamp
and transfer taxes that may be payable in respect of the issue or delivery of
shares of Common Stock on conversion of this Debenture pursuant to the terms
hereof. The Company shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issue and delivery of shares
of Common Stock in a name other than that of the Holder of this Debenture or
Debentures to be converted, and no such issue or delivery shall be made unless
and until the Person requesting such issue has paid to the Company the amount of
any such tax, or has established to the satisfaction of the Company that such
tax has been paid.
SECTION 5.08. Covenant as to Common Stock. The Company covenants that all
shares of Common Stock which may be issued upon conversion of this Debenture
will upon issue be duly authorized, validly issued, fully paid and
nonassessable.
SECTION 5.09. Registration and Listing of Common Stock. If any shares of
Common Stock required to be reserved for purposes of conversions of Debentures
hereunder require registration with or approval of any governmental authority
under any Federal or state law (other than the Securities Act) before such
shares may be issued upon conversion, the Company will, at its expense and as
expeditiously as possible, use commercially reasonable efforts to cause such
shares to be duly registered or approved, as the case may be. If and so long as
the Common Stock is listed on any national securities exchange, the Company
will, at its expense, obtain promptly and maintain the approval for listing on
each such exchange upon official notice of issuance, of shares of Common Stock
issuable upon conversion of the then outstanding Debentures and maintain the
listing of such shares after their issuance; and the Company will also list on
the national securities exchange, will register under the Exchange Act and will
maintain such listing of, any other securities that at any time are issuable
upon conversion of the Debentures, if and at the time that any securities of the
same class shall be listed on such national securities exchange by the Company
or shall require registration under the Exchange Act.
SECTION 5.10 Notice of Default. Within 90 days after the occurrence of any
default hereunder with respect to the Debentures, the Company shall send notice
of such default to the Debenture holders, unless such default shall have been
cured or waived. For the purpose
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of this Section 5.10, the term "default" means any event which is, or after
notice or lapse of time or both would become, an Event of Default.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default. An "Event of Default" with respect to this
Debenture occurs if:
(a) the Company defaults in the payment of Interest on this Debenture or
any other Debenture when the same becomes due and payable and the default
continues for a period of 30 days after an Interest Payment Date.
(b) the Company defaults in the payment of the principal of this Debenture
or any other Debenture when the same becomes due and payable at Maturity, upon
redemption or otherwise;
(c) the Company fails to comply with any of its covenants or other
agreements contained in this Debenture and the default continues for the period
and after the notice specified below;
(d) there shall be a default under any bond, debenture, note or other
evidence of Indebtedness of the Company or any Material Subsidiary or under any
mortgage, debenture or other instrument under which there may be issued or by
which there may be secured or evidenced any Indebtedness of the Company or any
Material Subsidiary or under any guarantee of the payment by the Company or any
Material Subsidiary of Indebtedness, whether such Indebtedness or guarantee now
exists or shall hereafter be created, which default relates to (i) the
obligation to pay the principal of or interest on any such Indebtedness or
guarantee which default shall have resulted in such Indebtedness becoming or
being declared due and payable prior to its stated maturity or (ii) an
obligation other than the obligations to pay the principal of or interest on any
such Indebtedness and which default shall have resulted in such Indebtedness
becoming or being declared due and payable prior to its stated maturity;
provided that no default under this clause (d) shall exist if all such defaults
do not relate to such Indebtedness or such guarantees with an aggregate
principal amount of at least $25,000,000;
(e) the Company or any Material Subsidiary pursuant to or within the
meaning of any Bankruptcy Law (as defined below) (A) becomes insolvent, (B)
fails generally to pay its debts as they become due, (C) admits in writing its
inability to pay its debts as they become due, (D) commences a voluntary case or
proceeding, (E) consents to the entry of a judgment, decree or order for relief
against it in an involuntary case or proceeding, (F) consents to the appointment
of a Custodian (as defined below) of it or for any material part of its
property, (G) consents to
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or acquiesces in the institution of bankruptcy or insolvency proceedings to or
against it, (H) applies for, consents to or acquiesces in the appointment of or
taking possession by a Custodian of the Company or any such Material Subsidiary
or for any material part of the Company's or any such Material Subsidiary's
property, or (I) makes a general assignment for the benefit of its creditors;
(f) a court of competent jurisdiction enters a judgment, decree or order
for relief in respect of the Company or any Material Subsidiary in an
involuntary case or proceeding under any Bankruptcy Law which shall (A) approve
as properly filed a petition seeking reorganization, arrangement, adjustment or
composition in respect of the Company or any Material Subsidiary, (B) appoint a
Custodian of the Company or any Material Subsidiary or for any material part of
its property or (C) order the winding-up or liquidation of its affairs, and such
judgment, decree or order shall remain unstayed and in effect for a period of 30
consecutive days; or any warrant of attachment is issued against any portion of
the property of the Company or any Material Subsidiary which is not released
within 60 days of service; or
(g) uninsured final judgments for the payment of money which in the
aggregate at any one time exceed $25,000,000 shall be rendered against the
Company or any Material Subsidiary by a court of competent jurisdiction, and
shall remain undischarged for a period (during which execution shall not be
effectively stayed) of 30 days after such judgment becomes final and
nonappealable.
The term "Bankruptcy Law" means Title 11 of the United States Code or any
similar federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, sequestrator or similar
official under any Bankruptcy Law.
A Default under clause (c) is not an Event of Default until the Holders of
at least a majority in aggregate principal amount of the then outstanding
Debentures (excluding any Debentures held by the Company or any of its
Affiliates) notify the Company of the Default and the Company does not cure the
Default within 30 days after receipt of the notice. The notice must specify the
Default, demand that it be remedied and state that the notice is a "Notice of
Default." When a Default is cured, it ceases.
SECTION 6.02. Acceleration. If an Event of Default (other than an Event of
Default specified in Section 6.01(a), Section 6.01(b), Section 6.01(e) or
Section 6.01(f)) occurs and is continuing, the Holders of at least a majority in
aggregate principal amount of the Debentures then outstanding (excluding any
Debentures held by the Company or any of its Affiliates) may, by notice to the
Company, declare all unpaid principal and accrued Interest to the date of
acceleration on the Debentures then outstanding (if not then due and payable) to
be due and payable on the "Acceleration Date," which shall be the first to occur
of (x) an acceleration of any Senior Indebtedness in an aggregate amount in
excess of $500,000, or (y) the fifth Business Day after the receipt of notice of
such declaration by the Company; provided that, in the event the condition
giving rise to such Event of Default shall have ceased to exist
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or payment shall have been made prior to the Acceleration Date, such declaration
shall be automatically rescinded and such amounts shall no longer become due and
payable pursuant hereto. If an Event of Default specified in Section 6.01(a) or
Section 6.01(b) occurs and is continuing, (i) any Holder may, by notice to the
Company, declare all unpaid principal and accrued Interest to the date of
acceleration on its Debenture (if not then due and payable) to be due and
payable on the Acceleration Date; provided that, in the event the condition
giving rise to such Event of Default shall have ceased to exist or payment shall
have been made prior to the Acceleration Date, such declaration shall be
automatically rescinded and such amounts shall no longer become due and payable
pursuant hereto and (ii) the Holders of at least 25% in aggregate principal
amount of the Debentures then outstanding may, by notice to the Company, declare
all unpaid principal and accrued Interest to the date of acceleration on the
Debentures then outstanding (if not then due and payable) to be due and payable
on the Acceleration Date; provided that, in the event the condition giving rise
to such Event of Default shall have ceased to exist or payment shall have been
made prior to the Acceleration Date, such declaration shall automatically be
rescinded and such amounts shall no longer become due and payable pursuant
hereto. If an Event of Default specified in Section 6.01(e) or Section 6.01(f)
occurs, all unpaid principal and accrued Interest on this Debenture then
outstanding shall become immediately due and payable without any declaration or
other act on the part of any Person. Upon payment of such principal amount and
Interest, all of the Company's obligations under this Debenture shall terminate.
The Holders of a majority in aggregate principal amount of the then outstanding
Debentures (excluding any Debentures held by the Company or any of its
Affiliates) by notice to the Company may rescind an acceleration and its
consequences if (i) all existing Events of Default, other than the non-payment
of the principal of the Debentures which has become due solely by such
declaration of acceleration, have been cured or waived, (ii) to the extent the
payment of such interest is lawful, interest on overdue installments of interest
and overdue principal, which has become due otherwise than by such declaration
of acceleration, has been paid and (iii) the rescission would not conflict with
any judgment or decree of a court of competent jurisdiction. It is expressly
understood and agreed that the decision so to waive any Default and so to
rescind and annul any consequences thereof is within the sole judgment and
control of the Holders and such Holders shall be under no obligation to do so.
Notwithstanding the foregoing, if a declaration of acceleration shall have
occurred because of an Event of Default specified in Section 6.01(d), such
declaration shall be automatically rescinded if the Indebtedness that is the
subject of such Event of Default shall have been paid or discharged or such
Event of Default shall have been rescinded, cured or waived in accordance with
the terms of any agreement governing or evidencing such Indebtedness and written
notice of such payment, discharge, rescission, cure or waiver, as the case may
be, shall have been given to the Holders of the Debentures by the Company or by
the requisite holders of such Indebtedness or the trustee, agent or other
representative of such holders within 60 days after such declaration and no
other Event of Default shall have occurred and be continuing on the date of
receipt of such notice.
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SECTION 6.03. Other Remedies. If an Event of Default with respect to this
Debenture occurs and is continuing and, except in the case of Defaults under
Sections 6.01(e) and 6.01(f), the Indebtedness represented hereby has been
declared due and payable pursuant to Section 6.02, the Holder hereof may pursue
any available remedy by proceeding at law or in equity to collect the payment of
principal of or Interest on this Debenture or to enforce the performance of any
provision of this Debenture.
A delay or omission by the Holder of this Debenture in exercising any right
or remedy accruing upon Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
SECTION 6.04. Waiver of Past Defaults. The Holders of a majority in
aggregate principal amount of the then outstanding Debentures (excluding any
Debentures held by the Company or any of its Affiliates) on behalf of the
Holders of all the Debentures, including this Debenture, by notice to the
Company, may waive an existing Default or Event of Default and its consequences;
except a Default or an Event of Default in the payment of the principal of or
Interest on any Debenture, or in respect of a covenant or provision hereof which
under Article Eight cannot be modified or amended without the consent of the
Holder of each outstanding Debenture affected. When a Default or Event of
Default is waived, it is cured and ceases; but no such waiver shall extend to
any subsequent default or impair any right consequent thereon.
SECTION 6.05. Undertaking for Costs. In any suit for the enforcement of any
right or remedy under this Debenture, a court in its discretion may require the
filing by any party litigant in the suit of an undertaking to pay the costs of
the suit, and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.05 does not apply to a suit by a Holder or Holders of
more than 10% in aggregate principal amount of the then outstanding Debentures.
ARTICLE SEVEN
SUBORDINATION
SECTION 7.01. Subordination of Debentures to Senior Indebtedness. The
Company, for itself and its successors, and the Holder, by acceptance of this
Debenture agree that the payment of the principal and Interest on this Debenture
is subordinated, to the extent and in the manner provided in this Article Seven,
to the prior payment in full of all Senior Indebtedness.
This Article Seven shall constitute a continuing offer to all Persons who,
in reliance upon such provisions, become holders of, or continue to hold, Senior
Indebtedness, and such
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provisions are made for the benefit of the holders of Senior Indebtedness, and
such holders are made obligees hereunder and they or any of them may enforce
such provisions.
The expressions "prior payment in full," "payment in full" and "paid in
full" and any other similar term or phrase when used in this Article Seven with
respect to Senior Indebtedness shall mean the payment in full of the principal
of and premium, if any, and interest (including post-petition interest on such
Senior Indebtedness to the extent and only to the extent, that such post-
petition interest is an allowed claim against the Company which is enforceable
against the Company in a bankruptcy case under Title 11 of the United States
Code) on such Senior Indebtedness.
SECTION 7.02. No Payment on Debenture in Certain Circumstances.
(a) No payment shall be made on account of principal of or Interest on
this Debenture or any of the Debentures, or to acquire this Debenture or any of
the Debentures for cash or property other than Capital Stock of the Company, or
on account of the redemption provisions contained in this Debenture or any of
the Debentures (i) upon the maturity of any Senior Indebtedness in an aggregate
amount in excess of $500,000 by lapse of time, acceleration or otherwise, unless
and until all principal thereof and interest thereon shall first be paid in full
in cash or cash equivalents, or such payment is duly provided for in a manner
satisfactory to the holders of a majority in aggregate principal amount of the
then outstanding Senior Indebtedness or (ii) in the event that the Company shall
default in the payment of any principal of, premium, if any, or interest on any
Senior Indebtedness in an aggregate amount in excess of $500,000 when the same
becomes due and payable, whether at maturity or at a date fixed for prepayment
or by declaration or otherwise, unless and until such default shall have been
cured or waived or shall have ceased to exist or payment has been made; provided
that clause (ii) of this paragraph (a) shall not prevent the making of any
payment for more than 179 days after the Default Notice (as defined in Section
7.02(b)) shall have been given unless the Senior Indebtedness in respect of
which such event of default exists has been declared due and payable in its
entirety, in which case no such payment may be made until such acceleration has
been rescinded or annulled (by cure of the default giving rise thereto or
otherwise) or such Senior Indebtedness has been paid in full. In the event that
such payments in respect of principal of or Interest on this Debenture or any
other Debenture are or were suspended pursuant to clause (ii) of this paragraph
(a), such payments may not be suspended again under this paragraph (a) until 360
days after the date of the Default Notice which caused the next preceding 179-
day payment suspension period unless the Senior Indebtedness in respect of which
such event of default exists has been declared due and payable in its entirety,
in which case no payment on account of principal of or interest on this
Debenture or any other Debenture may be made until such acceleration has been
rescinded or annulled (by cure of the default giving rise thereto or otherwise)
or such Senior Indebtedness has been paid in full. Notwithstanding the
foregoing, no event of default which existed or was continuing on the date of
any Default Notice shall be made the basis for the giving of a second Default
Notice.
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(b) Upon the happening of an event of default (or if an event of default
would result upon any payment with respect to this Debenture or any of the
Debentures) with respect to any Senior Indebtedness in an aggregate amount in
excess of $500,000, as such event of default is defined therein or in the
instrument under which it is outstanding, permitting the holders to accelerate
the maturity thereof upon written notice thereof given to the Company by any
holders of such Senior Indebtedness or their authorized representative ("Default
Notice"), then, unless and until such event of default shall have been cured or
waived by the holders of such Senior Indebtedness or their authorized
representative or shall have ceased to exist, no direct or indirect payment
shall be made by the Company with respect to the principal of or Interest on
this Debenture or any of the Debentures or to acquire or redeem this Debenture
or any of the Debentures on account of the redemption provisions contained in
this Debenture or any of the Debentures; provided that this paragraph (b) shall
not prevent the making of any payment for more than 179 days after the Default
Notice shall have been given unless the Senior Indebtedness in respect of which
such event of default exists has been declared due and payable in its entirety,
in which case no such payment may be made until such acceleration has been
rescinded or annulled (by cure of the default giving rise thereto or otherwise)
or such Senior Indebtedness has been paid in full. In the event that payments in
respect of principal of or Interest on this Debenture or any other Debenture are
or were suspended pursuant to this paragraph (b), such payments may not be
suspended again under this paragraph (b) until 360 days after the date of the
Default Notice which caused the next preceding 179-day payment suspension period
unless the Senior Indebtedness in respect of which such event of default exists
has been declared due and payable in its entirety, in which case no payment on
account of principal of or Interest on this Debenture or any other Debenture may
be made until such acceleration has been rescinded or annulled (by cure of the
default giving rise thereto or otherwise) or such Senior Indebtedness has been
paid in full. Notwithstanding the foregoing, no event of default which existed
or was continuing on the date of any Default Notice shall be made the basis of
the giving of a second Default Notice.
(c) In furtherance of the provisions of Section 7.01, in the event that,
notwithstanding the foregoing provisions of this Section 7.02, any payment on
account of principal of or Interest on this Debenture or any of the Debentures
or on account of redemption of this Debenture or any of the Debentures shall be
made by or on behalf of the Company and received by the Holder of this Debenture
or any of the Debentures or money for any such payment shall be segregated and
held in trust, at a time when such payment was prohibited by the provisions of
this Section 7.02, then, unless and until such payment is no longer prohibited
by this Section 7.02, such payment shall be held in trust for the benefit of and
shall upon demand be immediately paid over to, the holders of Senior
Indebtedness or their authorized representative, ratably according to the
aggregate amount remaining unpaid on account of the principal of and interest on
the Senior Indebtedness held or represented by each, for application to the
payment of all Senior Indebtedness remaining unpaid to the extent necessary to
pay all Senior Indebtedness in full in accordance with its terms in cash or cash
equivalents or such payment is duly provided for in a manner satisfactory to the
holders of such Senior Indebtedness, after giving effect to any concurrent
payment or distribution or provision therefor to or for the holders of Senior
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Indebtedness. The Company shall give prompt written notice to the Holder of this
Debenture and the Holders of all other Debentures of any default or failure to
make payments of principal or interest on such Senior Indebtedness or a default
which results in the acceleration of such Senior Indebtedness, under any Senior
Indebtedness or under any agreement pursuant to which Senior Indebtedness may
have been issued. Failure to give such notice shall not affect the subordination
of this Debenture or any of the Debentures to the Senior Indebtedness as
provided in this Article Seven.
SECTION 7.03. Debenture Subordinated to Prior Payment of All Senior
Indebtedness on Dissolution, Liquidation or Reorganization of Company. Upon any
payment or distribution of assets of the Company upon any dissolution, winding
up, liquidation or reorganization of the Company (whether in bankruptcy,
insolvency or receivership proceedings or upon any assignment for the benefit of
the creditors or otherwise):
(a) the holders of all Senior Indebtedness shall first be entitled to
receive payment in full (or to have such payment duly provided for) of the
principal and interest due thereon before the Holder of this Debenture or the
Holder of any other Debenture is entitled to receive any payment on account of
the principal of or Interest on this Debenture or any of the Debentures (for
such purpose, Senior Indebtedness shall be deemed paid in full if all amounts
due thereon have been recovered (x) in cash, or (y) in property (other than
cash), stock, obligations or any combination thereof, with or without cash,
valued as being payment in full by an independent and disinterested third party
selected by mutual agreement of the holders of a majority in aggregate principal
amount of the then outstanding Senior Indebtedness and the Holders of a majority
in aggregate principal amount of the then outstanding Debentures);
(b) any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, to which the Holder of this
Debenture or the Holders of any of the Debentures would be entitled except for
the provisions of this Article Seven (except similarly subordinated securities)
shall be paid by the liquidating trustee or agent or other Person making such a
payment or distribution, directly to the holders of Senior Indebtedness or their
authorized representative, to the extent necessary to make payment in full of
all Senior Indebtedness remaining unpaid determined in accordance with Section
7.03(a), after giving effect to any concurrent payment or distribution or
provision thereof to the holders of such Senior Indebtedness; provided that, in
the event that a determination in accordance herewith is made that the Senior
Indebtedness has been paid in full based on the receipt by the holders of the
Senior Indebtedness of any property (other than cash), stock or obligations or
any combination thereof with or without cash, then any payment or delivery of
cash by the Company to the Holder of this Debenture or to the Holders of any
other Debentures shall be paid to the holders of the Senior Indebtedness until
such time as the holders of the Senior Indebtedness shall have received payment
in full solely in cash and, in exchange therefor, the holders of the Senior
Indebtedness shall pay over to the Holders of the Debentures an equivalent
value, as determined by the independent third party selected by mutual agreement
of the holders of a majority in aggregate principal amount of the then
outstanding Senior Indebtedness and the Holders of a
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majority in aggregate principal amount of the then outstanding Debentures, of
such property, stock or obligations as the holders of the Senior Indebtedness
shall have received from the Company such payment of equivalent value to be
allocated among the Holders of the Debentures pro rata according to their share
of aggregate principal outstanding under the then outstanding Debentures; and
provided, further, that,
(i) in the event that payment or delivery by the Company of such
property, cash, stock or obligations to the Holders of the Debentures is
authorized by an order or decree giving effect, and stating in such order
or decree that effect is given, to the subordination of the Debentures to
Senior Indebtedness, and made by a court of competent jurisdiction in a
reorganization proceeding under any applicable bankruptcy or reorganization
law, no payment or delivery by the Company of such property (other than
cash), stock or obligations payable or deliverable with respect to such
Debentures shall be made to the holders of Senior Indebtedness; and
(ii) no such delivery shall be made to holders of Senior Indebtedness
of stock or obligations which are issued in respect of the Debentures
pursuant to reorganization proceedings, or upon any merger, consolidation,
sale, lease transfer or other disposal not prohibited by the provisions of
this Debenture by the Company, as reorganized, or by the corporation
succeeding to the Company or acquiring its property and assets, if such
stock or obligations are subordinate and junior at least to the extent
provided in this Section 7.03 to the payment of any stock or obligations
which are issued in exchange or substitution for any Senior Indebtedness
then outstanding;
(c) in the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities shall be received by the Holder of this Debenture or any
such payment or distribution shall be segregated or held in trust on account of
principal of or Interest on this Debenture before all Senior Indebtedness is
paid in full, or provision made for its payment, such payment or distribution
shall be received and held in trust for and shall be paid over to the holders of
the Senior Indebtedness remaining unpaid or provided for (pro rata as to each of
such holders on the basis of the respective amount of Senior Indebtedness held
by them) or their authorized representative, for application to the payment of
such Senior Indebtedness until all such Senior Indebtedness shall have been paid
in full, after giving effect to any concurrent payment or distribution or
provision therefor to the holders of such Senior Indebtedness.
The Company shall give prompt written notice to the Holder of this
Debenture and all other Holders of the Debentures of any dissolution, winding
up, liquidation or reorganization of the Company or assignment for the benefit
of creditors. Failure to give such notice shall not affect the subordination of
this Debenture or any other Debenture to the Senior Indebtedness as provided in
this Article Seven.
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SECTION 7.04. Holder of Debenture to Be Subrogated to Rights of Holders of
Senior Indebtedness. Subject to the indefeasible payment in full of all Senior
Indebtedness, the Holder of this Debenture and all other Holders of the
Debentures shall be subrogated to the rights of the holders of Senior
Indebtedness to receive payments or distributions of assets of the Company
applicable to the Senior Indebtedness until all amounts owing on this Debenture
and all other Debentures shall be paid in full, and for the purpose of such
subrogation no such payments or distributions to the holders of Senior
Indebtedness by or on behalf of the Company or by or on behalf of the Holder of
this Debenture and the Holders of all other Debentures by virtue of this Article
Seven which otherwise would have been made to the Holder of this Debenture
shall, as between the Company and the Holder of this Debenture, be deemed to be
payment by the Company to or on account of the Senior Indebtedness, it being
understood that the provisions of this Article Seven are and are intended solely
for the purpose of defining the relative rights of the Holder of this Debenture
and the Holders of all other Debentures, on the one hand, and the holders of
Senior Indebtedness, on the other hand.
SECTION 7.05. Obligations of the Company Unconditional. Nothing contained
in this Article Seven or elsewhere in this Debenture or any other Debenture is
intended to or shall impair, as between the Company and the Holder of this
Debenture, the obligation of the Company which is absolute and unconditional, to
pay to the Holder of this Debenture the principal of and Interest on this
Debenture as and when the same shall become due and payable in accordance with
the terms hereof, or is intended to or shall affect the relative rights of the
Holder of this Debenture and creditors of the Company other than the holders of
the Senior Indebtedness, nor shall anything herein or therein prevent the Holder
of this Debenture from exercising all remedies otherwise permitted by applicable
law upon default under this Debenture, subject to the rights, if any, under this
Article Seven of the holders of Senior Indebtedness in respect of cash, property
or securities of the Company received or receivable upon the exercise of any
such remedy. Upon any distribution of assets of the Company referred to in this
Article Seven, the Company and the Holder of this Debenture shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction in
which such dissolution, winding up, liquidation or reorganization proceedings
are pending, or a certificate of the liquidating trustee or agent or other
Person making any distribution to the Holder of this Debenture for the purpose
of ascertaining the Persons entitled to participate in such distribution, the
holders of the Senior Indebtedness and other indebtedness of the Company, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article Seven.
SECTION 7.06. Subordination Rights Not Impaired by Acts or Omissions of
Company or Holders of Senior Indebtedness. No right of any present or future
holders of any Senior Indebtedness to enforce subordination as provided herein
shall at any time in any way be prejudiced or impaired by an act or failure to
act on the part of the Company or by any act or failure to act, in good faith,
by any such holder, or by any noncompliance by the Company with the terms of
this Debenture, regardless of any knowledge thereof which any such holder may
have or with which such holder otherwise may be charged. The holders of Senior
Indebtedness
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may extend, renew, modify or amend the terms of the Senior Indebtedness or any
security therefor and release, sell or exchange such security and otherwise deal
freely with the Company, all without affecting the liabilities and obligations
of the parties to this Debenture.
SECTION 7.07. Article Seven Not to Prevent Events of Default. The failure
to make a payment on account of principal of or Interest on this Debenture or
any of the other Debentures by reason of any provision of this Article Seven
shall not be construed as preventing the occurrence of an Event of Default under
Article Six.
ARTICLE EIGHT
AMENDMENTS AND WAIVERS
SECTION 8.01. With Consent of Holders. The Company, when having provided
at least 15 days' prior written notice to all Holders, with the written consent
of the Holder or Holders of at least a majority in aggregate principal amount of
the then outstanding Debentures (excluding any Debentures held by the Company or
any of its Affiliates) may amend or supplement such Debentures (including this
Debenture). The Holder or Holders of a majority in aggregate principal amount
of the then outstanding Debentures may waive compliance by the Company with any
provision of such Debentures as it relates to such Holder or Holders; provided
that such Holder or Holders provide written notice to each other
Debentureholder. However, without the consent of each Debentureholder, no
amendment, supplement or waiver, including a waiver pursuant to Section 8.04
may:
(1) reduce the principal amount of such Debentures whose Holders must
consent to an amendment, supplement or waiver of any provision of any
Debenture;
(2) reduce the rate of Interest on any Debenture;
(3) reduce the principal amount due on any Debenture;
(4) change the Maturity Date of Debentures or alter the redemption
provisions with respect thereto in a manner adverse to such Holder;
(5) make any changes in Section 6.04 or this Section 8.01, except to
increase any such percentage or to provide that certain other provisions of
this Debenture cannot be modified or waived without the consent of the
Holder of each Debenture affected thereby;
(6) make the principal of any Debenture payable with anything other
than U.S. Legal Tender and the Interest payable in anything other than U.S.
Legal Tender or, in the case of conversion, Common Stock; or
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(7) modify the provisions of Article Five or Article Seven in a manner
adverse to any Holder of any Debenture.
It shall not be necessary for the consent of the Holders of Debentures
under this Section 8.01 to approve the particular form of any proposed
amendment, supplement or waiver, but it shall be sufficient if such consent
approves the substance thereof.
After an amendment, supplement or waiver under this Section 8.01 becomes
effective, the Company shall provide notice, pursuant to Section 9.01 to the
Holders affected thereby setting forth the amendment, supplement or waiver. Any
failure of the Company to give such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any amendment.
SECTION 8.02. Revocation and Effect of Consents. Until an amendment or
waiver becomes effective, a consent to it by a Holder of a Debenture is a
continuing consent by such Holder and every subsequent Holder of such Debenture
or portion of such Debenture that evidences the same debt as the consenting
Holder's Debenture, even if notation of the consent is not made on any
Debenture. However, any such Holder or subsequent Holder may revoke the consent
as to his Debenture or portion of a Debenture. Such revocation shall be
effective only if the Company receives the notice of such revocation before the
date on which the Company receives the consent of Holders of the requisite
principal amount of the then outstanding Debentures to such amendment,
supplement or waiver.
The Company may, but shall not be obligated to, fix a Record Date for the
purpose of determining the Holders of the Debentures entitled to consent to any
amendment, supplement or waiver. If a Record Date is fixed, then
notwithstanding the last two sentences of the immediately preceding paragraph,
those Persons who were Holders of the Debentures at such Record Date (or their
duly designated proxies), and only those Persons, shall be entitled to revoke
any consent previously given, whether or not such Persons continue to be Holders
after such Record Date.
After an amendment, supplement or waiver becomes effective, it shall bind
every Holder of the Debentures, unless it makes a change described in any of
clauses (1) through (7) of Section 8.01, in which case the amendment, supplement
or waiver shall bind only each Holder of a Debenture who has consented to it and
every subsequent Holder of a Debenture or portion of a Debenture that evidences
the same debt as the consenting Holder's Debenture.
SECTION 8.03. Notation on or Exchange of Debentures. If an amendment,
supplement or waiver changes the terms of a Debenture, the Company may require
the Holder of this Debenture to deliver it to the Company. The Company may
place an appropriate notation on the Debenture about the changed terms and
return it to the Holder. Alternatively, if the Company has so determined, the
Company in exchange for this Debenture may issue a new Debenture that reflects
the changed terms.
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<PAGE>
SECTION 8.04. Effect of Amendment. Upon the execution of any amendment
pursuant to the provisions hereof, this Debenture shall be and be deemed to be
modified and amended in accordance therewith and the respective rights,
limitations of rights, obligations and duties under this Debenture of the
Company and the Holders of this Debenture shall thereafter be determined,
exercised and enforced hereunder subject in all respects to such modifications
and amendments, and all the terms and conditions of any such amendment shall be
and be deemed to be part of the terms and conditions of this Debenture for any
and all purposes.
ARTICLE NINE
MISCELLANEOUS
SECTION 9.01. Notices. Any notices or other communications required or
permitted hereunder shall be in writing, and shall be sufficiently given if made
by hand delivery, by telecopier by a nationally recognized express courier or
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
if to the Company: Security Capital Group Incorporated
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Attn: Jeffrey A. Klopf
if to the Holder of
this Debenture: At its address listed in the Register.
Any notice or communication to the Company or the Holder of this Debenture
shall be deemed to have been given or made as of the date so delivered if
personally delivered; when receipt is acknowledged, if telecopied; one day
(three days in the case of international deliveries) after dispatch if sent by a
nationally recognized express courier for overnight delivery; and five calendar
days (seven days in the case of international deliveries) after mailing if sent
by registered or certified mail (except that a notice of change of address shall
not be deemed to have been given until actually received by the addressee).
Where this Debenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed by first-class mail, postage prepaid to such Registered
Holders as their names and addresses appear in the Register. Where this
Debenture provides for notice in any manner, such notice may be waived in
writing by the person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Holders shall be filed with the Company, but such filing shall not be
a condition precedent to the validity of any action taken in reliance upon such
waiver. In any case where notice to Holders is given by mail, neither the
failure to mail such notices nor any defect in any notice so mailed to any
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<PAGE>
particular Holder shall affect the sufficiency of such notice with respect to
other Holders, and any notice which is mailed in the manner herein provided
shall be conclusively presumed to have been duly given.
SECTION 9.02. Consents. Failure to respond to any notice given pursuant
to the terms of this Debenture shall not be deemed consent to any proposed
action described in such notice.
SECTION 9.03. Governing Law. This Debenture and the Debentures of any
series shall be governed and construed in accordance with the laws of the State
of Maryland without regard to principles of conflicts of law.
SECTION 9.04. No Adverse Interpretation of Other Agreements. This
Debenture may not be used to interpret any debenture, loan or debt agreement of
the Company or any of its Subsidiaries. Any such debenture, loan or debt
agreement may not be used to interpret this Debenture.
SECTION 9.05. No Recourse Against Others. A director, officer, employee,
stockholder or incorporator, as such, of the Company shall not have any
liability for any obligations of the Company under this Debenture or under any
other Debenture or for any claim based on, in respect of or by reason of such
obligations. The Holder of this Debenture, by accepting this Debenture, waives
and releases all such liability. Such waiver and release are part of the
consideration for the issuance of the Debentures.
SECTION 9.06. Successors. All agreements of the Company in this Debenture
shall bind its successor.
SECTION 9.07. Severability. In case any provision in this Debenture shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby, and a Holder shall have no claim therefor against any party hereto.
This Debenture shall be construed to give economic effect to the intent of the
parties hereto. Without limiting the foregoing, in the event and to the extent
that payment of any portion of Interest shall at any time be unlawful or
unenforceable, such portion of such Interest (including, without limitation, any
Interest as to which interest thereon is payable hereunder) as may be necessary
to give economic effect to the intent of the parties hereto, shall be deemed to
be principal.
SECTION 9.08. Replacement. In the event (a) any Holder exercises its
rights under a registration rights agreement with the Company to have this
Debenture registered under the Securities Act, or, (b) if earlier, at the
election of the Company at any time after the Company becomes listed for trading
on a national securities exchange, the Company will take all such actions
reasonably required to issue to the Holders, at no additional consideration, in
replacement of the Debentures, debentures of the Company of like principal
amount identical
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<PAGE>
in all material respects to the Debentures, to be issued pursuant to an
indenture to be qualified under the Trust Indenture Act of 1939, as amended, and
to be between the Company and a trustee to be selected by the Company that is
also qualified under the Trust Indenture Act of 1939, as amended.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed, and its corporate seal to be hereunto affixed and attested, all as of
the date first written above.
The principal amount of this Debenture is $_______________.
Dated as of __________ ___, 1996
SECURITY CAPITAL GROUP INCORPORATED
(SEAL) By:
--------------------------------
Jeffrey A. Klopf
Secretary
ATTEST:
- ---------------------------
Lucinda G. Marker
Assistant Secretary
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<PAGE>
EXHIBIT 4.8
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
WARRANT AGREEMENT
Dated as of ________ __, 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
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<C> <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
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<C> <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>
<PAGE>
WARRANT AGREEMENT
WARRANT AGREEMENT ("Agreement"), dated as of _______ __, 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 __, 1997
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 ________ 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
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<PAGE>
the first recital hereof and shall countersign and deliver Warrants as otherwise
provided in this Agreement.
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 _______ __, 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
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<PAGE>
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.
(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 ___ dollars ($____) 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).
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<PAGE>
"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.
"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
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<PAGE>
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 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.
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<PAGE>
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 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.
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<PAGE>
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 Certificates 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 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.
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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 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;
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(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,
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:
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E' = E x (O + N)
---------------
(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 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:
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<PAGE>
E' = E x M
---
M-F
where:
E' = the adjusted Exercise Rate;
E = the current Exercise Rate;
M = the Current Market Value; and
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
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<PAGE>
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 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).
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<PAGE>
(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 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.
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<PAGE>
(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 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.
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<PAGE>
(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 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
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<PAGE>
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 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
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(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 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,
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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.
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.
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(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 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.
-20-
<PAGE>
(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 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
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<PAGE>
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:
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
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<PAGE>
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 _______ __, 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 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.
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<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: ___________________
William D. Sanders
Chairman
THE FIRST NATIONAL BANK OF BOSTON
By:
---------------------------
Name:
Title:
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<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
[FACE]
CUSIP #_______
No. ___ _____ Warrants
Warrant Certificate
Security Capital Group Incorporated
This Warrant Certificate certifies that ____________, or registered
assigns, is the registered holder of ____________ Warrants expiring __________
__, 1998, unless extended (the "Warrants"), to purchase shares of the Class B
Common Stock, par value $.01 per share (the "Class B Shares"), of Security
Capital Group Incorporated, a Maryland corporation (the "Company"). Each
Warrant entitles the holder upon exercise to receive from the Company at any
time from 9:00 a.m. ________ __, 1997 to 5:00 p.m., New York, New York time on
__________ __, 1998, unless extended in accordance with the provisions of the
Warrant Agreement, one fully paid, registered and nonassessable Class B Share (a
"Warrant Share", which may also include any other securities or property
purchasable upon exercise of a Warrant, such adjustment and inclusion each as
provided in the Warrant Agreement) at the initial exercise price of ____ dollars
($_____) 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 _________ __, 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, as such term is used in the Warrant Agreement.
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:
THE FIRST NATIONAL BANK OF BOSTON
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
_______ __, 1998, unless extended, entitling the holder on exercise to receive
shares of Class B Common Stock of the Company (the "Class B Shares"), and are
issued pursuant to a Warrant Agreement dated as of _______ __, 1997 (the
"Warrant Agreement"), duly executed and delivered by the Company to The First
National Bank of Boston, as warrant agent (the "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 ________ __, 1997 until 5:00 p.m., New York, New York time, on
___________ __, 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
___________ __, 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 such
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
A-3
<PAGE>
Certificate a certificate or certificates representing the Warrant Shares to
which such holder is 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 number and kind of Warrant Shares for which a Warrant may be
exercised (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 ________________________ whose address is
__________________.
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 4.9
STOCK PURCHASE WARRANT
----------------------
The security represented by this certificate (the "Warrant") was originally
issued to Citibank, N.A. on June 30, 1994, has not been registered under
the Securities Act of 1933, as amended (the "Securities Act"). The
securities issuable upon exercise of this Warrant will not be registered
under the Securities Act and are subject to restrictions on transfer. This
Warrant and the securities issuable upon exercise hereof are subject to
restrictions on transfer set forth in the Articles of Incorporation of the
Company and in a Transfer and Registration Rights Agreement of even date
herewith. A complete statement of such restrictions is available to any
holder of this Warrant or the securities issuable upon exercise hereof upon
request and without charge. The Company reserves the right to refuse the
transfer of such securities unless presented with an opinion of counsel
reasonably satisfactory to the Company that such transfer does not require
registration under the Securities Act and is in accordance with the terms
of the Articles of Incorporation of the Company and the Transfer and
Registration Rights Agreement.
Date of Issuance: June 30, 1994 Certificate No. W-1
This Warrant is being issued to Citibank, N.A. ("Citibank") pursuant to
that certain Credit Enhancement Commitment, dated as of June 30, 1994 (the
"Credit Enhancement Commitment"), by and among Security Capital Atlantic
Incorporated, a Maryland corporation, Citibank and the other parties signatory
thereto.
For value received, Security Capital Realty Incorporated, a Maryland
corporation (the "Company"), hereby grants to Citibank or its Permitted
Transferees (the "Registered Holder") the right to purchase from the Company a
certain number of shares of its Common Stock, $.01 par value per share (the
"Common Stock"), at a price per share equal to $1,491.00 (such price as adjusted
and readjusted from time to time in accordance with Section 3 hereof, the
"Exercise Price"). The amount and kind of securities issuable pursuant to the
rights granted hereunder and the purchase price for such securities are subject
to adjustment pursuant to the provisions contained in this Warrant. Certain
capitalized terms used herein are defined in Section 1 hereof.
SECTION 1. Definitions. The following terms as used herein have meanings
set forth below:
"Base Shares" means 40,241.45 shares of Common Stock, less the aggregate
number of Base Shares, if any, previously included in an Exercise Agreement, as
adjusted from time to time pursuant to Section 3.
<PAGE>
"Common Stock" means, collectively, the Company's Common Stock, par value
$.01 per share.
"Common Stock Deemed Outstanding" means, at any given time, the number of
shares of Common Stock actually outstanding at such time, plus the number of
shares of Common Stock deemed to be outstanding pursuant to Sections 3B(i) and
3B(ii) hereof.
"Date of Issuance" shall mean June 30, 1994 regardless of the number of
times new certificates representing the unexpired and unexercised purchase
rights formerly represented by this Warrant shall be issued.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Issuable Shares" means the number of shares of Common Stock issuable to
the Registered Holder upon any exercise of this Warrant.
"Market Price" means as to any security the closing sales price if such
security is listed on a national securities exchange, or if not, is reported on
the NASDAQ National Market System, or if there have been no sales on any such
exchange or the NASDAQ National Market System on any day, the average of the
highest bid and lowest asked prices at the end of such day, or if on any day
such security is not so listed, the average of the representative bid and asked
prices quoted in the NASDAQ System as of 4:00 P.M., New York time, on such day,
or if on any day such security is not quoted in the NASDAQ System, the average
of the highest bid and lowest asked prices on such day in the domestic over-the-
counter market as reported by the National Quotation Bureau, Incorporated, or
any similar successor organization, in each such case averaged over a period of
21 days consisting of the day as of which "Market Price" is being determined and
the 20 consecutive business days prior to such day; provided that if such
security is listed on any national securities exchange the term "business days"
as used in this sentence means business days on which such exchange is open for
trading. If at any time such security is not listed on any national securities
exchange or the NASDAQ National Market System or quoted in the NASDAQ System or
the domestic over-the-counter market, the "Market Price" shall be the fair value
thereof determined in good faith by the Company's board of directors, which
shall be deemed to be no less than the price at which the Company shall have
most recently received subscriptions for at least $50 million of its Common
Stock or equivalent securities in a private placement to at least 5 accredited
investors who are not affiliated with the Company or one another.
"Permitted Transferees" means any Person to whom Citibank transfers any
portion of this Warrant in accordance with the terms of the Registration Rights
Agreement.
"Person" means an individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.
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<PAGE>
"Pro Rata Share" means, with respect to any Stockholder, such Stockholder's
proportionate ownership of all Common Stock.
"Public Offering" means the sale in an underwritten public offering
registered under the Securities Act of shares of Common Stock.
"Registration Rights Agreement" means that certain Transfer and
Registration Rights Agreement of even date herewith between the Company and
Citibank.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Security Capital Group Incorporated" means Security Capital Group
Incorporated, a Delaware corporation.
"Stockholders" means the holders of the shares of Common Stock.
"Underlying Shares" means (i) the Common Stock issued or issuable upon
exercise of this Warrant and (ii) any securities issued or issuable with respect
to the securities referred to in clause (i) by way of any stock split, stock
dividend, recapitalization or otherwise.
"Warrants" means all warrants representing portions of the purchase rights
represented by this Warrant held by any Registered Holder.
SECTION 2. Exercise of the Warrant.
2A. Exercise Period. The Registered Holder may exercise, in whole or in
part, the purchase rights represented by this Warrant at any time and from time
to time during the period commencing on the Date of Issuance and ending on March
31, 1998 (the "Expiration Date"). In the event that the Company's Common Stock
is not registered pursuant to Section 12(b) or 12(g) under the Exchange Act on
or prior to the Expiration Date, this Warrant shall automatically, and without
any action on the part of the Registered Holder, be deemed to have been
exercised and the Company shall issue shares of Common Stock to the Registered
Holder in accordance with paragraph 2B as if the Registered Holder had elected
to exercise this Warrant in accordance with subparagraph (ii) thereof.
2B. Exercise Procedure.
(i) This Warrant shall be deemed to have been exercised on the date on
which the Company has received all of the following items (the "Exercise Time"):
(a) the original executed copy of this Warrant;
-3-
<PAGE>
(b) a completed Exercise Agreement, in the form of Exhibit I hereto as
described in paragraph 2C below;
(c) if the Registered Holder is not Citibank, an Assignment in the
form of Exhibit II hereto evidencing the assignment of this Warrant; and
(d) subject to clause (ii) below, a certified or cashier's check in an
amount equal to the Exercise Price then in effect multiplied by the number
of Base Shares as to which the Registered Holder is exercising this
Warrant.
Upon exercise of this Warrant in accordance with this paragraph 2B(i), the
number of Issuable Shares shall be equal to the number of Base Shares as to
which the Registered Holder is exercising this Warrant.
(ii) Notwithstanding clause 2b(i)(d) above, at the election of the
Registered Holder, which election shall be set forth in the Exercise Agreement,
the number of Issuable Shares shall be equal to the quotient obtained by
dividing (a) the product of (x) the Market Price on such Exercise Time less the
Exercise Price, multiplied by (y) the number of Base Shares as to which the
Registered Holder elects to be issued under this clause (ii) (which election
shall reduce the number of Base Shares available for any subsequent exercise),
divided by (b) the Market Price on such Exercise Time. The number of shares
issued pursuant to this clause (ii) shall be excluded from the calculation of
the amount paid pursuant to clause 2B(i)(d) above.
(iii) Certificates for Issuable Shares shall be delivered by the Company
or its transfer agent to the Registered Holder within five business days after
the Exercise Time. Unless this Warrant has expired or all of the purchase
rights represented hereby have been exercised, the Company shall prepare a new
Warrant, substantially identical hereto, representing the rights formerly
represented by this Warrant which have not expired or been exercised and shall,
within such five-day period, deliver such new Warrant to the Registered Holder
exercising a portion of the purchase rights represented by this Warrant.
(iv) The Issuable Shares shall be deemed to have been issued to the
Registered Holder at the Exercise Time, and the Registered Holder shall be
deemed for all purposes to have become the record holder of such Issuable Shares
at the Exercise Time.
(v) The issuance of certificates for Issuable Shares shall be made without
charge to the Registered Holder for any issuance tax in respect thereof or other
cost incurred by the Company in connection with such exercise and the related
issuance of Issuable Shares.
(vi) The Company shall not close its books against the transfer of this
Warrant or of any Issuable Shares in any manner that interferes with the timely
exercise of this Warrant. The Company shall from time to time take all such
action as may be necessary to assure that the par
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<PAGE>
value per share of the unissued Common Stock issuable upon exercise of this
Warrant is at all times equal to or less than the Exercise Price then in effect.
(vii) The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock solely for the purpose of
issuance upon the exercise of this Warrant, such number of shares of Common
Stock issuable upon the exercise of all this Warrant. All Issuable Shares
shall, when issued, be duly and validly issued, and upon exercise of this
Warrant in accordance with the terms hereof, shall be fully paid and
nonassessable and free from all taxes, liens and charges. The Company shall
take all such actions as may be necessary to assure that all such Issuable
Shares of Common Stock may be issued without violation of any applicable law or
governmental regulation or any requirements of any domestic securities exchange
upon which shares of Common Stock are listed (except for official notice of
issuance, which shall be immediately delivered by the Company upon each such
issuance).
(viii) Upon any exercise of this Warrant, the Company may require
customary representations from the Registered Holder to assure that the issuance
of the Common Stock hereunder shall not require registration or qualification
under the Securities Act or any state securities laws.
2C. Restrictions on Transfer of Underlying Shares. The Registered Holder
shall not sell, transfer, assign, pledge or otherwise dispose of any interest in
this Warrant or any Underlying Shares, except to a Permitted Transferee or
pursuant to the provisions of the Registration Rights Agreement and the Articles
of Incorporation of the Company.
SECTION 3. Adjustment of Exercise Price and Number of Base Shares. In
order to prevent dilution of the rights granted under this Warrant, the Exercise
Price and number of Base Shares shall be subject to adjustment from time to time
as provided in this Section 3.
3A. Issuance of Stock. If and whenever on or after the Date of Issuance
of this Warrant, the Company issues or sells, other than in a Public Offering
and other than upon exercise of options to subscribe for or to purchase shares
of Common Stock granted by the Company to employees of the Company pursuant to
employee benefit plans or arrangements approved by the Company's board of
directors, any shares of Common Stock for a consideration per share less than
the Exercise Price in effect immediately prior to such time, then immediately
upon such issue or sale the Exercise Price shall be reduced to the Exercise
Price determined by dividing (a) the sum of (x) the product derived by
multiplying the Exercise Price in effect immediately prior to such issue or sale
times the number of shares of Common Stock Deemed Outstanding immediately prior
to such issue or sale, plus (y) the consideration, if any, received by the
Company upon such issue or sale, by (b) the number of shares of Common Stock
Deemed Outstanding immediately after such issue or sale. Upon each such
adjustment of the Exercise Price hereunder, the number of Base Shares shall be
adjusted to the number of Base Shares determined by multiplying the Exercise
Price in effect immediately prior to such adjustment by
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<PAGE>
the number of Base Shares immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such adjustment.
3B. Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under paragraph 3A, the following shall
be applicable:
(i) Issuance of Rights or Options. If the Company in any manner grants any
rights or options to subscribe for or to purchase Common Stock or any stock or
other securities convertible into or exchangeable for Common Stock, other than
to employees of the Company pursuant to employee benefit plans or arrangements
approved by the Company's board of directors (such rights or options being
herein called "Options" and such convertible or exchangeable stock or securities
being herein called "Convertible Securities") and the price per share for which
Common Stock is issuable upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities is less than the Exercise Price in
effect immediately prior to the time of the granting of such Options, then the
total number of shares of Common Stock issuable upon the exercise of such
Options or upon conversion or exchange of the total amount of such Convertible
Securities issued upon the exercise of such Options shall be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For purposes of this paragraph, the "price per share for which Common
Stock is issuable upon exercise of such Options or upon conversion or exchange
of such Convertible Securities" is determined by dividing (A) the total amount,
if any, received or receivable by the Company as consideration for the granting
of such Options, plus the aggregate amount of additional consideration payable
to the Company upon the exercise of all such Options, plus in the case of such
Options which relate to Convertible Securities, the aggregate amount of
additional consideration, if any, payable to the Company upon the issuance or
sale of such Convertible Securities and the conversion or exchange thereof, by
(B) the total maximum number of shares of Common Stock issuable upon exercise of
such Options or upon the conversion or exchange of all such Convertible
Securities issued upon the exercise of such Options. No further adjustment of
the Exercise Price shall be made upon the actual issuance of Common Stock or of
such Convertible Securities upon the exercise of such Options or upon the actual
issuance of Common Stock upon conversion or exchange of such Convertible
Securities.
(ii) Issuance of Convertible Securities. If the Company in any manner
issues or sells any Convertible Securities (other than pursuant to a dividend
payable to all Stockholders in convertible debentures of the Company in
accordance with their Pro Rata Share) and the price per share for which Common
Stock is issuable upon such conversion or exchange is less than the Exercise
Price in effect immediately prior to the time of such issue or sale, then the
number of shares of Common Stock issuable upon conversion or exchange of such
Convertible Securities shall be deemed to be outstanding and to have been issued
and sold by the Company for such price per share. For the purposes of this
paragraph, the "price per share for which Common Stock is issuable upon such
conversion or exchange" is determined by dividing (A) the total amount received
or receivable by the Company as consideration for the issue or sale of such
Convertible Securities, plus the aggregate amount of additional consideration,
if any, payable
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<PAGE>
to the Company upon the conversion or exchange thereof, by (B) the total number
of shares of Common Stock issuable upon the conversion or exchange of all such
Convertible Securities. No further adjustment of the Exercise Price shall be
made upon the actual issue of Common Stock upon conversion or exchange of such
Convertible Securities. In addition, if any such issue or sale of such
Convertible Securities is made upon exercise of any Options for which
adjustments of the Exercise Price had been or are to be made pursuant to other
provisions of this paragraph 3B, no further adjustment of the Exercise Price
shall be made by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate. If the purchase price
provided for in any Options, the additional consideration, if any, payable upon
the issue, conversion or exchange of any Convertible Securities, or the rate at
which any Convertible Securities are convertible into or exchangeable for Common
Stock change at any time, the Exercise Price in effect and the number of shares
of Common Stock issuable hereunder at the time of such change shall be
readjusted to the Exercise Price and the number of shares that would have been
in effect at such time had such Options or Convertible Securities still
outstanding provided for such changed purchase price, additional consideration
or changed conversion rate, as the case may be, at the time initially granted,
issued or sold; provided that if such adjustment would result in an increase of
the Exercise Price then in effect, such adjustment shall not be effective until
30 days after written notice thereof has been given by the Company to all
Registered Holders.
(iv) Treatment of Expired Options and Unexercised Convertible Securities.
Upon the expiration of any Option or the termination of any right to convert or
exchange any Convertible Securities without the exercise of such Option or
right, the Exercise Price then in effect and the number of Base Shares shall be
readjusted to the Exercise Price and the number of Base Shares that would have
been in effect at the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding immediately prior to such
expiration or termination, never been issued; provided that if such expiration
or termination would result in an increase in the Exercise Price then in effect,
such adjustment shall not be effective until 30 days after written notice
thereof has been given to all Registered Holders.
(v) Calculation of Consideration Received. If any Common Stock, Options or
Convertible Securities are issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor shall be deemed to be the net
amount received by the Company therefor. In case any Common Stock, Options or
Convertible Securities are issued or sold for a consideration that consists of
securities, the amount of consideration received by the Company shall be the
Market Price thereof as of the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash or securities, the fair value of such consideration shall be
determined in good faith by the Company's board of directors.
(vi) Integrated Transactions. In case any Option is issued in connection
with the issue or sale of other securities of the Company, together comprising
one integrated transaction in which no specific consideration is allocated to
such Options by the parties thereto, the Options
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<PAGE>
shall be deemed to have been issued for consideration determined in good faith
by the Company's board of directors.
(vii) Treasury Shares. The number of shares of Common Stock outstanding
at any given time does not include shares owned or held by or for the account of
the Company or any subsidiary, and the disposition of any shares so owned or
held shall be considered an issue or sale of Common Stock.
(viii) Record Date. If the Company takes a record of the holders of
Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (B) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
3C. Subdivision or Combination of Common Stock. If the Company at any
time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of Base Shares shall
be proportionately increased. If the Company at any time combines (by reverse
stock split or otherwise) one or more classes of its outstanding shares of
Common Stock into a smaller number of shares, the Exercise Price in effect
immediately prior to such combination shall be proportionately increased and the
number of Base Shares shall be proportionately decreased.
3D. Minimum Adjustment. In the event that any adjustment made pursuant to
this Section 3 would result in an adjustment to the Exercise Price of less than
$20.00 per share of Common Stock, no such adjustment shall be made and such
adjustment shall be carried forward and shall be made at the time and together
with the next subsequent adjustment which, together with any adjustments so
carried forward, shall amount to an adjustment in the Exercise Price of $20.00
or more per share of Common Stock; provided, that upon any adjustment of the
Exercise Price resulting from (i) the declaration of a dividend upon, or the
making of any distribution in respect of, any securities of the Company payable
in Common Stock or Convertible Securities or (ii) the reclassification, by
subdivision, combination or otherwise, of the outstanding shares of Common Stock
into a greater or smaller number of shares, the $20.00 per share number (or such
number as last adjusted) shall be proportionately adjusted.
3E. Reorganization, Reclassification, Consolidation, Merger or Sale. Any
recapitalization, reorganization, reclassification, consolidation with or merger
into another Person, sale of all or substantially all of the Company's assets to
another Person or other transaction that is effected in such a way that holders
of Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets of another Person with
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<PAGE>
respect to or in exchange for Common Stock is referred to herein as "Organic
Change." Prior to the consummation of any Organic Change, the Company shall make
appropriate provision (in form and substance satisfactory to the Registered
Holders representing a majority of the Common Stock issuable upon exercise of
the Warrants then outstanding) to insure that the Registered Holders shall
thereafter have the right to acquire and receive in lieu of or addition to (as
the case may be) the shares of Common Stock immediately theretofore issuable
upon the exercise of each Warrant, such shares of stock, securities or assets as
may be issued or payable with respect to or in exchange for the number of shares
of Common Stock immediately theretofore issuable upon exercise of each Warrant
had such Organic Change not taken place. In any such case, the Company shall
make appropriate provision (in form and substance satisfactory to the Registered
Holders representing a majority of the Common Stock issuable upon exercise of
the Warrants then outstanding) with respect to the Registered Holders' rights
and interests to insure that the provisions of this Section 3 shall thereafter
be applicable to each Warrant (including, in the case of any such consolidation,
merger or sale in which the successor entity or purchasing entity is other than
the Company, an immediate adjustment of the Exercise Price to the value for the
Common Stock reflected by the terms of such consolidation, merger or sale, and a
corresponding immediate adjustment in the number of Base Shares, if the value so
reflected is less than the Exercise Price in effect immediately prior to such
consolidation, merger or sale). The Company shall not effect any such
consolidation, merger or sale, unless prior to the consummation thereof, the
successor entity (if other than the Company) resulting from consolidation or
merger or the corporation purchasing such assets assumes by written instrument
(in form and substance satisfactory to the Registered Holders representing a
majority of the Common Stock issuable upon exercise of the Warrants then
outstanding), the obligation to deliver to the Registered Holders such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to acquire.
3F. Certain Events. If any event occurs of the type contemplated by the
provisions of this Section 3 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company's
board of directors shall make an appropriate adjustment in the Exercise Price
and the number of Base Shares so as to protect the rights of the Registered
Holder; provided that no such adjustment shall increase the Exercise Price or
decrease the number of Base Shares as otherwise determined pursuant to this
Section 3.
3G. Exceptions. Notwithstanding anything herein to the contrary, no
adjustment to the Exercise Price or number of Base Shares shall be made in
connection with (i) any merger of Security Capital Group Incorporated with and
into the Company and (ii) any distribution of convertible debentures by the
Company as a dividend to all Stockholders in accordance with their Pro Rata
Share; provided, however, that in the event of a distribution in accordance with
clause (ii) of this paragraph 3G, the Registered Holder shall be entitled to
receive upon any exercise of this Warrant, that principal amount of convertible
debentures that would have been issuable to the Registered Holder with respect
to the number of Issuable Shares to which such exercise relates, had the
Registered Holder exercised this Warrant with respect to such number
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<PAGE>
of Issuable Shares prior to the record date for determination of Stockholders
entitled to such distribution of convertible debentures.
3H. Notices. Immediately upon any adjustment of the Exercise Price, the
Company shall give written notice thereof to the Registered Holder, setting
forth in reasonable detail and certifying the calculation of such adjustment.
The Company shall give written notice to the Registered Holder at least 20 days
prior to the date on which the Company closes its books or takes a record (A)
with respect to any dividend or distribution upon the Common Stock, (B) with
respect to any pro rata subscription offer to holders of Common Stock or (C) for
determining rights to vote with respect to any Organic Change, dissolution or
liquidation. The Company shall also give written notice to the Registered Holder
at least 20 days prior to the date on which any Organic Change, dissolution or
liquidation shall take place.
SECTION 4. No Voting Rights; Limitations of Liability. This Warrant shall
not entitle the holder hereof to any voting rights or other rights as a
Stockholder of the Company. No provision hereof, in the absence of affirmative
action by the Registered Holder to purchase Common Stock, and no enumeration
herein of the rights or privileges of the Registered Holder shall give rise to
any liability of such holder for the Exercise Price of Common Stock issuable by
exercise hereof or as a Stockholder of the Company.
SECTION 5. Information. So long as any Warrants remain outstanding, the
Company will furnish to the Registered Holder (at the same time as made
available generally to Stockholders) annual and quarterly financial reports. The
Registered Holder shall be entitled, upon reasonable notice, to ask questions of
management of the Company and to receive copies of all materials made available
to the board of directors of the Company.
SECTION 6. Irrevocable Proxy and Voting Agreement.
6A. Irrevocable Proxy. The Registered Holder agrees to, and hereby grants
to the board of directors of the Company as constituted from time to time,
acting by a majority thereof, with full power of substitution, an irrevocable
proxy pursuant to the provisions of Section 2-507 of the General Corporation Law
of the State of Maryland to vote, or to execute and deliver written consents or
otherwise act with respect to all Underlying Shares and all other shares of
Common Stock now owned or hereafter acquired by the Registered Holder as fully,
to the same extent and with the same effect as the Registered Holder might or
could do under any applicable laws or regulations governing the rights and
powers of shareholders of a Maryland corporation, in each case solely with
respect to the merger of Security Capital Group Incorporated with and into the
Company; provided, that in connection with such merger, the proxy shall be voted
by the board of directors for or against the merger in the same proportion as
voted by other Stockholders of the Company. This irrevocable proxy is given in
consideration of the sale of Warrants to the Registered Holder, is coupled with
an interest and shall be irrevocable to the full extent permitted by law. This
irrevocable proxy revokes any other proxy granted by the
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<PAGE>
Registered Holder at any time with respect to such Underlying Shares and shares
of Common Stock now owned or hereafter acquired.
6B. Survivability of Proxy. This irrevocable proxy shall survive and not be
affected by the subsequent death, disability, incapacity, dissolution,
bankruptcy or insolvency of the Registered Holder. This irrevocable proxy shall
remain in full force and effect and be enforceable against any donee, transferee
or assignee of the Registered Holder's Underlying Shares and shares of Common
Stock now or hereafter acquired.
6C. Voting Agreement. In the event that this irrevocable proxy shall be
deemed unenforceable against the Registered Holder, the Registered Holder hereby
agrees with all present and future holders of shares of Common Stock to vote all
of its Underlying Shares or shares of Common Stock now own or hereafter
acquired, or cause all of its Underlying Shares or shares of Common Stock now
owned or hereafter acquired to be voted, as directed by the board of directors
of the Company as constituted from time to time, acting by a majority thereof,
but solely in respect of voting on matters enumerated in paragraph 6A hereof as
having been granted by proxy. In discharging their duties set forth in this
paragraph, the board of directors of the Company may rely in good faith upon the
advice of independent public accountants, legal counsel or other experts or
professionals regarding matters within the expertise of such professionals.
SECTION 7. Restriction on Transfer. (a) This Warrant and all rights
hereunder are not transferable, in whole or in part, by Citibank or any
Permitted Transferee other than to any Permitted Transferee or pursuant to the
provisions of the Registration Rights Agreement upon the surrender of this
Warrant and a properly completed Assignment at the principal office of the
Company. Any other transfer of this Warrant by Citibank or a Permitted
Transferee shall be null and void.
(b) If this Warrant or any portion thereof is validly transferred to any
Person other than Citibank or a Permitted Transferee (a "Subsequent Holder")
pursuant to the provisions of the Registration Rights Agreement, then, except in
the case of a transfer in accordance with clauses (c) or (d) below, no transfer
by a Subsequent Holder shall be effected on the books of the Company unless the
Company shall have received an opinion of counsel reasonably satisfactory to the
Company that such transfer may be effected without registration or qualification
under any federal or state law.
(c) If at a time of the transfer there shall be available an exemption (the
"Institutional Purchaser Exemption") under the Securities Act permitting a
Subsequent Holder to transfer this Warrant without registration thereof under
the Securities Act to a Person within a class of institutional purchasers
specified under the Securities Act (a "Permitted Institution") (including,
without limitation, Persons who are "accredited investors" as defined in Rule
501(a) of Regulation D under the Securities Act), then in lieu of the opinion of
counsel required by Section 7(b), the transferor may provide to the Company (i)
evidence from the proposed
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<PAGE>
transferee reasonably satisfactory to the Company to establish the proposed
transferee's status as a Permitted Institution, and (ii) such other evidence as
the Company may deem reasonably necessary in order to establish that any other
requirements of the Institutional Purchaser Exemption have been satisfied.
(d) Without any opinion of counsel, any Subsequent Holder may transfer all
or part of the Warrant to any Person pursuant to an effective registration
statement or Rule 144 or Rule 144A under the Securities Act.
SECTION 8. Replacement. Upon receipt of an affidavit of the Registered
Holder of the ownership and the loss, theft, destruction or mutilation of any
certificate evidencing this Warrant, and in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the Company
(provided that if the holder is a financial institution or other institutional
investor its own agreement shall be satisfactory), or, in the case of any such
mutilation upon surrender of such certificate, the Company shall (at its
expense) execute and deliver in lieu of such certificate a new certificate of
like kind representing the same rights represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of such lost, stolen,
destroyed or mutilated certificate.
SECTION 9. Notices. Except as otherwise expressly provided herein, all
notices referred to in this Warrant shall be in writing and shall be delivered
personally, sent by reputable express courier service (charges prepaid) or sent
by registered or certified mail, return receipt requested, postage prepaid and
shall be deemed to have been given when so delivered, sent or deposited in the
U.S. Mail (i) to the Company, at its principal executive offices and (ii) to the
Registered Holder of this Warrant, at such holder's address as it appears in the
records of the Company (unless otherwise indicated by any such holder).
SECTION 10. Amendment and Waiver. Except as otherwise provided herein, the
provisions of this Warrant may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the Registered
Holders representing a majority of the Common Stock issuable upon exercise of
the Warrants then outstanding.
SECTION 11. Descriptive Headings. The descriptive headings of the several
Sections and paragraphs of this Warrant are inserted for convenience only and do
not constitute a part of this Warrant.
SECTION 12. Governing Law. The construction, validity and interpretation of
this Warrant shall be governed by the internal law, and not the conflicts law,
of the State of Maryland.
* * * *
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated the Date of Issuance hereof.
SECURITY CAPITAL REALTY INCORPORATED
By: /s/ Karen J. Knudson
----------------------------
Name: Karen J. Knudson
Title: Senior Vice President
[SEAL]
Attest:
/s/ Paul E. Szurek
- --------------------------
Secretary
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<PAGE>
EXHIBIT I
EXERCISE AGREEMENT
------------------
To: Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W-____), hereby irrevocably exercises the Warrant with
respect to ______ Base Shares (as defined in the Warrant) and if such exercise
is not made with respect to all Base Shares as provided in the Warrant, the
undersigned acknowledges that the Company is authorized to make appropriate
adjustments on its records reflecting the decrease in the number of Base Shares
subject to the Warrant. Absent manifest error, any such adjustment shall be
binding upon the undersigned.
Strike one of the following:
. This exercise is being made in accordance with paragraph 3B(i) of the
Warrant and is accompanied by a certified or cashier's check for the
full Exercise Price.
. This exercise is being made in accordance with paragraph 3B(ii) of the
Warrant and therefore is not accompanied by payment of the Exercise
Price.
By executing this Exercise Agreement, the undersigned (i) acknowledges that
it has read, and agrees to be bound by, paragraph 2C and Section 6 of such
Warrant and (ii) represents and warrants that (A) it is acquiring such shares of
Common Stock for its own account and not with a view to or for sale in
connection with any distribution thereof within the meaning of the Securities
Act of 1933, as amended (the "Securities Act"), (B) it has sufficient knowledge
and experience in financial and business matters to enable it to evaluate the
merits and risks of an investment in such shares of Common Stock and has the
ability to bear the economic risk of acquiring such shares of Common Stock and
(C) it understands that such shares of Common Stock have not been registered
under the Securities Act or any states securities laws and cannot be resold
without registration thereunder or exemption therefrom.
---------------------------------
Registered Holder
By:
----------------------------
Its:
----------------------------
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<PAGE>
EXHIBIT II
ASSIGNMENT
----------
FOR VALUE RECEIVED, ___________________ hereby sells, assigns and transfers
to the Assignee set forth below all of the rights of the Undersigned under the
attached Warrant (Certificate No. W-___) with respect to the number of shares of
Common Stock set forth below:
Name of Assignee Address No. of Base Shares
---------------- ------- ------------------
Dated: CITIBANK, N.A.
By:
-------------------------------
Name
Title
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<PAGE>
EXHIBIT 10.28
SECURITY CAPITAL GROUP INCORPORATED
1995 OPTION PLAN
(As Amended and Restated Effective as of December 3, 1996)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
SECTION 1 GENERAL.................................................. 1
1.1 Purpose................................................ 1
1.2 Participation.......................................... 1
1.3 Prior Option Grants.................................... 1
SECTION 2 OPTIONS.................................................. 2
2.1 Definition............................................. 2
2.2 Eligibility............................................ 2
2.3 Price.................................................. 2
2.4 Exercise............................................... 3
2.5 Post-Exercise Limitations.............................. 4
2.6 Expiration Date........................................ 4
2.7 Reload Provision....................................... 5
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 3 OPERATION AND ADMINISTRATION.................................. 5
3.1 Term of Plan................................................ 5
3.2 Shares Subject to Plan...................................... 5
3.3 Adjustments to Shares....................................... 6
3.4 Change in Control........................................... 8
3.5 Limit on Distribution....................................... 9
3.6 Withholding................................................. 10
3.7 Transferability............................................. 10
3.8 Notices..................................................... 11
3.9 Form and Time of Elections.................................. 11
3.10 Agreement With Company...................................... 11
3.11 Limitation of Implied Rights................................ 11
3.12 Evidence.................................................... 12
3.13 Action by Company or Related Company........................ 12
3.14 Gender and Number........................................... 12
SECTION 4 COMMITTEE..................................................... 12
4.1 Administration.............................................. 12
4.2 Selection of Committee...................................... 12
4.3 Powers of Committee......................................... 12
4.4 Delegation by Committee..................................... 13
4.5 Information to be Furnished to Committee.................... 13
4.6 Liability and Indemnification of Committee.................. 13
SECTION 5 AMENDMENT AND TERMINATION..................................... 14
</TABLE>
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
1995 OPTION PLAN
-----------------------------------
(As Amended and Restated Effective as of December 3, 1996)
SECTION 1
---------
GENERAL
-------
1.1. Purpose. The Security Capital Group Incorporated 1995 Option Plan
-------
(the "Plan") was established by Security Capital Group Incorporated (the
"Company") effective January 1, 1995 to attract and retain for the benefit of
the Company and the Related Companies (as defined below) those highly competent
employees upon whose judgment, initiative, leadership and continued efforts the
success of the Company in large measure depends. The provisions that follow
constitute an amendment and restatement of the Plan as in effect immediately
prior to December 3, 1996, the "Effective Date" of the Plan as set forth herein.
The term "Related Company" means any company during any period in which it is a
"subsidiary corporation" (as that term is defined in section 424(f) of the
Internal Revenue Code of 1986, as amended (the "Code")) with respect to the
Company or any affiliate of the Company which is designated as a Related Company
by the Committee.
1.2. Participation. Subject to the terms and conditions of the Plan, the
-------------
Committee (as described in Section 4) shall determine and designate, from time
to time, from among the Eligible Individuals (as defined below), those persons
who will be granted Options under Section 2, and thereby become "Participants"
in the Plan. In the discretion of the Committee, and subject to the terms of
the Plan, more than one Option may be granted to a Participant. Except as
otherwise agreed by the Company and the Participant, or except as otherwise
provided in the Plan, an Option grant under the Plan shall not affect any
previous grant under the Plan or an award under any other plan maintained by the
Company or the Related Companies. For purposes of the Plan, the term "Eligible
Individual" shall mean any key employee of the Company or a Related Company.
1.3. Prior Option Grants. Except as specifically provided herein, the
-------------------
terms of any Option granted prior to the Effective Date shall be governed by the
applicable Option Agreement and the terms of the Plan prior to the Effective
Date.
<PAGE>
SECTION 2
---------
OPTIONS
-------
2.1. Definitions. The grant of an "Option" under this Section 2 entitles
-----------
the Participant to purchase shares of common stock of the Company ("Shares") at
a price fixed at the time the Option is granted, subject to the terms of this
Section. Options granted under this Section may be either Incentive Stock
Options or Non-Qualified Stock Options, as determined in the discretion of the
Committee. An "Incentive Stock Option" is an Option that is intended to satisfy
the requirements applicable to an "incentive stock option" described in section
422 of the Code. A "Non-Qualified Stock Option" is an Option that is not
intended to be an Incentive Stock Option.
2.2. Eligibility. The Committee shall designate the Participants to whom
-----------
Options are to be granted under this Section and shall determine the number of
Shares subject to each such Option. To the extent that the aggregate Fair
Market Value (defined below) of the Shares with respect to which Incentive Stock
Options are exercisable for the first time by any individual during any calendar
year (under all plans of the Company and all related companies within the
meaning of section 424(f) of the Code) exceeds $100,000, such options shall be
treated as Non-Qualified Stock Options, to the extent required by section 422 of
the Code.
2.3. Price. The determination and payment of the purchase price of a
-----
Share under each Option granted under this Section shall be subject to the
following:
(a) The purchase price shall be established by the Committee at the time
the Option is granted; provided, however, that in no event shall such
price be less than the greater of the Fair Market Value of a Share on
the date the Option is granted or the par value of a Share.
(b) Subject to the following provisions of this subsection, the full
purchase price of each Share purchased upon the exercise of any Option
shall be paid at the time of such exercise and, as soon as practicable
thereafter, a certificate representing the Shares so purchased shall
be delivered to the person entitled thereto.
(c) The purchase price shall be payable in cash or in Shares or in the
Company's 12% Convertible Subordinated Debentures due 2014
("Debentures") (valued at Fair Market Value as of the day of
exercise), in either case that have been held by the Participant at
least six
2
<PAGE>
months, or in any combination thereof, as determined by the Committee.
(d) A Participant may elect to pay the purchase price upon the exercise of
an Option through a cashless exercise arrangement to the extent
provided by the Committee.
(e) The "Fair Market Value" of a Share as of any date shall be determined
in accordance with the following rules:
(i) If the Shares are at the time listed or admitted to trading on
any stock exchange, then the Fair Market Value shall be the
closing price per Share on such date on the principal exchange on
which the Shares are then listed or admitted to trading or, if no
such sale is reported on that date, on the last preceding date on
which a sale was so reported.
(ii) If the Shares are not at the time listed or admitted to trading
on a stock exchange, the Fair Market Value shall be the average
of the closing reported bid and asked prices regular way of the
Shares on the date in question in the over-the-counter market, as
such prices are reported in a publication of general circulation
selected by the Committee and regularly reporting the market
price of Shares in such market.
(iii) If the Shares are not listed or admitted to trading on any stock
exchange or traded in the over-the-counter market, the Fair
Market Value shall be as determined by the Committee in good
faith.
The "Fair Market Value" of Debentures as of any date means an amount
equal to the Fair Market Value on such date of the Shares into which
the Debentures are convertible regardless of whether such Debentures
are convertible on such date.
2.4. Exercise. Except as otherwise expressly provided in the Plan, an
--------
Option granted under this Section shall be exercisable in accordance with the
following terms of this subsection:
(a) The terms and conditions relating to exercise of an Option shall be
established by the Committee, and may include, without limitation,
conditions relating to completion of a specified period of service
(subject to paragraph (b) below), achievement of performance
3
<PAGE>
standards prior to exercise of the Option or achievement of stock
ownership objectives by the Participant. The Committee, in its sole
discretion, may accelerate the vesting of any Option under
circumstances designated by it at the time the Option is granted or
thereafter.
(b) No Option may be exercised by a Participant after the Expiration Date
(as defined in subsection 2.6) applicable to that Option.
2.5. Post-Exercise Limitations. The Committee, in its discretion, may
-------------------------
impose such restrictions on Shares acquired pursuant to the exercise of an
Option as it determines to be desirable, including, without limitation,
restrictions relating to disposition of the Shares and forfeiture restrictions
based on service, performance, stock ownership by the Participant and such other
factors as the Committee determines to be appropriate.
2.6. Expiration Date. The "Expiration Date" with respect to an Option
---------------
means the date established as the Expiration Date by the Committee at the time
of the grant; provided, however, that the Expiration Date with respect to any
Option shall not be later than the earliest to occur of:
(a) the ten-year anniversary of the date on which the Option is granted;
(b) if the Participant's Date of Termination occurs by reason of death,
Disability (defined below) or Retirement (defined below), the one-year
anniversary of such Date of Termination;
(c) if the Participant's Date of Termination occurs for reasons other than
death, Disability, Retirement or Cause (defined below), the three-
month anniversary of such Date of Termination; or
(d) if the Participant's Date of Termination occurs for reasons of Cause,
such Date of Termination.
For purposes of the Plan, a Participant's "Date of Termination" shall be the
date on which he or she both ceases to be an employee of the Company and the
Related Companies, regardless of the reason for the cessation; provided that a
"Date of Termination" shall not be considered to have occurred during the period
in which the reason for the cessation of services is a leave of absence approved
by the Company or the Related Company which was the recipient of the
Participant's services. Except as otherwise provided by the Committee, a
Participant shall be considered to have a "Disability" during the period in
which he
4
<PAGE>
or she is unable, by reason of a medically determinable physical or mental
impairment, to engage in the material and substantial duties of his or her
regular occupation, which condition is expected to be permanent. "Retirement"
shall the occurrence of a Participant's Date of Termination, other than for
Cause, death or Disability, after providing at least five years of service to
the Company or Related Companies if the Participant has attained at least age
60.
For purposes of the Plan, "Cause" shall mean, in the reasonable judgment of the
Committee (i) the willful and continued failure by the Participant to
substantially perform his or her duties with the Company or any Related Company
after written notification by the Company or Related Company, (ii) the willful
engaging by the Participant in conduct which is demonstrably injurious to the
Company or any Related Company, monetarily or otherwise, or (iii) the engaging
by the Participant in egregious misconduct involving serious moral turpitude.
For purposes hereof, no act, or failure to act, on the Participant's part shall
be deemed "willful" unless done, or omitted to be done, by the Participant not
in good faith and without reasonable belief that such action was in the best
interest of the Company or Related Company.
2.7. Reload Provision. The Committee, in its sole discretion, shall
----------------
determine if an Option awarded under the Plan shall have the right to receive a
reload option under this subsection 2.7. Solely to the extent determined by the
Committee, in the event a Participant exercises an Option and satisfies his or
her minimum tax withholding obligation by having Shares otherwise issuable upon
such exercise withheld, the Participant shall be issued a new Option to purchase
additional Shares equal to the number of Shares withheld to satisfy such
withholding taxes. Such new Option shall have an exercise price equal to the
Fair Market Value per Share on the date of such exercise, shall first be
exercisable six months from the date of such exercise and shall have an
Expiration Date on the same date as the Expiration Date of the original Option
so exercised. To the extent that a Participant exercises an Option awarded
prior to the Effective Date and elects to have minimum withholding obligations
upon such exercise satisfied by the withholding of Debentures otherwise issuable
upon such exercise, the new Option awarded under this subsection shall be for an
equivalent number of Shares.
SECTION 3
---------
OPERATION AND ADMINISTRATION
----------------------------
3.1. Term of Plan. The Plan shall be unlimited in duration and, in the
------------
event of Plan termination, shall remain in effect as
5
<PAGE>
long as any Options awarded under it are outstanding. No Incentive Stock Option
may granted under the Plan more than 10 years after the date the Plan was
adopted.
3.2. Shares Subject to Plan. The Shares with respect to which Options may
----------------------
be granted under the Plan shall be Shares currently authorized but unissued or
currently held or subsequently acquired by the Company as treasury shares,
including Shares purchased in the open market or in private transactions.
Subject to the provisions of subsection 3.3, the number of Shares which may be
issued with respect to Options awarded under the Plan since its establishment
shall not exceed 139,716 in the aggregate (including Shares which may be issued
on the conversion of Debentures). Except as otherwise provided herein, any
Shares subject to an Option which for any reason expires or is terminated
without issuance of Shares (including Shares that are not issued because they
are withheld to satisfy minimum income tax withholding) shall again be available
under the Plan.
3.3. Adjustments to Shares.
---------------------
(a) If the Company shall effect any subdivision or consolidation of Shares
or other capital readjustment, payment of stock dividend, stock split,
combination of Shares or recapitalization or other increase or
reduction of the number of Shares outstanding without receiving
compensation therefor in money, services or property, then the
Committee shall adjust (i) the number of Shares available under the
Plan; (ii) the number of Shares subject to outstanding Options; and
(iii) the per-Share price under any outstanding Option.
(b) If the Company is reorganized, merged or consolidated or is party to a
plan of exchange with another corporation, pursuant to which
reorganization, merger, consolidation or plan of exchange, the
shareholders of the Company receive any shares of stock or other
securities or property, or the Company shall distribute securities of
another corporation to its shareholders, there shall be substituted
for the Shares subject to outstanding Options an appropriate number of
shares of each class of stock or amount of other securities or
property which were distributed to the shareholders of the Company in
respect of such Shares, subject to the following:
(i) If the Committee determines that the substitution described in
accordance with the foregoing provisions of this paragraph would
not be fully consistent with the purposes of the Plan or the
6
<PAGE>
purposes of the outstanding Options under the Plan, the Committee
may make such other adjustments to the Options to the extent that
the Committee determines such adjustments are consistent with the
purposes of the Plan and of the affected Options.
(ii) All or any of the Options may be cancelled by the Committee on or
immediately prior to the effective date of the applicable
transaction, but only if the Committee gives reasonable advance
notice of the cancellation to each affected Participant, and only
if either: (A) the Participant is permitted to exercise the
Option in full for a reasonable period prior to the effective
date of the cancellation; or (B) the Participant receives payment
or other benefits that the Committee determines to be reasonable
compensation for the value of the cancelled Options.
(iii) Upon the occurrence of a reorganization of the Company or any
other event described in this paragraph (b), any successor to the
Company shall be substituted for the Company to the extent that
the Company and the successor agree to such substitution.
(c) Upon (or, in the discretion of the Committee, immediately prior to)
the sale to (or exchange with) a third party unrelated to the Company
of all or substantially all of the assets of the Company, all Options
shall be cancelled. If Options are cancelled under this paragraph,
then, with respect to any affected Participant, either:
(i) the Participant shall be provided with reasonable advance notice
of the cancellation, and the Participant shall be permitted to
exercise the Option in full for a reasonable period prior to the
effective date of the cancellation; or
(ii) the Participant shall receive payment or other benefits that the
Committee determines to be reasonable compensation for the value
of the cancelled Options.
The foregoing provisions of this paragraph shall also apply to the
sale of all or substantially all of the assets of the Company to a
related party, if the Committee determines such application is
appropriate.
7
<PAGE>
(d) In determining what action, if any, is necessary or appropriate under
the foregoing provisions of this subsection, the Committee shall act
in a manner that it determines to be consistent with the purposes of
the Plan and of the affected Options and, where applicable or
otherwise appropriate, in a manner that it determines to be necessary
to preserve the benefits and potential benefits of the affected
Options for the Participants and the Company.
(e) The existence of this Plan and the Options granted hereunder shall not
affect in any way the right or power of the Company or its
shareholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's
capital structure or its business, any merger or consolidation of the
Company, any issue of bonds, debentures, preferred or prior preference
stocks ahead of or affecting the Company's Shares or the rights
thereof, the dissolution or liquidation of the Company, any sale or
transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or
otherwise.
(f) Except as expressly provided by the terms of this Plan, the issue by
the Company of shares of stock of any class, or securities convertible
into shares of stock of any class, for cash or property or for labor
or services, either upon direct sale, upon the exercise of rights or
warrants to subscribe therefor or upon conversion of shares or
obligations of the Company convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof,
shall be made with respect to Options then outstanding hereunder.
(g) Options under the Plan are subject to adjustment under this subsection
only during the period in which they are outstanding under the Plan.
The determination of whether an Option is outstanding shall be made by
the Committee.
3.4. Change in Control. In the event that (i) a Participant's employment
-----------------
is terminated by the Company or the successor to the Company or an affiliated
entity which is his or her employer for reasons other than Cause following a
Change in Control of the Company (as defined below), or (ii) the Plan is
terminated by the Company or its successor following a Change in Control without
provision for the continuation of outstanding Options hereunder, all Options
which have not otherwise expired shall become immediately exercisable and all
restrictions on
8
<PAGE>
stock awards shall lapse. For purposes of the Plan, a "Change in Control" means
the happening of any of the following:
(a) the stockholders of the Company approve a definitive agreement to
merge the Company into or consolidate the Company with another entity, sell
or otherwise dispose of all or substantially all of its assets; provided,
however, that a Change in Control shall not be deemed to have occurred by
reason of a transaction, or a substantially concurrent or otherwise related
series of transactions, upon the completion of which 50% or more of the
beneficial ownership of the voting power of the Company, the surviving
corporation or corporation directly or indirectly controlling the Company
or the surviving corporation, as the case may be, is held by the same
persons (as defined below) (although not necessarily in the same
proportion) as held the beneficial ownership of the voting power of the
Company immediately prior to the transaction or the substantially
concurrent or otherwise related series of transactions, except that upon
the completion thereof, employees or employee benefit plans of the Company
may be a new holder of such beneficial ownership; provided, further, that a
transaction with an "Affiliate" of the Company (as defined in the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) shall not
be treated as a Change in Control; or
(b) the "beneficial ownership" (as defined in Rule 13d-3 under the
Exchange Act) of securities representing 50% or more of the combined voting
power of the Company is acquired, other than from the Company, by any
"person" as defined in Sections 13(d) and 14(d) of the Exchange Act (other
than by an Affiliate or any trustee or other fiduciary holding securities
under an employee benefit or other similar stock plan of the Company); or
(c) at any time during any period of two consecutive years,
individuals who at the beginning of such period were members of the Board
of Directors of the Company cease for any reason to constitute at least a
majority thereof (unless the election, or the nomination for election by
the Company's stockholders, of each new director was approved by a vote of
at least two-thirds of the directors still in office at the time of such
election or nomination who were directors at the beginning of such period).
For purposes of this subsection, a Participant's employment shall also be deemed
to be terminated by the Company or the successor to the Company or an affiliated
entity if the Participant terminates employment after (i) a substantial adverse
alteration in the nature of the Participant's status or responsibilities
9
<PAGE>
from those in effect immediately prior to the Change in Control, or (ii) a
material reduction in the Participant's annual base salary and target bonus, if
any, as in effect immediately prior to the Change in Control.
3.5. Limit on Distribution. Distribution of Shares or other amounts under
---------------------
the Plan shall be subject to the following:
(a) Notwithstanding any other provision of the Plan, the Company shall
have no liability to deliver any Shares under the Plan or make any
other distribution of benefits under the Plan unless such delivery or
distribution would comply with all applicable laws and the applicable
requirements of any securities exchange or similar entity.
(b) In the case of a Participant who is subject to Section 16(a) and 16(b)
of the Exchange Act, the Committee may, at any time, add such
conditions and limitations to any Option to such Participant, as the
Committee, in its sole discretion, deems necessary or desirable to
comply with Section 16(a) or 16(b) and the rules and regulations
thereunder or to obtain any exemption therefrom.
(c) To the extent that the Plan provides for issuance of certificates to
reflect the transfer of Shares, the transfer of such Shares may be
effected on a non-certificated basis, to the extent not prohibited by
applicable law or the rules of any stock exchange.
3.6. Withholding. All Option exercises and other payments under the Plan
-----------
are subject to withholding of all applicable taxes, which withholding
obligations may be satisfied, with the consent of the Committee, through the
surrender of Shares or Debentures which the Participant already owns or Shares
to which a Participant is otherwise entitled under the Plan by reason of such
exercise; provided, however, previously-owned Shares or Debentures that have
been held by the Participant less than six months or Shares to which the
Participant is entitled under the Plan by reason of the exercise may only be
used to satisfy the minimum tax withholding required by applicable law.
3.7. Transferability. Option grants under the Plan are not transferable
---------------
except by will or the laws of descent and distribution or, to the extent
provided by the Committee, pursuant to a qualified domestic relations order
(within the meaning of the Code and applicable rules thereunder). To the extent
that the Participant who receives an Option under the Plan has the right to
exercise such Option, the Option may be exercised during the lifetime of the
Participant only by the
10
<PAGE>
Participant. Notwithstanding the foregoing provisions of this subsection, the
Committee may permit Options under the Plan to be transferred to or for the
benefit of the Participant's family (including, without limitation, to a trust
for the benefit of a Participant's family), subject to such limits as the
Committee may establish. In no event shall an Incentive Stock Option be
transferable to the extent that such transferability would violate the
requirements applicable to such option under Code section 422.
3.8. Notices. Any notice or document required to be filed with the
-------
Committee under the Plan will be properly filed if delivered or mailed by
registered mail, postage prepaid, to the Committee, in care of the Company, at
its principal executive offices. The Committee may, by advance written notice
to affected persons, revise such notice procedure from time to time. Any notice
required under the Plan (other than a notice of election) may be waived by the
person entitled to notice.
3.9. Form and Time of Elections. Unless otherwise specified herein, each
--------------------------
election required or permitted to be made by any Participant or other person
entitled to benefits under the Plan, and any permitted modification or
revocation thereof, shall be in writing filed with the Committee at such times,
in such form, and subject to such restrictions and limitations, not inconsistent
with the terms of the Plan, as the Committee shall require.
3.10. Agreement With Company. At the time of an Option grant to a
----------------------
Participant under the Plan, the Committee may require a Participant to enter
into an agreement with the Company (the "Agreement") in a form specified by the
Committee, agreeing to the terms and conditions of the Plan and to such
additional terms and conditions, not inconsistent with the Plan, as the
Committee may, in its sole discretion, prescribe.
11
<PAGE>
3.11. Limitation of Implied Rights.
----------------------------
(a) Neither a Participant nor any other person shall, by reason of the
Plan, acquire any right in or title to any assets, funds or property
of the Company or any Related Company whatsoever, including, without
limitation, any specific funds, assets, or other property which the
Company or any Related Company, in its sole discretion, may set aside
in anticipation of a liability under the Plan. A Participant shall
have only a contractual right to the amounts, if any, payable under
the Plan, unsecured by any assets of the Company and any Related
Company. Nothing contained in the Plan shall constitute a guarantee
by the Company or any Related Company that the assets of such
companies shall be sufficient to pay any benefits to any person.
(b) The Plan does not constitute a contract of employment, and selection
as a Participant will not give any employee the right to be retained
in the employ of the Company or any Related Company, nor any right or
claim to any benefit under the Plan, unless such right or claim has
specifically accrued under the terms of the Plan. Except as otherwise
provided in the Plan, no Option award under the Plan shall confer upon
the holder thereof any right as a shareholder of the Company prior to
the date on which he or she fulfills all service requirements and
other conditions for receipt of such rights and Shares are registered
in the Participant's name.
3.12. Evidence. Evidence required of anyone under the Plan may be by
--------
certificate, affidavit, document or other information which the person acting on
it considers pertinent and reliable, and signed, made or presented by the proper
party or parties.
3.13. Action by Company or Related Company. Any action required or
------------------------------------
permitted to be taken by the Company or any Related Company shall be by
resolution of its board of directors, or by action of one or more members of the
board (including a committee of the board) who are duly authorized to act for
the board or (except to the extent prohibited by applicable law or the rules of
any stock exchange) by a duly authorized officer of the Company.
3.14. Gender and Number. Where the context admits, words in any gender
-----------------
shall include any other gender, words in the singular shall include the plural
and the plural shall include the singular.
12
<PAGE>
SECTION 4
---------
COMMITTEE
---------
4.1. Administration. The authority to control and manage the operation
--------------
and administration of the Plan shall be vested in a committee (the "Committee")
in accordance with this Section 4.
4.2. Selection of Committee. The Committee shall be selected by the Board
----------------------
and shall consist of not fewer than two members of the Board. To the extent
that the Board determines it is necessary or desirable, each member of the
Committee shall be a "non-employee director" within the meaning of Rule 16b-3
issued under the Exchange Act.
4.3. Powers of Committee. The authority to manage and control the
-------------------
operation and administration of the Plan shall be vested in the Committee,
subject to the following:
(a) Subject to the provisions of the Plan, the Committee will have the
authority and discretion to select employees to receive Options, to
determine the time or times of receipt and the number of shares
covered by the Options, to establish the terms, conditions,
restrictions, and other provisions of such Options, and to cancel or
suspend Options. In making such determinations, the Committee may
take into account the nature of services rendered by the respective
employee, his or her present and potential contribution to the
Company's success and such other factors as the Committee deems
relevant.
(b) The Committee will have the authority and discretion to interpret the
Plan, to establish, amend and rescind any rules and regulations
relating to the Plan, to determine the terms and provisions of any
agreements made pursuant to the Plan and to make all other
determinations that may be necessary or advisable for the
administration of the Plan.
(c) Any interpretation of the Plan by the Committee and any decision made
by it under the Plan is final and binding on all persons.
(d) Except as otherwise expressly provided in the Plan, where the
Committee is authorized to make a determination with respect to any
Option, such determination shall be made at the time the Option is
granted, except that the Committee may reserve the authority to have
such determination made by the Committee in the future (but only if
such reservation
13
<PAGE>
EXHIBIT 10.30
SECURITY CAPITAL GROUP INCORPORATED
1991 OPTION PLAN A
(As amended and restated effective as of December 3, 1996)
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED 1991 OPTION PLAN A
(As amended and restated effective as of December 3, 1996)
Table of Contents
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 1. DEFINITIONS............................................... 1
SECTION 2. THE PLAN.................................................. 2
2.1. Purpose............................................. 2
2.1. Effective Date...................................... 2
SECTION 3. ADMINISTRATION............................................ 3
3.1. Duties and Powers of Committee...................... 3
3.2. Majority Rule....................................... 3
SECTION 4. PARTICIPATION............................................. 3
SECTION 5. SHARES SUBJECT TO PLAN.................................... 3
5.1. Shares.............................................. 3
5.2. Adjustments......................................... 4
SECTION 6. OPTIONS................................................... 4
6.1. Option Grant and Agreement.......................... 4
6.2. Incentive Option.................................... 5
6.3. Debentures.......................................... 6
6.4. Option Price........................................ 6
6.5. Expiration Date..................................... 6
6.6. Replacement Options................................. 6
6.7. Exercise of Option.................................. 7
6.8. Change in Control................................... 8
6.9. Rights in Event of Termination
of Employment...................................... 9
6.10. Rights in Event of Dissolution or
Liquidation of Company............................. 10
SECTION 7. SHARE CERTIFICATES AND DEBENTURES......................... 10
7.1. Issuance............................................ 10
7.2. Compliance With Securities and
Other Laws......................................... 11
7.3. Rights as Shareholder............................... 11
7.4. Repurchase of Shares................................ 11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 8. TERMINATION, AMENDMENT AND MODIFICATION
OF PLAN....................................................... 12
8.1. Board Termination, Amendment and
Modification of Plan..................................... 12
8.2. Plan Termination............................................ 12
8.3. Effect of Termination, Amendment or
Modification of Plan..................................... 12
SECTION 9. MISCELLANEOUS...................................................... 12
9.1. No Employment Rights........................................ 12
9.2. Other Compensation Plans.................................... 12
9.3. Binding Effect.............................................. 13
9.4. Singular, Plural; Gender.................................... 13
9.5. Headings.................................................... 13
9.6. Nontransferability of Option................................ 13
9.7. No Reduction of Salary or Compensation
to Participate........................................... 13
9.8. Withholding................................................. 13
</TABLE>
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED 1991 OPTION PLAN A
(As amended and restated effective as of December 3, 1996)
SECTION 1. DEFINITIONS
As used herein, the following terms have the meanings hereinafter set forth
unless the context clearly indicates to the contrary;
(a) "Board" means the Board of Directors of the Company.
(b) "Company" means Security Capital Group Incorporated, a Maryland
corporation.
(c) "Debentures" means the Company's 12% Convertible Subordinated
Debentures due 2014.
(d) "Fair Market Value" with respect to any Share means (i) if the
Share is not publicly traded, the fair value as determined by the Committee
(as defined in Section 3), and (ii) if the Share is publicly traded, the
closing price of the Share on the day in question. The closing price shall
be the last reported sale price regular way or, in case no such reported
sale takes place on such day, the average of the reported closing bid and
asked prices regular way, in either case on the New York Stock Exchange or,
if the Share is not listed or admitted to trading on such Exchange, on the
principal national securities exchange on which such Shares are listed or
admitted to trading or, if not listed or admitted to trading on any
national securities exchange, the average of the highest closing bid and
asked prices as reported by the National Association of Securities Dealers
Automated Quotation System. "Fair Market Value" with respect to Debentures
as of any date means an amount equal to the Fair Market Value of the Shares
into which the Debentures are convertible without regard to whether such
Debentures are then convertible.
(e) "Incentive Option" means an Option for Shares which qualifies for
treatment as an incentive stock option pursuant to Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
(f) "Non-Qualified Option" means any Option granted hereunder which is
not an Incentive Option.
(g) "Option" means an option to purchase Shares and Debentures granted
pursuant to the provisions of Section 6 hereof. Except to the extent
specifically designated as
<PAGE>
Incentive Options, Options awarded hereunder are intended to be Non-
Qualified Options.
(h) "Option Agreement" means the agreement described in Section 6.1
between the Company and the Optionee under which the Optionee may purchase
Shares and Debentures hereunder.
(i) "Optionee" means an employee or director to whom an Option has
been granted hereunder.
(j) "Plan" means the Security Capital Group Incorporated 1991 Option
Plan A, the terms of which are set forth herein.
(k) "Share" or "Shares" means the Company's present Shares of Common
Stock, or, in the event that the outstanding Shares are hereafter changed
into or exchanged for different shares or securities of the Company or some
other corporation or other entity, such other shares or securities.
(l) "Total and Permanent Disability" means the inability of an
employee to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected
to result in death or which has lasted or can be expected to last for a
continuous period of not less than twelve months.
(m) "Unit" means one Share and the Debentures awarded in tandem with
such Share pursuant to Section 6.3.
SECTION 2. THE PLAN
2.1. PURPOSE. The purpose of the Plan is to advance the interests of the
Company and its shareholders by affording to directors and key employees of the
Company, its subsidiaries and affiliates an opportunity to acquire or increase
their proprietary interest in the Company by the grant to such individuals of
Options under the terms set forth herein. By thus encouraging such individuals
to become owners of Shares and Debentures, the Company seeks to motivate,
retain, and attract those highly competent individuals upon whose judgment,
initiative, leadership and continued efforts the success of the Company in large
measure depends.
2.2. EFFECTIVE DATE. This Plan is effective as of
August 27, 1992 (the "Effective Date"). This amendment and restatement of the
Plan is effective as of December 3, 1996.
-2-
<PAGE>
SECTION 3. ADMINISTRATION
3.1. DUTIES AND POWERS OF COMMITTEE. The Plan shall be administered by a
Committee consisting of two or more non-employee members of the Board (the
"Committee"). Subject to the express provisions of the Plan, the Committee
shall have sole discretion and authority (a) to determine the employees (who may
also be directors) to whom and the time or times at which Options may be
granted, (b) to determine whether an Option granted pursuant to the Plan shall
be an Incentive Option, (c) to determine the persons who shall receive Options
and the number of Shares to be subject to each Option, (d) to determine the
details and provisions of each Option Agreement, subject, however, to the
provisions of Section 6 hereof, (e) to prescribe, amend and rescind rules and
regulations relating to the Plan, and (f) to make all other determinations
necessary or advisable in the administration of the Plan; provided, however, the
Committee shall have no power, authority or discretion to determine the number
or timing of Options granted pursuant to paragraph 4(b) or to alter the terms
and conditions of Options set forth therein.
3.2. MAJORITY RULE. A majority of the members of the Committee shall
constitute a quorum, and any action taken by a majority present at a meeting at
which a quorum is present or any action taken without a meeting evidenced by a
writing executed by all members of the Committee shall constitute the action of
the Committee.
SECTION 4. PARTICIPATION
(a) Subject to the terms and conditions of the Plan, the Committee
shall designate the key employees of the Company (who may also be directors
of the Company) or its subsidiaries or affiliates to whom Options are to be
granted.
(b) As of the Effective Date, an Option to purchase 28 Shares (and
Debentures granted in tandem with such Shares pursuant to Section 6.3)
shall be awarded to each individual who is a non-employee member of the
Board on such date.
SECTION 5. SHARES SUBJECT TO PLAN
5.1. SHARES. Subject to adjustment pursuant to the provisions of Section
5.2 hereof, the total number of Shares, and the total principal amount of
Debentures, which may be issued and sold upon exercise of all Options exercised
under this Plan (excluding Shares subsequently issued upon conversion of
Debentures) shall not exceed 759 Shares and $3,984,750 principal
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amount of Debentures, respectively. Shares issued upon exercise of Options may
be either authorized and unissued Shares or Shares issued and thereafter
reacquired by the Company. The number of Shares relating to an Option which
expires or terminates for any reason without the issuance of Shares or
Debentures (including Shares or Debentures that are not issued because they are
withheld to satisfy minimum income tax withholding) shall again be available for
Options under the Plan.
5.2. ADJUSTMENTS. In the event of any change in the outstanding Shares or
Debentures by reason of any stock dividend, split, merger, consolidation,
recapitalization, combination, exchange of shares or other similar corporate
change:
(a) The aggregate number and kind of Shares and Debentures subject to
Options which may be granted hereunder shall be adjusted appropriately;
(b) Rights under outstanding Options granted hereunder both as to the
number of Shares and Debentures and the Option Price shall be adjusted
appropriately; and
(c) Subject to any required action by shareholders, if there shall be
any reorganization, consolidation or merger of the Company with any other
entity or entities, or sale by the Company of all or substantially all of
its assets in exchange for securities of another entity or entities, then
the Optionee shall be entitled, subject to the conditions set forth in the
Plan and the Option Agreement, to purchase such number of Shares and
Debentures or amount of other securities of the Company or such other
entity or entities as were exchangeable for the number of Shares and
Debentures which the Optionee would have been entitled to purchase except
for such action, and appropriate adjustments shall be made in the Option
Price to reflect such reorganization, consolidation, merger or sale.
The adjustments and the manner of application of the foregoing provisions
shall be determined solely by the Committee. All adjustments shall be applied
in like manner to all outstanding Options. Any adjustment may provide for the
elimination of fractional share interests.
SECTION 6. OPTIONS
6.1. OPTION GRANT AND AGREEMENT. Each Option granted hereunder shall be
evidenced by minutes of a meeting or the written consent of the Committee and by
a written Option Agreement dated as of the date of grant and executed by the
Company and the Optionee. Each Option shall be awarded and exercised in tandem
with an option to purchase Debentures in
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accordance with Section 6.3. The right to exercise Options shall vest as
determined by the Committee with respect to each Option granted; provided,
however, Options granted under paragraph 4(b) shall be exercisable, in whole or
in part, with respect to 50% of the Shares granted at any time on or after the
grant date and with respect to the remaining Shares covered by the Option at any
time on or after the fifth anniversary of the date of grant.
6.2. INCENTIVE OPTION. The Committee in its sole discretion may designate
whether an Option awarded to an employee of the Company or a subsidiary is to be
considered an Incentive Option. The Committee may grant both an Incentive
Option and a Non-Qualified Option to the same Optionee. However, where both an
Incentive Option and a Non-Qualified Option are awarded at one time, such
Options shall be deemed to have been awarded in separate grants, shall be
clearly identified, and in no event will the exercise of one such Option affect
the right to exercise the other such Option.
Should the Committee designate an Option granted hereunder as an Incentive
Option, such Option shall be subject to the general provisions applicable to all
Options granted under the Plan; in addition, an Incentive Option shall in all
events be subject to the following provisions, which provisions shall be stated
within the applicable Option Agreement:
(a) The Committee may grant an Incentive Option to an employee who
owns, directly or indirectly by attribution, securities in the Company
possessing more than 10% of the total combined voting power of all classes
of the Company's securities only if the Option Price (as defined in Section
6.4) of a Share is at least 110% of the Fair Market Value of the Share and
such Option by its terms is not exercisable after the expiration of five
years from the date the Option is granted.
(b) The Committee shall not grant Incentive Options which are
exercisable in a manner so that the aggregate Fair Market Value (determined
at the time the Incentive Options are granted) of the Shares with respect
to which Incentive Options are exercisable for the first time by such
individual during any calendar year (under all incentive stock option plans
of the Company established pursuant to Section 422 of the Code) exceeds
$100,000.
(c) No Incentive Options shall be granted more than 10 years after the
Effective Date.
If any Option is not granted, exercised and held pursuant to the provisions
of this Section 6.2, including any acceleration of the vesting provisions of the
Option or surrender of the Option
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to the Company for cash pursuant to the provisions of either Section 6.8 or
Section 6.12, it will be considered a Non-Qualified Option to the extent that it
does not comply with the provisions hereof.
6.3. DEBENTURES. Each Option or replacement option (as described in
Section 6.6) to purchase one Share shall be awarded in tandem with an option to
purchase $5,250 principal amount of Debentures at a price which bears the same
ratio to the Option Price (described in Section 6.4) of a Share on the date of
the award as $5,250 bears to $1,000. Options to purchase Debentures may only be
exercised when the Option to purchase the related Share is exercised.
Debentures issued pursuant to the exercise of the related Option shall be issued
in denominations which are integral multiples of $50.
6.4. OPTION PRICE. Subject to Sections 5 and 6.6:
(a) the Option Price of a Share granted under paragraph 4(a) shall be
determined by the Committee; provided, however, the Option Price of each
Share under an Incentive Option may not be less than the Fair Market Value
of a Share at the date of grant, and further provided that the Option Price
of Shares which are granted under a Non-Qualified Option shall not be less
than 70% of Fair Market Value at the date of grant; and
(b) the Option Price of a Share granted under paragraph 4(b) shall be
the Fair Market Value of a Share at the date of grant.
6.5. EXPIRATION DATE. The "Expiration Date" of each Option granted under
the Plan shall be determined by the Committee; provided, however, the Expiration
Date of an Incentive Option shall be no later than the tenth anniversary date of
the award, and provided further no Option shall have an Expiration Date later
than December 31, 2002. Options shall not be exercisable after their Expiration
Date and shall be subject to earlier termination as hereinafter provided.
6.6. REPLACEMENT OPTIONS. The Committee may provide either at the time of
grant or subsequently that an Option includes the right to acquire a replacement
option, provided that Options granted under paragraph 4(b) shall not include the
right to acquire a replacement option. To receive a replacement option with
respect to an Option granted under paragraph 4(a), the Option must be exercised
prior to termination of employment. A replacement option will entitle the
holder thereof to an Option for the number of Shares or principal amount of
Debentures otherwise issuable upon exercise of an Option that are withheld to
satisfy minimum tax obligations with respect to such exercise;
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provided, however, the Committee, in its sole discretion, may determine that a
replacement option under paragraph 4(a) with respect to withheld Debentures
shall be issued solely in an equivalent amount of Shares. In addition to any
other terms and conditions the Committee deems appropriate, the replacement
option shall be subject to the following terms:
(a) the replacement option shall be granted on the date the original
Option is exercised;
(b) the Option Price for Shares under a replacement option shall be
the Fair Market Value of a Share on the date of such exercise and the
Option Price for Debentures shall be an amount equal to the Fair Market
Value of the Shares on the date of exercise into which the Debentures are
convertible without regard to whether such Debentures are then convertible;
(c) the replacement option shall be exercisable no earlier than six
months after its grant date;
(d) the Expiration Date of the replacement option will be the same as
the Expiration Date of the original Option; and
(e) the replacement option shall be a Non-Qualified Option and shall
otherwise meet all conditions of this Section 6.
6.7. EXERCISE OF OPTION. Options shall be exercised by written notice of
intent to exercise the Option with respect to a specified number of Units by the
Optionee to the Company at its principal office in Santa Fe, New Mexico, and by
tendering in cash or by certified, bank cashier's or teller's check or Shares or
Debentures of the Company which have been held by the Optionee at least six
months valued at Fair Market Value as of the date of tender, or in any
combination of cash and Shares and Debentures, payment in full to the Company at
said office of the amount of the Option Price for the number of Units with
respect to which the Option is then being exercised, together with the full
amount of all federal and state withholding or other employment taxes applicable
to the taxable income of such Optionee resulting from such exercise. The
Optionee may pay all or a portion of the federal, state or local withholding
taxes arising in connection with an Option exercise by electing to have the
Company withhold Units, Shares or Debentures or by delivering previously-owned
Shares and Debentures, in each case using Units, Shares or Debentures having a
Fair Market Value on the date of exercise equal to or greater than the amount to
be withheld; provided, however, an Optionee may only tender Shares or Debentures
that have been held less than six months or have Shares or Debentures
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withheld to the extent that the Fair Market Value of such Shares or Debentures
does not exceed the minimum required withholding amount with respect to the
Option exercise; provided further that this method of paying withholding taxes
with Units, Shares or Debentures that have been held for less than six months
will not be available after the Shares are publicly traded on a national
securities exchange and a registration statement with respect to the Options and
Shares underlying the Options is effective under the Securities Act of 1933, as
amended. In the event all or part of the withholding is paid by withholding
Units, Shares or Debentures, any excess of the value of the withheld Units,
Shares or Debentures over the amount of the withholding will be returned to the
Optionee in whole or fractional Shares or Debentures, as applicable.
6.8. CHANGE IN CONTROL. In the event that (i) an Optionee's employment is
terminated by the Company or the successor to the Company or an affiliated
entity which is his or her employer for reasons other than Cause following a
Change in Control of the Company (as defined below), or (ii) the Plan is
terminated by the Company or its successor following a Change in Control without
provision for the continuation of outstanding Options hereunder, all Options
which have not otherwise expired shall become immediately exercisable and all
restrictions on stock awards shall lapse. For purposes of the Plan, a "Change
in Control" means the happening of any of the following:
(a) the stockholders of the Company approve a definitive agreement to
merge the Company into or consolidate the Company with another entity, sell
or otherwise dispose of all or substantially all of its assets; provided,
however, that a Change in Control shall not be deemed to have occurred by
reason of a transaction, or a substantially concurrent or otherwise related
series of transactions, upon the completion of which 50% or more of the
beneficial ownership of the voting power of the Company, the surviving
corporation or corporation directly or indirectly controlling the Company
or the surviving corporation, as the case may be, is held by the same
persons (as defined below) (although not necessarily in the same
proportion) as held the beneficial ownership of the voting power of the
Company immediately prior to the transaction or the substantially
concurrent or otherwise related series of transactions, except that upon
the completion thereof, employees or employee benefit plans of the Company
may be a new holder of such beneficial ownership; provided, further, that a
transaction with an "Affiliate" of the Company (as defined in the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) shall not
be treated as a Change in Control; or
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(b) the "beneficial ownership" (as defined in Rule 13d-3 under the
Exchange Act) of securities representing 50% or more of the combined voting
power of the Company is acquired, other than from the Company, by any
"person" as defined in Sections 13(d) and 14(d) of the Exchange Act (other
than by an Affiliate or any trustee or other fiduciary holding securities
under an employee benefit or other similar stock plan of the Company); or
(c) at any time during any period of two consecutive years,
individuals who at the beginning of such period were members of the Board
of Directors of the Company cease for any reason to constitute at least a
majority thereof (unless the election, or the nomination for election by
the Company's stockholders, of each new director was approved by a vote of
at least two-thirds of the directors still in office at the time of such
election or nomination who were directors at the beginning of such period).
For purposes of this Section, an Optionee's employment shall also be deemed to
be terminated by the Company or the successor to the Company or an affiliated
entity if the Optionee terminates employment after (i) a substantial adverse
alteration in the nature of the Optionee's status or responsibilities from those
in effect immediately prior to the Change in Control, or (ii) a material
reduction in the Optionee's annual base salary and target bonus, if any, as in
effect immediately prior to the Change in Control.
6.9. RIGHTS IN EVENT OF TERMINATION OF EMPLOYMENT. In the event of the
Optionee's termination of employment with the Company and all affiliated
entities, the following rules shall apply:
(a) if the Optionee's employment terminates for any reason other than
death, Total and Permanent Disability, Retirement (as defined below) or
Cause (as defined below) or transfer to an affiliated entity, the Optionee
shall have the right, during the period ending three months after such
termination, to exercise outstanding Options to the extent such Options
were exercisable on the date of such termination;
(b) if the Optionee's employment with the Company and all affiliated
entities terminates on account of death, Total and Permanent Disability or
Retirement, the Optionee (or, in the event of his or her death, the person
who acquired the right to exercise the Option) shall have the right, during
the period ending one year after such termination, to exercise outstanding
Options to the extent such Options were exercisable on the date of such
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termination and in the event of termination on account of death or Total
and Permanent Disability, all such Options shall become immediately
exercisable as of the date of such termination;
(c) if the Optionee's employment is terminated for Cause, the vested
and unvested portion of the Option shall terminate and the Option shall be
cancelled and shall not be exercisable on or after such termination date;
and
(d) in the event the Optionee is transferred to an affiliated entity,
the Option shall remain in full force and effect until the Optionee is no
longer employed by the Company or any affiliated entity, in which case
paragraphs (a) through (c) next above shall apply, as applicable.
Any portion of the Option which is not exercisable on the date that the
Optionee's employment terminates for any reason shall be forfeited. "Cause"
shall mean, in the reasonable judgment of the Committee (i) the willful and
continued failure by the Optionee to substantially perform his or her duties
with the Company or any affiliated entity after written notification by the
Company or such affiliated entity, (ii) the willful engaging by the Optionee in
conduct which is demonstrably injurious to the Company or any affiliated entity,
monetarily or otherwise, or (iii) the engaging by the Optionee in egregious
misconduct involving serious moral turpitude. For purposes hereof, no act, or
failure to act, on the Optionee's part shall be deemed "willful" unless done, or
omitted to be done, by the Optionee not in good faith and without reasonable
belief that such action was in the best interest of the Company. "Retirement"
shall mean the occurrence of a termination of employment of the Optionee, other
than for Cause, death or Total and Permanent Disability, after providing at
least five years of service to the Company or affiliated entities if the
Optionee has attained at least age 60.
6.10. RIGHTS IN EVENT OF DISSOLUTION OR LIQUIDATION OF COMPANY. Options
shall terminate upon dissolution or liquidation of the Company, provided that
for a period of 60 days prior to such dissolution or liquidation, the Optionee
shall have the right to exercise outstanding Options in full even though such
Option would not otherwise be exercisable. Upon such dissolution or
liquidation, the unexercised portion of any Options shall terminate and be of no
further effect.
SECTION 7. SHARE CERTIFICATES AND DEBENTURES
7.1. ISSUANCE. The Company shall not be required to issue or deliver any
Debentures or any certificate for Shares purchased upon the exercise of any
Option granted hereunder, or any portion thereof, prior to fulfillment of all of
the following conditions:
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(a) The completion of any registration or other qualification of such
Shares or Debentures under any federal or state securities laws or under
the rulings or regulations of the Securities and Exchange Commission or any
other governmental regulatory body, which the Committee shall in its sole
discretion deem necessary or advisable;
(b) The obtaining of any approval or other clearance from any federal
or state governmental agency which the Committee shall, in its sole
discretion, determine to be necessary or advisable; and
(c) The lapse of such reasonable period of time following the exercise
of the Option as the Committee from time to time may establish for reasons
of administrative convenience.
7.2. COMPLIANCE WITH SECURITIES AND OTHER LAWS. In no event shall the
Company be required to sell or issue Shares or Debentures pursuant to Options
granted under this Plan if the issuance thereof would constitute a violation by
either the Optionee or the Company of any provision of any law or regulation of
any governmental authority or any national securities exchange. As a condition
of any sale or issuance of Shares and Debentures pursuant to Options granted
hereunder, the Company may place legends on the Shares or Debentures, issue
stop-transfer orders and require such agreements or undertakings from the
Optionee as the Company may deem necessary or advisable to assure compliance
with any such law or regulation, including, if the Company or its counsel deems
it appropriate, representations from the Optionee that he or she is acquiring
the Shares or Debentures solely for investment and not with a view to
distribution and that no distribution of the Shares or Debentures acquired by
him or her will be made unless registered pursuant to applicable federal and
state securities laws or unless, in the opinion of counsel to the Company, such
registration is unnecessary.
7.3. RIGHTS AS SHAREHOLDER. An Optionee or transferee of an Option shall
have no rights as a shareholder with respect to any Shares subject to such
Option prior to the purchase of such Shares by exercise of such Option as
provided herein.
7.4. REPURCHASE OF SHARES. The Committee may, by agreement providing for
right of first refusal, limit a holder's rights to sell or otherwise dispose of
Shares or Debentures acquired pursuant to the Plan.
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SECTION 8. TERMINATION, AMENDMENT
AND MODIFICATION OF PLAN
8.1. BOARD TERMINATION, AMENDMENT AND MODIFICATION OF PLAN. The Board may
at any time, terminate, and may at any time and from time to time and in any
respect, amend or modify, the Plan, including the form of Option Agreement;
provided, however, that no such action of the Board, without approval of the
shareholders of the Company, may:
(a) Increase the total number of Shares and Debentures subject to the
Plan except as contemplated in Section 5.2 hereof;
(b) Restrict, expand or otherwise change the class or classes of
employees eligible to participate in the Plan;
(c) Change the Option Price other than pursuant to Section 5.2 or to
change the manner of determining the Fair Market Value of the Shares to
conform with any then applicable provisions of the Code or regulations or
rulings thereunder; or
(d) Withdraw the administration of the Plan from the Committee.
8.2. PLAN TERMINATION. Unless terminated earlier as provided in Section
8.1, the Plan shall terminate on December 31, 2002, and no Option shall be
granted under this Plan after that date.
8.3. EFFECT OF TERMINATION, AMENDMENT OR MODIFICATION OF PLAN.
Notwithstanding Sections 8.1 and 8.2, no termination, amendment or modification
of the Plan shall in any manner adversely affect any Option theretofore granted
under the Plan without the consent of the Optionee or a person who shall have
acquired the right to exercise the Option by will or the laws of descent and
distribution.
SECTION 9. MISCELLANEOUS
9.1. NO EMPLOYMENT RIGHTS. Nothing in the Plan or in any Option granted
hereunder or in any Option Agreement relating thereto shall confer upon any
employee the right to continue in the employ of the Company or affiliated
entities.
9.2. OTHER COMPENSATION PLANS. The adoption of the Plan shall not affect
any other securities option or incentive or other compensation plans in effect
for the Company or an affiliated entity, nor shall the Plan preclude the Company
or any affiliated entity from establishing any other forms of incentive
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or other compensation for employees of the Company or such affiliated entity.
9.3. BINDING EFFECT. The Plan shall be binding upon the successors and
assigns of the Company.
9.4. SINGULAR, PLURAL; GENDER. Whenever used herein, except where the
context clearly indicates to the contrary, nouns in the singular shall include
the plural, and the masculine pronoun shall include the feminine gender.
9.5. HEADINGS. Headings of the Sections hereof are inserted for
convenience of reference and constitute no part of the Plan.
9.6. NONTRANSFERABILITY OF OPTION. No Option shall be transferred by an
Optionee otherwise than by will or by the laws of descent and distribution.
During the lifetime of an Optionee the Option shall be exercisable only by him
or her. The Committee may require such evidence of a transfer by will or the
laws of descent and distribution as it deems necessary.
9.7. NO REDUCTION OF SALARY OR COMPENSATION TO PARTICIPATE. No employee
shall be required to forego an increase in salary, or to defer any amount of
compensation as a condition of participation in the Plan.
9.8. WITHHOLDING. The Company shall have the right to deduct from any
cash payment made pursuant to Section 6.7 of the Plan an amount equal to the
federal, state and local income taxes required to be withheld with respect to
such payment. If the cash portion of any such payment is less than the amount
of taxes required to be withheld, the Company may require the Optionee or other
person receiving such payment, as a condition of and prior to such payment, to
pay to it the balance of any such taxes required to be so withheld.
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EXHIBIT 10.31
SECURITY CAPITAL GROUP INCORPORATED
1991 OPTION PLAN B
(As amended and restated effective as of December 3, 1996)
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<PAGE>
SECURITY CAPITAL GROUP INCORPORATED 1991 OPTION PLAN B
(As amended and restated effective as of December 3, 1996)
----------------------------------------------------------
Table of Contents
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
SECTION 1. DEFINITIONS.................................................... 1
SECTION 2. THE PLAN....................................................... 2
2.1. Purpose.................................................. 2
2.1. Effective Date........................................... 2
SECTION 3. ADMINISTRATION................................................. 3
3.1. Duties and Powers of Committee........................... 3
3.2. Majority Rule............................................ 3
SECTION 4. PARTICIPATION.................................................. 3
SECTION 5. SHARES SUBJECT TO PLAN......................................... 3
5.1. Shares................................................... 3
5.2. Adjustments.............................................. 4
SECTION 6. OPTIONS........................................................ 4
6.1. Option Grant and Agreement............................... 4
6.2. Incentive Option......................................... 4
6.3. Debentures............................................... 5
6.4. Option Price............................................. 6
6.5. Expiration Date.......................................... 6
6.6. Replacement Options...................................... 6
6.7. Exercise of Option....................................... 7
6.8. Change in Control........................................ 7
6.9. Rights in Event of Termination
of Employment.......................................... 9
6.10. Rights in Event of Dissolution or
Liquidation of Company................................. 10
SECTION 7. SHARE CERTIFICATES AND DEBENTURES.............................. 10
7.1. Issuance................................................. 10
7.2. Compliance With Securities and
Other Laws............................................. 10
7.3. Rights as Shareholder.................................... 11
7.4 Repurchase of Shares..................................... 11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
SECTION 8. TERMINATION, AMENDMENT AND MODIFICATION OF PLAN................ 11
8.1. Board Termination, Amendment and
Modification of Plan................................. 11
8.2. Plan Termination........................................ 12
8.3. Effect of Termination, Amendment or Modification
of Plan............................................... 12
SECTION 9. MISCELLANEOUS................................................. 12
9.1. No Employment Rights................................... 12
9.2. Other Compensation Plans............................... 12
9.3. Binding Effect......................................... 12
9.4. Singular, Plural; Gender............................... 12
9.5. Headings............................................... 12
9.6. Nontransferability of Option........................... 12
9.7. No Reduction of Salary or Compensation to Participate.. 13
9.8. Withholding............................................ 13
</TABLE>
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED 1991 OPTION PLAN B
(As amended and restated effective as of December 3, 1996)
----------------------------------------------------------
SECTION 1. DEFINITIONS
As used herein, the following terms have the meanings hereinafter set forth
unless the context clearly indicates to the contrary;
(a) "Board" means the Board of Directors of the Company.
(b) "Company" means Security Capital Group Incorporated, a Maryland
corporation.
(c) "Debentures" means the Company's 12% Convertible Subordinated
Debentures due 2014.
(d) "Fair Market Value" with respect to any Share means (i) if the
Share is not publicly traded, the fair value as determined by the Committee
(as defined in Section 3), and (ii) if the Share is publicly traded, the
closing price of the Share on the day in question. The closing price shall
be the last reported sale price regular way or, in case no such reported
sale takes place on such day, the average of the reported closing bid and
asked prices regular way, in either case on the New York Stock Exchange or,
if the Share is not listed or admitted to trading on such Exchange, on the
principal national securities exchange on which such Shares are listed or
admitted to trading or, if not listed or admitted to trading on any
national securities exchange, the average of the highest closing bid and
asked prices as reported by the National Association of Securities Dealers
Automated Quotation System. "Fair Market Value" with respect to Debentures
as of any date means an amount equal to the Fair Market Value of the Shares
into which the Debentures are convertible without regard to whether such
Debentures are then convertible.
(e) "Incentive Option" means an Option for Shares which qualifies for
treatment as an incentive stock option pursuant to Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
(f) "Non-Qualified Option" means any Option granted hereunder which is
not an Incentive Option.
(g) "Option" means an option to purchase Shares and Debentures granted
pursuant to the provisions of Section 6 hereof. Except to the extent
specifically designated as
<PAGE>
Incentive Options, Options awarded hereunder are intended to be Non-
Qualified Options.
(h) "Option Agreement" means the agreement described in Section 6.1
between the Company and the Optionee under which the Optionee may purchase
Shares and Debentures hereunder.
(i) "Optionee" means an employee to whom an Option has been granted
hereunder.
(j) "Plan" means the Security Capital Group Incorporated 1991 Option
Plan B, the terms of which are set forth herein.
(k) "Share" or "Shares" means the Company's present Shares of Common
Stock, or, in the event that the outstanding Shares are hereafter changed
into or exchanged for different shares or securities of the Company or some
other corporation or other entity, such other shares or securities.
(l) "Total and Permanent Disability" means the inability of an
employee to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected
to result in death or which has lasted or can be expected to last for a
continuous period of not less than twelve months.
(m) "Unit" means one Share and the Debentures awarded in tandem with
such Share pursuant to Section 6.3.
SECTION 2. THE PLAN
2.1. PURPOSE. The purpose of the Plan is to advance the interests of the
Company and its shareholders by affording to key employees of the Company, its
subsidiaries and affiliates an opportunity to acquire or increase their
proprietary interest in the Company by the grant to such employees of Options
under the terms set forth herein. By thus encouraging such employees to become
owners of Shares and Debentures, the Company seeks to motivate, retain, and
attract those highly competent individuals upon whose judgment, initiative,
leadership and continued efforts the success of the Company in large measure
depends.
2.2. EFFECTIVE DATE. This Plan is effective as of August 27, 1992 (the
"Effective Date"). This amendment and restatement of the Plan is effective as of
December 3, 1996.
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SECTION 3. ADMINISTRATION
3.1. DUTIES AND POWERS OF COMMITTEE. The Plan shall be administered by a
Committee consisting of two or more non-employee members of the Board (the
"Committee"). Subject to the express provisions of the Plan, the Committee
shall have sole discretion and authority (a) to determine the employees (who may
also be directors) to whom and the time or times at which Options may be
granted, (b) to determine whether an Option granted pursuant to the Plan shall
be an Incentive Option, (c) to determine the persons who shall receive Options
and the number of Shares to be subject to each Option, (d) to determine the
details and provisions of each Option Agreement, subject, however, to the
provisions of Section 6 hereof, (e) to prescribe, amend and rescind rules and
regulations relating to the Plan, and (f) to make all other determinations
necessary or advisable in the administration of the Plan.
3.2. MAJORITY RULE. A majority of the members of the Committee shall
constitute a quorum, and any action taken by a majority present at a meeting at
which a quorum is present or any action taken without a meeting evidenced by a
writing executed by all members of the Committee shall constitute the action of
the Committee.
SECTION 4. PARTICIPATION
Subject to the terms and conditions of the Plan, the Committee shall
designate the key employees of the Company (who may also be directors of the
Company) or its subsidiaries or affiliates to whom Options are to be granted.
SECTION 5. SHARES SUBJECT TO PLAN
5.1. SHARES. Subject to adjustment pursuant to the provisions of Section
5.2 hereof, the total number of Shares, and the total principal amount of
Debentures, which may be issued and sold upon exercise of all Options exercised
under this Plan (excluding Shares subsequently issued upon conversion of
Debentures) shall not exceed 533 Shares and $2,800,000 principal amount of
Debentures, respectively. Shares issued upon exercise of Options may be either
authorized and unissued Shares or Shares issued and thereafter reacquired by the
Company. The number of Shares relating to an Option which expires or terminates
for any reason without the issuance of Shares or Debentures (including Shares or
Debentures that are not issued because they are withheld to satisfy minimum
income tax withholding) shall again be available for Options under the Plan.
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5.2. ADJUSTMENTS. In the event of any change in the outstanding Shares or
Debentures by reason of any stock dividend, split, merger, consolidation,
recapitalization, combination, exchange of shares or other similar corporate
change:
(a) The aggregate number and kind of Shares and Debentures subject to
Options which may be granted hereunder shall be adjusted appropriately;
(b) Rights under outstanding Options granted hereunder both as to the
number of Shares and Debentures and the Option Price shall be adjusted
appropriately; and
(c) Subject to any required action by shareholders, if there shall be
any reorganization, consolidation or merger of the Company with any other
entity or entities, or sale by the Company of all or substantially all of
its assets in exchange for securities of another entity or entities, then
the Optionee shall be entitled, subject to the conditions set forth in the
Plan and the Option Agreement, to purchase such number of Shares and
Debentures or amount of other securities of the Company or such other
entity or entities as were exchangeable for the number of Shares and
Debentures which the Optionee would have been entitled to purchase except
for such action, and appropriate adjustments shall be made in the Option
Price to reflect such reorganization, consolidation, merger or sale.
The adjustments and the manner of application of the foregoing provisions
shall be determined solely by the Committee. All adjustments shall be applied
in like manner to all outstanding Options. Any adjustment may provide for the
elimination of fractional share interests.
SECTION 6. OPTIONS
6.1. OPTION GRANT AND AGREEMENT. Each Option granted hereunder shall be
evidenced by minutes of a meeting or the written consent of the Committee and by
a written Option Agreement dated as of the date of grant and executed by the
Company and the Optionee. Each Option shall be awarded and exercised in tandem
with an option to purchase Debentures in accordance with Section 6.3. The right
to exercise Options shall vest as determined by the Committee with respect to
each Option granted.
6.2. INCENTIVE OPTION. The Committee in its sole discretion may designate
whether an Option awarded to an employee of the Company or a subsidiary is to be
considered an Incentive Option. The Committee may grant both an Incentive
Option and a Non-Qualified Option to the same Optionee. However, where both
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an Incentive Option and a Non-Qualified Option are awarded at one time, such
Options shall be deemed to have been awarded in separate grants, shall be
clearly identified, and in no event will the exercise of one such Option affect
the right to exercise the other such Option.
Should the Committee designate an Option granted hereunder as an Incentive
Option, such Option shall be subject to the general provisions applicable to all
Options granted under the Plan; in addition, an Incentive Option shall in all
events be subject to the following provisions, which provisions shall be stated
within the applicable Option Agreement:
(a) The Committee may grant an Incentive Option to an employee who
owns, directly or indirectly by attribution, securities in the Company
possessing more than 10% of the total combined voting power of all classes
of the Company's securities only if the Option Price (as defined in Section
6.4) of a Share is at least 110% of the Fair Market Value of the Share and
such Option by its terms is not exercisable after the expiration of five
years from the date the Option is granted.
(b) The Committee shall not grant Incentive Options which are
exercisable in a manner so that the aggregate Fair Market Value (determined
at the time the Incentive Options are granted) of the Shares with respect
to which Incentive Options are exercisable for the first time by such
individual during any calendar year (under all incentive stock option plans
of the Company established pursuant to Section 422 of the Code) exceeds
$100,000.
(c) No Incentive Options shall be granted more than 10 years after the
Effective Date.
If any Option is not granted, exercised and held pursuant to the provisions
of this Section 6.2, including any acceleration of the vesting provisions of the
Option or surrender of the Option to the Company for cash pursuant to the
provisions of either Section 6.8 or Section 6.12, it will be considered a Non-
Qualified Option to the extent that it does not comply with the provisions
hereof.
6.3. DEBENTURES. Each Option or replacement option (as described in
Section 6.6) to purchase one Share shall be awarded in tandem with an option to
purchase $5,250 principal amount of Debentures at a price which bears the same
ratio to the Option Price (described in Section 6.4) of a Share on the date of
the award as $5,250 bears to $1,000. Options to purchase Debentures may only be
exercised when the Option to purchase the related Share is exercised.
Debentures issued pursuant to the exercise
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of the related Option shall be issued in denominations which are integral
multiples of $50.
6.4. OPTION PRICE. Subject to Sections 5 and 6.6, the Option Price of a
Share shall be determined by the Committee; provided, however, the Option Price
of each Share under an Incentive Option may not be less than the Fair Market
Value of a Share at the date of grant, and further provided that the Option
Price of Shares which are granted under a Non-Qualified Option shall not be less
than 70% of Fair Market Value at the date of grant.
6.5. EXPIRATION DATE. The "Expiration Date" of each Option granted under
the Plan shall be determined by the Committee; provided, however, the Expiration
Date of an Incentive Option shall be no later than the tenth anniversary date of
the award, and provided further no Option shall have an Expiration Date later
than December 31, 2002. Options shall not be exercisable after their Expiration
Date and shall be subject to earlier termination as hereinafter provided.
6.6. REPLACEMENT OPTIONS. The Committee may provide either at the time of
grant or subsequently that an Option includes the right to acquire a replacement
option. To receive a replacement option, the Option must be exercised prior to
termination of employment. A replacement option will entitle the holder thereof
to an Option for the number of Shares or principal amount of Debentures
otherwise issuable upon exercise of an Option that are withheld to satisfy
minimum tax obligations with respect to such exercise; provided, however, the
Committee, in its sole discretion, may determine that a replacement option with
respect to withheld Debentures shall be issued solely in an equivalent amount of
Shares. In addition to any other terms and conditions the Committee deems
appropriate, the replacement option shall be subject to the following terms:
(a) the replacement option shall be granted on the date the original
Option is exercised;
(b) the Option Price for Shares under a replacement option shall be
the Fair Market Value of a Share on the date of such exercise and the
Option Price for Debentures shall be an amount equal to the Fair Market
Value of the Shares on the date of exercise into which the Debentures are
convertible without regard to whether such Debentures are then convertible;
(c) the replacement option shall be exercisable no earlier than six
months after its grant date;
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(d) the Expiration Date of the replacement option will be the same as
the Expiration Date of the original Option; and
(e) the replacement option shall be a Non-Qualified Option and shall
otherwise meet all conditions of this Section 6.
6.7. EXERCISE OF OPTION. Options shall be exercised by written notice of
intent to exercise the Option with respect to a specified number of Units by the
Optionee to the Company at its principal office in Santa Fe, New Mexico, and by
tendering in cash or by certified, bank cashier's or teller's check or Shares or
Debentures of the Company which have been held by the Optionee at least six
months valued at Fair Market Value as of the date of tender, or in any
combination of cash and Shares and Debentures, payment in full to the Company at
said office of the amount of the Option Price for the number of Units with
respect to which the Option is then being exercised, together with the full
amount of all federal and state withholding or other employment taxes applicable
to the taxable income of such Optionee resulting from such exercise. The
Optionee may pay all or a portion of the federal, state or local withholding
taxes arising in connection with an Option exercise by electing to have the
Company withhold Units, Shares or Debentures, or by delivering previously-owned
Shares and Debentures, in each case using Units, Shares or Debentures having a
Fair Market Value on the date of exercise equal to or greater than the amount to
be withheld; provided, however, an Optionee may only tender Shares or Debentures
that have been held less than six months or have Shares or Debentures withheld
to the extent that the Fair Market Value of such Shares or Debentures does not
exceed the minimum required withholding amount with respect to the Option
exercise; provided further that this method of paying withholding taxes with
Units, Shares or Debentures that have been held for less than six months will
not be available after the Shares are publicly traded on a national securities
exchange and a registration statement with respect to the Options and Shares
underlying the Options is effective under the Securities Act of 1933, as
amended. In the event all or part of the withholding is paid by withholding
Units, Shares or Debentures, any excess of the value of the withheld Units,
Shares or Debentures over the amount of the withholding will be returned to the
Optionee in whole or fractional Shares or Debentures, as applicable.
6.8. CHANGE IN CONTROL. In the event that (i) an Optionee's employment is
terminated by the Company or the successor to the Company or an affiliated
entity which is his or her employer for reasons other than Cause following a
Change in Control of the Company (as defined below), or (ii) the Plan is
terminated by the Company or its successor following a Change in
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Control without provision for the continuation of outstanding Options hereunder,
all Options which have not otherwise expired shall become immediately
exercisable and all restrictions on stock awards shall lapse. For purposes of
the Plan, a "Change in Control" means the happening of any of the following:
(a) the stockholders of the Company approve a definitive agreement to
merge the Company into or consolidate the Company with another entity, sell
or otherwise dispose of all or substantially all of its assets; provided,
however, that a Change in Control shall not be deemed to have occurred by
reason of a transaction, or a substantially concurrent or otherwise related
series of transactions, upon the completion of which 50% or more of the
beneficial ownership of the voting power of the Company, the surviving
corporation or corporation directly or indirectly controlling the Company
or the surviving corporation, as the case may be, is held by the same
persons (as defined below) (although not necessarily in the same
proportion) as held the beneficial ownership of the voting power of the
Company immediately prior to the transaction or the substantially
concurrent or otherwise related series of transactions, except that upon
the completion thereof, employees or employee benefit plans of the Company
may be a new holder of such beneficial ownership; provided, further, that a
transaction with an "Affiliate" of the Company (as defined in the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) shall not
be treated as a Change in Control; or
(b) the "beneficial ownership" (as defined in Rule 13d-3 under the
Exchange Act) of securities representing 50% or more of the combined voting
power of the Company is acquired, other than from the Company, by any
"person" as defined in Sections 13(d) and 14(d) of the Exchange Act (other
than by an Affiliate or any trustee or other fiduciary holding securities
under an employee benefit or other similar stock plan of the Company); or
(c) at any time during any period of two consecutive years,
individuals who at the beginning of such period were members of the Board
of Directors of the Company cease for any reason to constitute at least a
majority thereof (unless the election, or the nomination for election by
the Company's stockholders, of each new director was approved by a vote of
at least two-thirds of the directors still in office at the time of such
election or nomination who were directors at the beginning of such period).
For purposes of this Section, an Optionee's employment shall also be deemed to
be terminated by the Company or the successor to the
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Company or an affiliated entity if the Optionee terminates employment after (i)
a substantial adverse alteration in the nature of the Optionee's status or
responsibilities from those in effect immediately prior to the Change in
Control, or (ii) a material reduction in the Optionee's annual base salary and
target bonus, if any, as in effect immediately prior to the Change in Control.
6.9. RIGHTS IN EVENT OF TERMINATION OF EMPLOYMENT. In the event of the
Optionee's termination of employment with the Company and all affiliated
entities, the following rules shall apply:
(a) if the Optionee's employment terminates for any reason other than
death, Total and Permanent Disability, Retirement (as defined below) or
Cause (as defined below) or transfer to an affiliated entity, the Optionee
shall have the right, during the period ending three months after such
termination, to exercise outstanding Options to the extent such Options
were exercisable on the date of such termination;
(b) if the Optionee's employment with the Company and all affiliated
entities terminates on account of death, Total and Permanent Disability or
Retirement, the Optionee (or, in the event of his or her death, the person
who acquired the right to exercise the Option) shall have the right, during
the period ending one year after such termination, to exercise outstanding
Options to the extent such Options were exercisable on the date of such
termination and in the event of termination on account of death or Total
and Permanent Disability, all such Options shall become immediately
exercisable as of the date of such termination;
(c) if the Optionee's employment is terminated for Cause, the vested
and unvested portion of the Option shall terminate and the Option shall be
cancelled and shall not be exercisable on or after such termination date;
and
(d) in the event the Optionee is transferred to an affiliated entity,
the Option shall remain in full force and effect until the Optionee is no
longer employed by the Company or any affiliated entity, in which case
paragraphs (a) through (c) next above shall apply, as applicable.
Any portion of the Option which is not exercisable on the date that the
Optionee's employment terminates for any reason shall be forfeited. "Cause"
shall mean, in the reasonable judgment of the Committee (i) the willful and
continued failure by the Optionee to substantially perform his or her duties
with the Company or
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any affiliated entity after written notification by the Company or such
affiliated entity, (ii) the willful engaging by the Optionee in conduct which is
demonstrably injurious to the Company or any affiliated entity, monetarily or
otherwise, or (iii) the engaging by the Optionee in egregious misconduct
involving serious moral turpitude. For purposes hereof, no act, or failure to
act, on the Optionee's part shall be deemed "willful" unless done, or omitted to
be done, by the Optionee not in good faith and without reasonable belief that
such action was in the best interest of the Company. "Retirement" shall mean
the occurrence of a termination of employment of the Optionee, other than for
Cause, death or Total and Permanent Disability, after providing at least five
years of service to the Company or affiliated entities if the Optionee has
attained at least age 60.
6.10. RIGHTS IN EVENT OF DISSOLUTION OR LIQUIDATION OF COMPANY. Options
shall terminate upon dissolution or liquidation of the Company, provided that
for a period of 60 days prior to such dissolution or liquidation, the Optionee
shall have the right to exercise outstanding Options in full even though such
Option would not otherwise be exercisable. Upon such dissolution or
liquidation, the unexercised portion of any Options shall terminate and be of no
further effect.
SECTION 7. SHARE CERTIFICATES AND DEBENTURES
7.1. ISSUANCE. The Company shall not be required to issue or deliver any
Debentures or any certificate for Shares purchased upon the exercise of any
Option granted hereunder, or any portion thereof, prior to fulfillment of all of
the following conditions:
(a) The completion of any registration or other qualification of such
Shares or Debentures under any federal or state securities laws or under
the rulings or regulations of the Securities and Exchange Commission or any
other governmental regulatory body, which the Committee shall in its sole
discretion deem necessary or advisable;
(b) The obtaining of any approval or other clearance from any federal
or state governmental agency which the Committee shall, in its sole
discretion, determine to be necessary or advisable; and
(c) The lapse of such reasonable period of time following the exercise
of the Option as the Committee from time to time may establish for reasons
of administrative convenience.
7.2. COMPLIANCE WITH SECURITIES AND OTHER LAWS. In no event shall the
Company be required to sell or issue Shares or Debentures pursuant to Options
granted under this Plan if the
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issuance thereof would constitute a violation by either the Optionee or the
Company of any provision of any law or regulation of any governmental authority
or any national securities exchange. As a condition of any sale or issuance of
Shares and Debentures pursuant to Options granted hereunder, the Company may
place legends on the Shares or Debentures, issue stop-transfer orders and
require such agreements or undertakings from the Optionee as the Company may
deem necessary or advisable to assure compliance with any such law or
regulation, including, if the Company or its counsel deems it appropriate,
representations from the Optionee that he or she is acquiring the Shares or
Debentures solely for investment and not with a view to distribution and that no
distribution of the Shares or Debentures acquired by him or her will be made
unless registered pursuant to applicable federal and state securities laws or
unless, in the opinion of counsel to the Company, such registration is
unnecessary.
7.3. RIGHTS AS SHAREHOLDER. An Optionee or transferee of an Option shall
have no rights as a shareholder with respect to any Shares subject to such
Option prior to the purchase of such Shares by exercise of such Option as
provided herein.
7.4. REPURCHASE OF SHARES. The Committee may, by agreement providing for
right of first refusal, limit a holder's rights to sell or otherwise dispose of
Shares or Debentures acquired pursuant to the Plan.
SECTION 8. TERMINATION, AMENDMENT
AND MODIFICATION OF PLAN
8.1. BOARD TERMINATION, AMENDMENT AND MODIFICATION OF PLAN. The Board may
at any time, terminate, and may at any time and from time to time and in any
respect, amend or modify, the Plan, including the form of Option Agreement;
provided, however, that no such action of the Board, without approval of the
shareholders of the Company, may:
(a) Increase the total number of Shares and Debentures subject to the
Plan except as contemplated in Section 5.2 hereof;
(b) Restrict, expand or otherwise change the class or classes of
employees eligible to participate in the Plan;
(c) Change the Option Price other than pursuant to Section 5.2 or to
change the manner of determining the Fair Market Value of the Shares to
conform with any then applicable provisions of the Code or regulations or
rulings thereunder; or
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(d) Withdraw the administration of the Plan from the Committee.
8.2. PLAN TERMINATION. Unless terminated earlier as provided in Section
8.1, the Plan shall terminate on December 31, 2002, and no Option shall be
granted under this Plan after that date.
8.3. EFFECT OF TERMINATION, AMENDMENT OR MODIFICATION OF PLAN.
Notwithstanding Sections 8.1 and 8.2, no termination, amendment or modification
of the Plan shall in any manner adversely affect any Option theretofore granted
under the Plan without the consent of the Optionee or a person who shall have
acquired the right to exercise the Option by will or the laws of descent and
distribution.
SECTION 9. MISCELLANEOUS
9.1. NO EMPLOYMENT RIGHTS. Nothing in the Plan or in any Option granted
hereunder or in any Option Agreement relating thereto shall confer upon any
employee the right to continue in the employ of the Company or affiliated
entities.
9.2. OTHER COMPENSATION PLANS. The adoption of the Plan shall not affect
any other securities option or incentive or other compensation plans in effect
for the Company or an affiliated entity, nor shall the Plan preclude the Company
or any affiliated entity from establishing any other forms of incentive or other
compensation for employees of the Company or such affiliated entity.
9.3. BINDING EFFECT. The Plan shall be binding upon the successors and
assigns of the Company.
9.4. SINGULAR, PLURAL; GENDER. Whenever used herein, except where the
context clearly indicates to the contrary, nouns in the singular shall include
the plural, and the masculine pronoun shall include the feminine gender.
9.5. HEADINGS. Headings of the Sections hereof are inserted for
convenience of reference and constitute no part of the Plan.
9.6. NONTRANSFERABILITY OF OPTION. No Option shall be transferred by an
Optionee otherwise than by will or by the laws of descent and distribution.
During the lifetime of an Optionee the Option shall be exercisable only by him
or her. The Committee may require such evidence of a transfer by will or the
laws of descent and distribution as it deems necessary.
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9.7. NO REDUCTION OF SALARY OR COMPENSATION TO PARTICIPATE. No employee
shall be required to forego an increase in salary, or to defer any amount of
compensation as a condition of participation in the Plan.
9.8. WITHHOLDING. The Company shall have the right to deduct from any
cash payment made pursuant to Section 6.7 of the Plan an amount equal to the
federal, state and local income taxes required to be withheld with respect to
such payment. If the cash portion of any such payment is less than the amount
of taxes required to be withheld, the Company may require the Optionee or other
person receiving such payment, as a condition of and prior to such payment, to
pay to it the balance of any such taxes required to be so withheld.
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EXHIBIT 10.32
SECURITY CAPITAL GROUP INCORPORATED
1992 OPTION PLAN A
(As amended and restated effective as of December 3, 1996)
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED 1992 OPTION PLAN A
(As amended and restated effective as of December 3, 1996)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
SECTION 1. DEFINITIONS................................................. 1
SECTION 2. THE PLAN.................................................... 2
2.1. Purpose............................................ 2
2.1. Effective Date..................................... 2
SECTION 3. ADMINISTRATION.............................................. 3
3.1. Duties and Powers of Committee..................... 3
3.2. Majority Rule...................................... 3
SECTION 4. PARTICIPATION............................................... 3
SECTION 5. SHARES SUBJECT TO PLAN...................................... 3
5.1. Shares............................................. 3
5.2. Adjustments........................................ 4
SECTION 6. OPTIONS..................................................... 4
6.1. Option Grant and Agreement......................... 4
6.2. Incentive Option................................... 5
6.3. Debentures......................................... 6
6.4. Option Price....................................... 6
6.5. Expiration Date.................................... 6
6.6. Replacement Options................................ 6
6.7. Exercise of Option................................. 7
6.8. Change in Control.................................. 8
6.9. Rights in Event of Termination
of Employment..................................... 9
6.10. Rights in Event of Dissolution or
Liquidation of Company............................ 10
SECTION 7. SHARE CERTIFICATES AND DEBENTURES........................... 10
7.1. Issuance........................................... 10
7.2. Compliance With Securities and
Other Laws........................................ 11
7.3. Rights as Shareholder.............................. 11
7.4. Repurchase of Shares............................... 11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
SECTION 8. TERMINATION, AMENDMENT AND MODIFICATION
OF PLAN..................................................... 12
8.1. Board Termination, Amendment and
Modification of Plan................................... 12
8.2. Plan Termination.......................................... 12
8.3. Effect of Termination, Amendment or
Modification of Plan................................... 12
SECTION 9. MISCELLANEOUS.................................................... 12
9.1. No Employment Rights...................................... 12
9.2. Other Compensation Plans.................................. 12
9.3. Binding Effect............................................ 13
9.4. Singular, Plural; Gender.................................. 13
9.5. Headings.................................................. 13
9.6. Nontransferability of Option.............................. 13
9.7. No Reduction of Salary or Compensation
to Participate......................................... 13
9.8. Withholding............................................... 13
</TABLE>
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED 1992 OPTION PLAN A
(As amended and restated effective as of December 3, 1996)
SECTION 1. DEFINITIONS
As used herein, the following terms have the meanings hereinafter set forth
unless the context clearly indicates to the contrary:
(a) "Board" means the Board of Directors of the Company.
(b) "Company" means Security Capital Group Incorporated, a Maryland
corporation.
(c) "Debentures" means the Company's 12% Convertible Subordinated
Debentures due 2014.
(d) "Fair Market Value" with respect to any Share means (i) if the
Share is not publicly traded, the fair value as determined by the Committee
(as defined in Section 3), and (ii) if the Share is publicly traded, the
closing price of the Share on the day in question. The closing price shall
be the last reported sale price regular way or, in case no such reported
sale takes place on such day, the average of the reported closing bid and
asked prices regular way, in either case on the New York Stock Exchange or,
if the Share is not listed or admitted to trading on such Exchange, on the
principal national securities exchange on which such Shares are listed or
admitted to trading or, if not listed or admitted to trading on any
national securities exchange, the average of the highest closing bid and
asked prices as reported by the National Association of Securities Dealers
Automated Quotation System. "Fair Market Value" with respect to Debentures
as of any date means an amount equal to the Fair Market Value of the Shares
into which the Debentures are convertible without regard to whether such
Debentures are then convertible.
(e) "Incentive Option" means an Option for Shares which qualifies for
treatment as an incentive stock option pursuant to Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
(f) "Non-Qualified Option" means any Option granted hereunder which is
not an Incentive Option.
(g) "Option" means an option to purchase Shares and Debentures granted
pursuant to the provisions of Section 6 hereof. Except to the extent
specifically designated as
<PAGE>
Incentive Options, Options awarded hereunder are intended to be Non-
Qualified Options.
(h) "Option Agreement" means the agreement described in Section 6.1
between the Company and the Optionee under which the Optionee may purchase
Shares and Debentures hereunder.
(i) "Optionee" means an employee or director to whom an Option has
been granted hereunder.
(j) "Plan" means the Security Capital Group Incorporated 1992 Option
Plan A, the terms of which are set forth herein.
(k) "Share" or "Shares" means the Company's present Shares of Common
Stock, or, in the event that the outstanding Shares are hereafter changed
into or exchanged for different shares or securities of the Company or some
other corporation or other entity, such other shares or securities.
(l) "Total and Permanent Disability" means the inability of an
employee to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected
to result in death or which has lasted or can be expected to last for a
continuous period of not less than twelve months.
(m) "Unit" means one Share and the Debentures awarded in tandem with
such Share pursuant to Section 6.3.
SECTION 2. THE PLAN
2.1. PURPOSE. The Plan was established as part of the merger of SC Equity
Limited, a Delaware limited partnership, with and into the Company. The purpose
of the Plan is to advance the interests of the Company and its shareholders by
affording to directors and key employees of the Company, its subsidiaries and
affiliates an opportunity to acquire or increase their proprietary interest in
the Company by the grant to such individuals of Options under the terms set
forth herein. By thus encouraging such individuals to become owners of Shares
and Debentures, the Company seeks to motivate, retain, and attract those highly
competent individuals upon whose judgment, initiative, leadership and continued
efforts the success of the Company in large measure depends.
2.2. EFFECTIVE DATE. This Plan is effective as of January 1, 1993. This
amendment and restatement of the Plan is effective as of December 3, 1996.
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SECTION 3. ADMINISTRATION
3.1. DUTIES AND POWERS OF COMMITTEE. The Plan shall be administered by a
Committee consisting of two or more non-employee members of the Board (the
"Committee"). Subject to the express provisions of the Plan, the Committee
shall have sole discretion and authority (a) to determine the employees (who may
also be directors) to whom and the time or times at which Options may be
granted, (b) to determine whether an Option granted pursuant to the Plan shall
be an Incentive Option, (c) to determine the persons who shall receive Options
and the number of Shares to be subject to each Option, (d) to determine the
details and provisions of each Option Agreement, subject, however, to the
provisions of Section 6 hereof, (e) to prescribe, amend and rescind rules and
regulations relating to the Plan, and (f) to make all other determinations
necessary or advisable in the administration of the Plan; provided, however, the
Committee shall have no power, authority or discretion to determine the number
or timing of Options granted pursuant to paragraph 4(b) or to alter the terms
and conditions of Options set forth therein.
3.2. MAJORITY RULE. A majority of the members of the Committee shall
constitute a quorum, and any action taken by a majority present at a meeting at
which a quorum is present or any action taken without a meeting evidenced by a
writing executed by all members of the Committee shall constitute the action of
the Committee.
SECTION 4. PARTICIPATION
(a) Subject to the terms and conditions of the Plan, the Committee
shall designate the key employees of the Company (who may also be directors
of the Company) or its subsidiaries or affiliates to whom Options are to be
granted.
(b) As of the Effective Date, an Option to purchase 118.6 Shares (and
Debentures granted in tandem with such Shares pursuant to Section 6.3)
shall be awarded to each individual who is a non-employee member of the
Board on such date.
SECTION 5. SHARES SUBJECT TO PLAN
5.1. SHARES. Subject to adjustment pursuant to the provisions of Section
5.2 hereof, the total number of Shares, and the total principal amount of
Debentures, which may be issued and sold upon exercise of all Options exercised
under this Plan (excluding Shares subsequently issued upon conversion of
Debentures) shall not exceed 4,746 Shares and $9,492,000
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principal amount of Debentures, respectively. Shares issued upon exercise of
Options may be either authorized and unissued Shares or Shares issued and
thereafter reacquired by the Company. The number of Shares relating to an
Option which expires or terminates for any reason without the issuance of Shares
or Debentures (including Shares or Debentures that are not issued because they
are withheld to satisfy minimum income tax withholding) shall again be available
for Options under the Plan.
5.2. ADJUSTMENTS. In the event of any change in the outstanding Shares or
Debentures by reason of any stock dividend, split, merger, consolidation,
recapitalization, combination, exchange of shares or other similar corporate
change:
(a) The aggregate number and kind of Shares and Debentures subject to
Options which may be granted hereunder shall be adjusted appropriately;
(b) Rights under outstanding Options granted hereunder both as to the
number of Shares and Debentures and the Option Price shall be adjusted
appropriately; and
(c) Subject to any required action by shareholders, if there shall be
any reorganization, consolidation or merger of the Company with any other
entity or entities, or sale by the Company of all or substantially all of
its assets in exchange for securities of another entity or entities, then
the Optionee shall be entitled, subject to the conditions set forth in the
Plan and the Option Agreement, to purchase such number of Shares and
Debentures or amount of other securities of the Company or such other
entity or entities as were exchangeable for the number of Shares and
Debentures which the Optionee would have been entitled to purchase except
for such action, and appropriate adjustments shall be made in the Option
Price to reflect such reorganization, consolidation, merger or sale.
The adjustments and the manner of application of the foregoing provisions
shall be determined solely by the Committee. All adjustments shall be applied
in like manner to all outstanding Options. Any adjustment may provide for the
elimination of fractional share interests.
SECTION 6. OPTIONS
6.1. OPTION GRANT AND AGREEMENT. Each Option granted hereunder shall be
evidenced by minutes of a meeting or the written consent of the Committee and by
a written Option Agreement dated as of the date of grant and executed by the
Company and the Optionee. Each Option shall be awarded and exercised in tandem
with an option to purchase Debentures in
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accordance with Section 6.3. The right to exercise Options shall vest as
determined by the Committee with respect to each Option granted; provided,
however, Options granted under paragraph 4(b) shall be exercisable, in whole or
in part, with respect to 50% of the Shares granted at any time on or after the
grant date and with respect to the remaining Shares covered by the Option at any
time on or after the fifth anniversary of the date of grant.
6.2. INCENTIVE OPTION. The Committee in its sole discretion may designate
whether an Option awarded to an employee of the Company or a subsidiary is to be
considered an Incentive Option. The Committee may grant both an Incentive
Option and a Non-Qualified Option to the same Optionee. However, where both an
Incentive Option and a Non-Qualified Option are awarded at one time, such
Options shall be deemed to have been awarded in separate grants, shall be
clearly identified, and in no event will the exercise of one such Option affect
the right to exercise the other such Option.
Should the Committee designate an Option granted hereunder as an Incentive
Option, such Option shall be subject to the general provisions applicable to all
Options granted under the Plan; in addition, an Incentive Option shall in all
events be subject to the following provisions, which provisions shall be stated
within the applicable Option Agreement:
(a) The Committee may grant an Incentive Option to an employee who
owns, directly or indirectly by attribution, securities in the Company
possessing more than 10% of the total combined voting power of all classes
of the Company's securities only if the Option Price (as defined in Section
6.4) of a Share is at least 110% of the Fair Market Value of the Share and
such Option by its terms is not exercisable after the expiration of five
years from the date the Option is granted.
(b) The Committee shall not grant Incentive Options which are
exercisable in a manner so that the aggregate Fair Market Value (determined
at the time the Incentive Options are granted) of the Shares with respect
to which Incentive Options are exercisable for the first time by such
individual during any calendar year (under all incentive stock option plans
of the Company established pursuant to Section 422 of the Code) exceeds
$100,000.
(c) No Incentive Options shall be granted more than 10 years after the
Effective Date.
If any Option is not granted, exercised and held pursuant to the provisions
of this Section 6.2, including any acceleration of the vesting provisions of the
Option or surrender of the Option
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to the Company for cash pursuant to the provisions of either Section 6.8 or
Section 6.12, it will be considered a Non-Qualified Option to the extent that it
does not comply with the provisions hereof.
6.3. DEBENTURES. Each Option or replacement option (as described in
Section 6.6) to purchase one Share shall be awarded in tandem with an option to
purchase $2,000 principal amount of Debentures at a price which bears the same
ratio to the Option Price (described in Section 6.4) of a Share on the date of
the award as $2,000 bears to $1,000. Options to purchase Debentures may only be
exercised when the Option to purchase the related Share is exercised.
Debentures issued pursuant to the exercise of the related Option shall be issued
in denominations which are integral multiples of $50.
6.4. OPTION PRICE. Subject to Sections 5 and 6.6:
(a) the Option Price of a Share granted under paragraph 4(a) shall be
determined by the Committee; provided, however, the Option Price of each
Share under an Incentive Option may not be less than the Fair Market Value
of a Share at the date of grant, and further provided that the Option Price
of Shares which are granted under a Non-Qualified Option shall not be less
than 70% of Fair Market Value at the date of grant; and
(b) the Option Price of a Share granted under paragraph 4(b) shall be
the Fair Market Value of a Share at the date of grant.
6.5. EXPIRATION DATE. The "Expiration Date" of each Option granted under
the Plan shall be determined by the Committee; provided, however, the Expiration
Date of an Incentive Option shall be no later than the tenth anniversary date of
the award, and provided further no Option shall have an Expiration Date later
than December 31, 2002. Options shall not be exercisable after their Expiration
Date and shall be subject to earlier termination as hereinafter provided.
6.6. REPLACEMENT OPTIONS. The Committee may provide either at the time of
grant or subsequently that an Option includes the right to acquire a replacement
option, provided that Options granted under paragraph 4(b) shall not include the
right to acquire a replacement option. To receive a replacement option with
respect to an Option granted under paragraph 4(a), the Option must be exercised
prior to termination of employment. A replacement option will entitle the
holder thereof to an Option for the number of Shares or principal amount of
Debentures otherwise issuable upon exercise of an Option that are withheld to
satisfy minimum tax obligations with respect to such exercise;
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provided, however, the Committee, in its sole discretion, may determine that a
replacement option under paragraph 4(a) with respect to withheld Debentures
shall be issued solely in an equivalent amount of Shares. In addition to any
other terms and conditions the Committee deems appropriate, the replacement
option shall be subject to the following terms:
(a) the replacement option shall be granted on the date the original
Option is exercised;
(b) the Option Price for Shares under a replacement option shall be
the Fair Market Value of a Share on the date of such exercise and the
Option Price for Debentures shall be an amount equal to the Fair Market
Value of the Shares on the date of exercise into which the Debentures are
convertible without regard to whether such Debentures are then convertible;
(c) the replacement option shall be exercisable no earlier than six
months after its grant date;
(d) the Expiration Date of the replacement option will be the same as
the Expiration Date of the original Option; and
(e) the replacement option shall be a Non-Qualified Option and shall
otherwise meet all conditions of this Section 6.
6.7. EXERCISE OF OPTION. Options shall be exercised by written notice of
intent to exercise the Option with respect to a specified number of Units by the
Optionee to the Company at its principal office in Santa Fe, New Mexico, and by
tendering in cash or by certified, bank cashier's or teller's check or Shares or
Debentures of the Company which have been held by the Optionee at least six
months valued at Fair Market Value as of the date of tender, or in any
combination of cash and Shares and Debentures, payment in full to the Company at
said office of the amount of the Option Price for the number of Units with
respect to which the Option is then being exercised, together with the full
amount of all federal and state withholding or other employment taxes applicable
to the taxable income of such Optionee resulting from such exercise. The
Optionee may pay all or a portion of the federal, state or local withholding
taxes arising in connection with an Option exercise by electing to have the
Company withhold Units, Shares or Debentures or by delivering previously-owned
Shares and Debentures, in each case using Units, Shares or Debentures having a
Fair Market Value on the date of exercise equal to or greater than the amount to
be withheld; provided, however, an Optionee may only tender Shares or Debentures
that have been held less than six months or have Shares or Debentures
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withheld to the extent that the Fair Market Value of such Shares or Debentures
does not exceed the minimum required withholding amount with respect to the
Option exercise; provided further that this method of paying withholding taxes
with Units, Shares or Debentures that have been held for less than six months
will not be available after the Shares are publicly traded on a national
securities exchange and a registration statement with respect to the Options and
Shares underlying the Options is effective under the Securities Act of 1933, as
amended. In the event all or part of the withholding is paid by withholding
Units, Shares or Debentures any excess of the value of the withheld Units,
Shares or Debentures over the amount of the withholding will be returned to the
Optionee in whole or fractional Shares or Debentures, as applicable.
6.8. CHANGE IN CONTROL. In the event that (i) an Optionee's employment is
terminated by the Company or the successor to the Company or an affiliated
entity which is his or her employer for reasons other than Cause following a
Change in Control of the Company (as defined below), or (ii) the Plan is
terminated by the Company or its successor following a Change in Control without
provision for the continuation of outstanding Options hereunder, all Options
which have not otherwise expired shall become immediately exercisable and all
restrictions on stock awards shall lapse. For purposes of the Plan, a "Change
in Control" means the happening of any of the following:
(a) the stockholders of the Company approve a definitive agreement to
merge the Company into or consolidate the Company with another entity, sell
or otherwise dispose of all or substantially all of its assets; provided,
however, that a Change in Control shall not be deemed to have occurred by
reason of a transaction, or a substantially concurrent or otherwise related
series of transactions, upon the completion of which 50% or more of the
beneficial ownership of the voting power of the Company, the surviving
corporation or corporation directly or indirectly controlling the Company
or the surviving corporation, as the case may be, is held by the same
persons (as defined below) (although not necessarily in the same
proportion) as held the beneficial ownership of the voting power of the
Company immediately prior to the transaction or the substantially
concurrent or otherwise related series of transactions, except that upon
the completion thereof, employees or employee benefit plans of the Company
may be a new holder of such beneficial ownership; provided, further, that a
transaction with an "Affiliate" of the Company (as defined in the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) shall not
be treated as a Change in Control; or
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(b) the "beneficial ownership" (as defined in Rule 13d-3 under the
Exchange Act) of securities representing 50% or more of the combined voting
power of the Company is acquired, other than from the Company, by any
"person" as defined in Sections 13(d) and 14(d) of the Exchange Act (other
than by an Affiliate or any trustee or other fiduciary holding securities
under an employee benefit or other similar stock plan of the Company); or
(c) at any time during any period of two consecutive years,
individuals who at the beginning of such period were members of the Board
of Directors of the Company cease for any reason to constitute at least a
majority thereof (unless the election, or the nomination for election by
the Company's stockholders, of each new director was approved by a vote of
at least two-thirds of the directors still in office at the time of such
election or nomination who were directors at the beginning of such period).
For purposes of this Section, an Optionee's employment shall also be deemed to
be terminated by the Company or the successor to the Company or an affiliated
entity if the Optionee terminates employment after (i) a substantial adverse
alteration in the nature of the Optionee's status or responsibilities from those
in effect immediately prior to the Change in Control, or (ii) a material
reduction in the Optionee's annual base salary and target bonus, if any, as in
effect immediately prior to the Change in Control.
6.9. RIGHTS IN EVENT OF TERMINATION OF EMPLOYMENT. In the event of the
Optionee's termination of employment with the Company and all affiliated
entities, the following rules shall apply:
(a) if the Optionee's employment terminates for any reason other than
death, Total and Permanent Disability, Retirement (as defined below) or
Cause (as defined below) or transfer to an affiliated entity, the Optionee
shall have the right, during the period ending three months after such
termination, to exercise outstanding Options to the extent such Options
were exercisable on the date of such termination;
(b) if the Optionee's employment with the Company and all affiliated
entities terminates on account of death, Total and Permanent Disability or
Retirement, the Optionee (or, in the event of his or her death, the person
who acquired the right to exercise the Option) shall have the right, during
the period ending one year after such termination, to exercise outstanding
Options to the extent such Options were exercisable on the date of such
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termination and in the event of termination on account of death or Total
and Permanent Disability, all such Options shall become immediately
exercisable as of the date of such termination;
(c) if the Optionee's employment is terminated for Cause, the vested
and unvested portion of the Option shall terminate and the Option shall be
cancelled and shall not be exercisable on or after such termination date;
and
(d) in the event the Optionee is transferred to an affiliated entity,
the Option shall remain in full force and effect until the Optionee is no
longer employed by the Company or any affiliated entity, in which case
paragraphs (a) through (c) next above shall apply, as applicable.
Any portion of the Option which is not exercisable on the date that the
Optionee's employment terminates for any reason shall be forfeited. "Cause"
shall mean, in the reasonable judgment of the Committee (i) the willful and
continued failure by the Optionee to substantially perform his or her duties
with the Company or any affiliated entity after written notification by the
Company or such affiliated entity, (ii) the willful engaging by the Optionee in
conduct which is demonstrably injurious to the Company or any affiliated entity,
monetarily or otherwise, or (iii) the engaging by the Optionee in egregious
misconduct involving serious moral turpitude. For purposes hereof, no act, or
failure to act, on the Optionee's part shall be deemed "willful" unless done, or
omitted to be done, by the Optionee not in good faith and without reasonable
belief that such action was in the best interest of the Company. "Retirement"
shall mean the occurrence of a termination of employment of the Optionee, other
than for Cause, death or Total and Permanent Disability, after providing at
least five years of service to the Company or affiliated entities if the
Optionee has attained at least age 60.
6.10. RIGHTS IN EVENT OF DISSOLUTION OR LIQUIDATION OF COMPANY. Options
shall terminate upon dissolution or liquidation of the Company, provided that
for a period of 60 days prior to such dissolution or liquidation, the Optionee
shall have the right to exercise outstanding Options in full even though such
Option would not otherwise be exercisable. Upon such dissolution or
liquidation, the unexercised portion of any Options shall terminate and be of no
further effect.
SECTION 7. SHARE CERTIFICATES AND DEBENTURES
7.1. ISSUANCE. The Company shall not be required to issue or deliver any
Debentures or any certificate for Shares purchased upon the exercise of any
Option granted hereunder, or any portion thereof, prior to fulfillment of all of
the following conditions:
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(a) The completion of any registration or other qualification of such
Shares or Debentures under any federal or state securities laws or under
the rulings or regulations of the Securities and Exchange Commission or any
other governmental regulatory body, which the Committee shall in its sole
discretion deem necessary or advisable;
(b) The obtaining of any approval or other clearance from any federal
or state governmental agency which the Committee shall, in its sole
discretion, determine to be necessary or advisable; and
(c) The lapse of such reasonable period of time following the exercise
of the Option as the Committee from time to time may establish for reasons
of administrative convenience.
7.2. COMPLIANCE WITH SECURITIES AND OTHER LAWS. In no event shall the
Company be required to sell or issue Shares or Debentures pursuant to Options
granted under this Plan if the issuance thereof would constitute a violation by
either the Optionee or the Company of any provision of any law or regulation of
any governmental authority or any national securities exchange. As a condition
of any sale or issuance of Shares and Debentures pursuant to Options granted
hereunder, the Company may place legends on the Shares or Debentures, issue
stop-transfer orders and require such agreements or undertakings from the
Optionee as the Company may deem necessary or advisable to assure compliance
with any such law or regulation, including, if the Company or its counsel deems
it appropriate, representations from the Optionee that he or she is acquiring
the Shares or Debentures solely for investment and not with a view to
distribution and that no distribution of the Shares or Debentures acquired by
him or her will be made unless registered pursuant to applicable federal and
state securities laws or unless, in the opinion of counsel to the Company, such
registration is unnecessary.
7.3. RIGHTS AS SHAREHOLDER. An Optionee or transferee of an Option shall
have no rights as a shareholder with respect to any Shares subject to such
Option prior to the purchase of such Shares by exercise of such Option as
provided herein.
7.4. REPURCHASE OF SHARES. The Committee may, by agreement providing for
right of first refusal, limit a holder's rights to sell or otherwise dispose of
Shares or Debentures acquired pursuant to the Plan.
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SECTION 8. TERMINATION, AMENDMENT
AND MODIFICATION OF PLAN
8.1. BOARD TERMINATION, AMENDMENT AND MODIFICATION OF PLAN. The Board may
at any time, terminate, and may at any time and from time to time and in any
respect, amend or modify, the Plan, including the form of Option Agreement;
provided, however, that no such action of the Board, without approval of the
shareholders of the Company, may:
(a) Increase the total number of Shares and Debentures subject to the
Plan except as contemplated in Section 5.2 hereof;
(b) Restrict, expand or otherwise change the class or classes of
employees eligible to participate in the Plan;
(c) Change the Option Price other than pursuant to Section 5.2 or to
change the manner of determining the Fair Market Value of the Shares to
conform with any then applicable provisions of the Code or regulations or
rulings thereunder; or
(d) Withdraw the administration of the Plan from the Committee.
8.2. PLAN TERMINATION. Unless terminated earlier as provided in Section
8.1, the Plan shall terminate on December 31, 2002, and no Option shall be
granted under this Plan after that date.
8.3. EFFECT OF TERMINATION, AMENDMENT OR MODIFICATION OF PLAN.
Notwithstanding Sections 8.1 and 8.2, no termination, amendment or modification
of the Plan shall in any manner adversely affect any Option theretofore granted
under the Plan without the consent of the Optionee or a person who shall have
acquired the right to exercise the Option by will or the laws of descent and
distribution.
SECTION 9. MISCELLANEOUS
9.1. NO EMPLOYMENT RIGHTS. Nothing in the Plan or in any Option granted
hereunder or in any Option Agreement relating thereto shall confer upon any
employee the right to continue in the employ of the Company or affiliated
entities.
9.2. OTHER COMPENSATION PLANS. The adoption of the Plan shall not affect
any other securities option or incentive or other compensation plans in effect
for the Company or an affiliated entity, nor shall the Plan preclude the Company
or any affiliated entity from establishing any other forms of incentive
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or other compensation for employees of the Company or such affiliated entity.
9.3. BINDING EFFECT. The Plan shall be binding upon the successors and
assigns of the Company.
9.4. SINGULAR, PLURAL; GENDER. Whenever used herein, except where the
context clearly indicates to the contrary, nouns in the singular shall include
the plural, and the masculine pronoun shall include the feminine gender.
9.5. HEADINGS. Headings of the Sections hereof are inserted for
convenience of reference and constitute no part of the Plan.
9.6. NONTRANSFERABILITY OF OPTION. No Option shall be transferred by an
Optionee otherwise than by will or by the laws of descent and distribution.
During the lifetime of an Optionee the Option shall be exercisable only by him
or her. The Committee may require such evidence of a transfer by will or the
laws of descent and distribution as it deems necessary.
9.7. NO REDUCTION OF SALARY OR COMPENSATION TO PARTICIPATE. No employee
shall be required to forego an increase in salary, or to defer any amount of
compensation as a condition of participation in the Plan.
9.8. WITHHOLDING. The Company shall have the right to deduct from any
cash payment made pursuant to Section 6.7 of the Plan an amount equal to the
federal, state and local income taxes required to be withheld with respect to
such payment. If the cash portion of any such payment is less than the amount
of taxes required to be withheld, the Company may require the Optionee or other
person receiving such payment, as a condition of and prior to such payment, to
pay to it the balance of any such taxes required to be so withheld.
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EXHIBIT 10.33
SECURITY CAPITAL GROUP INCORPORATED
1992 OPTION PLAN B
(As amended and restated effective as of December 3, 1996)
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED 1992 OPTION PLAN B
(As amended and restated effective as of December 3, 1996)
Table of Contents
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
SECTION 1. DEFINITIONS............................................. 1
SECTION 2. THE PLAN................................................ 2
2.1. Purpose.......................................... 2
2.1. Effective Date................................... 3
SECTION 3. ADMINISTRATION.......................................... 3
3.1. Duties and Powers of Committee................... 3
3.2. Majority Rule.................................... 3
SECTION 4. PARTICIPATION........................................... 3
SECTION 5. SHARES SUBJECT TO PLAN.................................. 3
5.1. Shares........................................... 3
5.2. Adjustments..............,....................... 4
SECTION 6. OPTIONS................................................. 4
6.1. Option Grant and Agreement....................... 4
6.2. Incentive Option................................. 4
6.3. Debentures....................................... 5
6.4. Option Price..................................... 6
6.5. Expiration Date.................................. 6
6.6. Replacement Options.............................. 6
6.7. Exercise of Option............................... 7
6.8. Change in Control................................ 8
6.9. Rights in Event of Termination
of Employment................................ 9
6.10. Rights in Event of Dissolution or
Liquidation of Company....................... 9
SECTION 7. SHARE CERTIFICATES AND DEBENTURES...................... 9
7.1. Issuance........................................ 9
7.2. Compliance With Securities and
Other Laws................................... 10
7.3. Rights as Shareholder........................... 10
7.4. Repurchase of Shares............................ 10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
SECTION 8. TERMINATION, AMENDMENT AND MODIFICATION
OF PLAN............................................. 10
8.1. Board Termination, Amendment and
Modification of Plan......................... 10
8.2. Plan Termination................................ 11
8.3. Effect of Termination, Amendment or
Modification of Plan......................... 11
SECTION 9. MISCELLANEOUS.......................................... 11
9.1. No Employment Rights............................ 11
9.2. Other Compensation Plans........................ 11
9.3. Binding Effect.................................. 11
9.4. Singular, Plural; Gender........................ 11
9.5. Headings........................................ 12
9.6. Nontransferability of Option.................... 12
9.7. No Reduction of Salary or Compensation
to Participate................................. 12
9.8. Withholding..................................... 12
</TABLE>
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED 1992 OPTION PLAN B
(As amended and restated effective as of December 3, 1996)
SECTION 1. DEFINITIONS
As used herein, the following terms have the meanings hereinafter set forth
unless the context clearly indicates to the contrary:
(a) "Board" means the Board of Directors of the Company.
(b) "Company" means Security Capital Group Incorporated, a Maryland
corporation.
(c) "Debentures" means the Company's 12% Convertible Subordinated
Debentures due 2014.
(d) "Fair Market Value" with respect to any Share means (i) if the
Share is not publicly traded, the fair value as determined by the Committee
(as defined in Section 3), and (ii) if the Share is publicly traded, the
closing price of the Share on the day in question. The closing price shall
be the last reported sale price regular way or, in case no such reported
sale takes place on such day, the average of the reported closing bid and
asked prices regular way, in either case on the New York Stock Exchange or,
if the Share is not listed or admitted to trading on such Exchange, on the
principal national securities exchange on which such Shares are listed or
admitted to trading or, if not listed or admitted to trading on any
national securities exchange, the average of the highest closing bid and
asked prices as reported by the National Association of Securities Dealers
Automated Quotation System. "Fair Market Value" with respect to Debentures
as of any date means an amount equal to the Fair Market Value of the Shares
into which the Debentures are convertible without regard to whether such
Debentures are then convertible.
(e) "Incentive Option" means an Option for Shares which qualifies for
treatment as an incentive stock option pursuant to Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
(f) "Non-Qualified Option" means any Option granted hereunder which is
not an Incentive Option.
(g) "Option" means an option to purchase Shares and Debentures granted
pursuant to the provisions of Section 6 hereof. Except to the extent
specifically designated as
<PAGE>
Incentive Options, Options awarded hereunder are intended to be Non-
Qualified Options.
(h) "Option Agreement" means the agreement described in Section 6.1
between the Company and the Optionee under which the Optionee may purchase
Shares and Debentures hereunder.
(i) "Optionee" means an employee to whom an Option has been granted
hereunder.
(j) "Plan" means the Security Capital Group Incorporated 1992 Option
Plan B, the terms of which are set forth herein.
(k) "Share" or "Shares" means the Company's present Shares of Common
Stock, or, in the event that the outstanding Shares are hereafter changed
into or exchanged for different shares or securities of the Company or some
other corporation or other entity, such other shares or securities.
(l) "Total and Permanent Disability" means the inability of an
employee to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected
to result in death or which has lasted or can be expected to last for a
continuous period of not less than twelve months.
(m) "Unit" means one Share and the Debentures awarded in tandem with
such Share pursuant to Section 6.3.
SECTION 2. THE PLAN
2.1. Purpose. The Plan was established as part of the merger of SC Equity
Limited, a Delaware limited partnership, with and into the Company. The purpose
of the Plan is to advance the interests of the Company and its shareholders by
affording to key employees of the Company, its subsidiaries and affiliates an
opportunity to acquire or increase their proprietary interest in the Company by
the grant to such employees of Options under the terms set forth herein. By
thus encouraging such employees to become owners of Shares and Debentures, the
Company seeks to motivate, retain, and attract those highly competent
individuals upon whose judgment, initiative, leadership and continued efforts
the success of the Company in large measure depends.
2.2. Effective Date. This Plan is effective as of January 1, 1993. This
amendment and restatement of the Plan is effective as of December 3, 1996.
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SECTION 3. ADMINISTRATION
3.1. Duties and Powers of Committee. The Plan shall be administered by a
Committee consisting of two or more non-employee members of the Board (the
"Committee"). Subject to the express provisions of the Plan, the Committee
shall have sole discretion and authority (a) to determine the employees (who may
also be directors) to whom and the time or times at which Options may be
granted, (b) to determine whether an Option granted pursuant to the Plan shall
be an Incentive Option, (c) to determine the persons who shall receive Options
and the number of Shares to be subject to each Option, (d) to determine the
details and provisions of each Option Agreement, subject, however, to the
provisions of Section 6 hereof, (e) to prescribe, amend and rescind rules and
regulations relating to the Plan, and (f) to make all other determinations
necessary or advisable in the administration of the Plan.
3.2. Majority Rule. A majority of the members of the Committee shall
constitute a quorum, and any action taken by a majority present at a meeting at
which a quorum is present or any action taken without a meeting evidenced by a
writing executed by all members of the Committee shall constitute the action of
the Committee.
SECTION 4. PARTICIPATION
Subject to the terms and conditions of the Plan, the Committee shall
designate the key employees of the Company (who may also be directors of the
Company) or its subsidiaries or affiliates to whom Options are to be granted.
SECTION 5. SHARES SUBJECT TO PLAN
5.1. Shares. Subject to adjustment pursuant to the provisions of Section
5.2 hereof, the total number of Shares, and the total principal amount of
Debentures, which may be issued and sold upon exercise of all Options exercised
under this Plan (excluding Shares subsequently issued upon conversion of
Debentures) shall not exceed 3,333.3 Shares and $6,666,666 principal amount of
Debentures, respectively. Shares issued upon exercise of Options may be either
authorized and unissued Shares or Shares issued and thereafter reacquired by the
Company. The number of Shares relating to an Option which expires or terminates
for any reason without the issuance of Shares or Debentures (including Shares or
Debentures that are not issued because they are withheld to satisfy minimum
income tax withholding) shall again be available for Options under the Plan.
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5.2. Adjustments. In the event of any change in the outstanding Shares or
Debentures by reason of any stock dividend, split, merger, consolidation,
recapitalization, combination, exchange of shares or other similar corporate
change:
(a) The aggregate number and kind of Shares and Debentures subject to
Options which may be granted hereunder shall be adjusted appropriately;
(b) Rights under outstanding Options granted hereunder both as to the
number of Shares and Debentures and the Option Price shall be adjusted
appropriately; and
(c) Subject to any required action by shareholders, if there shall be
any reorganization, consolidation or merger of the Company with any other
entity or entities, or sale by the Company of all or substantially all of
its assets in exchange for securities of another entity or entities, then
the Optionee shall be entitled, subject to the conditions set forth in the
Plan and the Option Agreement, to purchase such number of Shares and
Debentures or amount of other securities of the Company or such other
entity or entities as were exchangeable for the number of Shares and
Debentures which the Optionee would have been entitled to purchase except
for such action, and appropriate adjustments shall be made in the Option
Price to reflect such reorganization, consolidation, merger or sale.
The adjustments and the manner of application of the foregoing provisions
shall be determined solely by the Committee. All adjustments shall be applied
in like manner to all outstanding Options. Any adjustment may provide for the
elimination of fractional share interests.
SECTION 6. OPTIONS
6.1. Option Grant and Agreement. Each Option granted hereunder shall be
evidenced by minutes of a meeting or the written consent of the Committee and by
a written Option Agreement in the form of Exhibit A attached hereto dated as of
the date of grant and executed by the Company and the Optionee. Each Option
shall be awarded and exercised in tandem with an option to purchase Debentures
in accordance with Section 6.3. The right to exercise Options shall vest as
determined by the Committee with respect to each Option granted.
6.2. Incentive Option. The Committee in its sole discretion may designate
whether an Option awarded to an employee of the Company or a subsidiary is to be
considered an Incentive Option. The Committee may grant both an Incentive
Option and a Non-Qualified Option to the same Optionee. However, where both
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an Incentive Option and a Non-Qualified Option are awarded at one time, such
Options shall be deemed to have been awarded in separate grants, shall be
clearly identified, and in no event will the exercise of one such Option affect
the right to exercise the other such Option.
Should the Committee designate an Option granted hereunder as an Incentive
Option, such Option shall be subject to the general provisions applicable to all
Options granted under the Plan; in addition, an Incentive Option shall in all
events be subject to the following provisions, which provisions shall be stated
within the applicable Option Agreement:
(a) The Committee may grant an Incentive Option to an employee who
owns, directly or indirectly by attribution, securities in the Company
possessing more than 10% of the total combined voting power of all classes
of the Company's securities only if the Option Price (as defined in Section
6.4) of a Share is at least 110% of the Fair Market Value of the Share and
such Option by its terms is not exercisable after the expiration of five
years from the date the Option is granted.
(b) The Committee shall not grant Incentive Options which are
exercisable in a manner so that the aggregate Fair Market Value (determined
at the time the Incentive Options are granted) of the Shares with respect
to which Incentive Options are exercisable for the first time by such
individual during any calendar year (under all incentive stock option plans
of the Company established pursuant to Section 422 of the Code) exceeds
$100,000.
(c) No Incentive Options shall be granted more than 10 years after the
Effective Date.
If any Option is not granted, exercised and held pursuant to the provisions
of this Section 6.2, including any acceleration of the vesting provisions of the
Option or surrender of the Option to the Company for cash pursuant to the
provisions of either Section 6.8 or Section 6.12, it will be considered a Non-
Qualified Option to the extent that it does not comply with the provisions
hereof.
6.3. Debentures. Each Option or replacement option (as described in
Section 6.6) to purchase one Share shall be awarded in tandem with an option to
purchase $2,000 principal amount of Debentures at a price which bears the same
ratio to the Option Price (described in Section 6.4) of a Share on the date of
the award as $2,000 bears to $1,000. Options to purchase Debentures may only be
exercised when the Option to purchase the related Share is exercised.
Debentures issued pursuant to the exercise
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of the related Option shall be issued in denominations which are integral
multiples of $50.
6.4. Option Price. Subject to Sections 5 and 6.6, the Option Price of a
Share shall be determined by the Committee; provided, however, the Option Price
of each Share under an Incentive Option may not be less than the Fair Market
Value of a Share at the date of grant, and further provided that the Option
Price of Shares which are granted under a Non-Qualified Option shall not be less
than 70% of Fair Market Value at the date of grant.
6.5. Expiration Date. The "Expiration Date" of each Option granted under
the Plan shall be determined by the Committee; provided, however, the Expiration
Date of an Incentive Option shall be no later than the tenth anniversary date of
the award, and provided further no Option shall have an Expiration Date later
than December 31, 2002. Options shall not be exercisable after their Expiration
Date and shall be subject to earlier termination as hereinafter provided.
6.6. Replacement Options. The Committee may provide either at the time of
grant or subsequently that an Option includes the right to acquire a replacement
option. To receive a replacement option, the Option must be exercised prior to
termination of employment. A replacement option will entitle the holder thereof
to an Option for the number of Shares or principal amount of Debentures
otherwise issuable upon exercise of an Option that are withheld to satisfy
minimum tax obligations with respect to such exercise; provided, however, the
Committee, in its sole discretion, may determine that a replacement option with
respect to withheld Debentures shall be issued solely in an equivalent amount of
Shares. In addition to any other terms and conditions the Committee deems
appropriate, the replacement option shall be subject to the following terms:
(a) the replacement option shall be granted on the date the original
Option is exercised;
(b) the Option Price for Shares under a replacement option shall be
the Fair Market Value of a Share on the date of such exercise and the
Option Price for Debentures shall be an amount equal to the Fair Market
Value of the Shares on the date of exercise into which the Debentures are
convertible without regard to whether such Debentures are then convertible;
(c) the replacement option shall be exercisable no earlier than six
months after its grant date;
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(d) the Expiration Date of the replacement option will be the same as
the Expiration Date of the original Option; and
(e) the replacement option shall be a Non-Qualified Option and shall
otherwise meet all conditions of this Section 6.
6.7. Exercise of Option. Options shall be exercised by written notice of
intent to exercise the Option with respect to a specified number of Units by the
Optionee to the Company at its principal office in Santa Fe, New Mexico, and by
tendering in cash or by certified, bank cashier's or teller's check or Shares or
Debentures of the Company which have been held by the Optionee at least six
months valued at Fair Market Value as of the date of tender, or in any
combination of cash and Shares and Debentures, payment in full to the Company at
said office of the amount of the Option Price for the number of Units with
respect to which the Option is then being exercised, together with the full
amount of all federal and state withholding or other employment taxes applicable
to the taxable income of such Optionee resulting from such exercise. The
Optionee may pay all or a portion of the federal, state or local withholding
taxes arising in connection with an Option exercise by electing to have the
Company withhold Units, Shares or Debentures, or by delivering previously-owned
Shares and Debentures, in each case using Units, Shares or Debentures having a
Fair Market Value on the date of exercise equal to or greater than the amount to
be withheld; provided, however, an Optionee may only tender Shares or Debentures
that have been held less than six months or have Shares or Debentures withheld
to the extent that the Fair Market Value of such Shares or Debentures does not
exceed the minimum required withholding amount with respect to the Option
exercise; provided further that this method of paying withholding taxes with
Units, Shares or Debentures that have been held for less than six months will
not be available after the Shares are publicly traded on a national securities
exchange and a registration statement with respect to the Options and Shares
underlying the Options is effective under the Securities Act of 1933, as
amended. In the event all or part of the withholding is paid by withholding
Units, Shares or Debentures, any excess of the value of the withheld Units,
Shares or Debentures over the amount of the withholding will be returned to the
Optionee in whole or fractional Shares or Debentures, as applicable.
6.8. Change in Control. In the event that (i) an Optionee's employment is
terminated by the Company or the successor to the Company or an affiliated
entity which is his or her employer for reasons other than Cause following a
Change in Control of the Company (as defined below), or (ii) the Plan is
terminated by the Company or its successor following a Change in
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Control without provision for the continuation of outstanding Options hereunder,
all Options which have not otherwise expired shall become immediately
exercisable and all restrictions on stock awards shall lapse. For purposes of
the Plan, a "Change in Control" means the happening of any of the following:
(a) the stockholders of the Company approve a definitive agreement to
merge the Company into or consolidate the Company with another entity, sell
or otherwise dispose of all or substantially all of its assets; provided,
however, that a Change in Control shall not be deemed to have occurred by
reason of a transaction, or a substantially concurrent or otherwise related
series of transactions, upon the completion of which 50% or more of the
beneficial ownership of the voting power of the Company, the surviving
corporation or corporation directly or indirectly controlling the Company
or the surviving corporation, as the case may be, is held by the same
persons (as defined below) (although not necessarily in the same
proportion) as held the beneficial ownership of the voting power of the
Company immediately prior to the transaction or the substantially
concurrent or otherwise related series of transactions, except that upon
the completion thereof, employees or employee benefit plans of the Company
may be a new holder of such beneficial ownership; provided, further, that a
transaction with an "Affiliate" of the Company (as defined in the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) shall not
be treated as a Change in Control; or
(b) the "beneficial ownership" (as defined in Rule 13d-3 under the
Exchange Act) of securities representing 50% or more of the combined voting
power of the Company is acquired, other than from the Company, by any
"person" as defined in Sections 13(d) and 14(d) of the Exchange Act (other
than by an Affiliate or any trustee or other fiduciary holding securities
under an employee benefit or other similar stock plan of the Company); or
(c) at any time during any period of two consecutive years,
individuals who at the beginning of such period were members of the Board
of Directors of the Company cease for any reason to constitute at least a
majority thereof (unless the election, or the nomination for election by
the Company's stockholders, of each new director was approved by a vote of
at least two-thirds of the directors still in office at the time of such
election or nomination who were directors at the beginning of such period).
For purposes of this Section, an Optionee's employment shall also be deemed to
be terminated by the Company or the successor to the
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Company or an affiliated entity if the Optionee terminates employment after (i)
a substantial adverse alteration in the nature of the Optionee's status or
responsibilities from those in effect immediately prior to the Change in
Control, or (ii) a material reduction in the Optionee's annual base salary and
target bonus, if any, as in effect immediately prior to the Change in Control.
6.9. Rights in Event of Termination of Employment. In the event of the
Optionee's termination of employment with the Company and all affiliated
entities, the following rules shall apply:
(a) if the Optionee's employment terminates for any reason other than
death, Total and Permanent Disability, Retirement (as defined below) or
Cause (as defined below) or transfer to an affiliated entity, the Optionee
shall have the right, during the period ending three months after such
termination, to exercise outstanding Options to the extent such Options
were exercisable on the date of such termination;
(b) if the Optionee's employment with the Company and all affiliated
entities terminates on account of death, Total and Permanent Disability or
Retirement, the Optionee (or, in the event of his or her death, the person
who acquired the right to exercise the Option) shall have the right, during
the period ending one year after such termination, to exercise outstanding
Options to the extent such Options were exercisable on the date of such
termination and in the event of termination on account of death or Total
and Permanent Disability, all such Options shall become immediately
exercisable as of the date of such termination;
(c) if the Optionee's employment is terminated for Cause, the vested
and unvested portion of the Option shall terminate and the Option shall be
cancelled and shall not be exercisable on or after such termination date;
and
(d) in the event the Optionee is transferred to an affiliated entity,
the Option shall remain in full force and effect until the Optionee is no
longer employed by the Company or any affiliated entity, in which case
paragraphs (a) through (c) next above shall apply, as applicable.
Any portion of the Option which is not exercisable on the date that the
Optionee's employment terminates for any reason shall be forfeited. "Cause"
shall mean, in the reasonable judgment of the Committee (i) the willful and
continued failure by the Optionee to substantially perform his or her duties
with the Company or
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any affiliated entity after written notification by the Company or such
affiliated entity, (ii) the willful engaging by the Optionee in conduct which is
demonstrably injurious to the Company or any affiliated entity, monetarily or
otherwise, or (iii) the engaging by the Optionee in egregious misconduct
involving serious moral turpitude. For purposes hereof, no act, or failure to
act, on the Optionee's part shall be deemed "willful" unless done, or omitted to
be done, by the Optionee not in good faith and without reasonable belief that
such action was in the best interest of the Company. "Retirement" shall mean
the occurrence of a termination of employment of the Optionee, other than for
Cause, death or Total and Permanent Disability, after providing at least five
years of service to the Company or affiliated entities if the Optionee has
attained at least age 60.
6.10. Rights in Event of Dissolution or Liquidation of Company. Options
shall terminate upon dissolution or liquidation of the Company, provided that
for a period of 60 days prior to such dissolution or liquidation, the Optionee
shall have the right to exercise outstanding Options in full even though such
Option would not otherwise be exercisable. Upon such dissolution or
liquidation, the unexercised portion of any Options shall terminate and be of no
further effect.
SECTION 7. SHARE CERTIFICATES AND DEBENTURES
7.1. Issuance. The Company shall not be required to issue or deliver any
Debentures or any certificate for Shares purchased upon the exercise of any
Option granted hereunder, or any portion thereof, prior to fulfillment of all of
the following conditions:
(a) The completion of any registration or other qualification of such
Shares or Debentures under any federal or state securities laws or under
the rulings or regulations of the Securities and Exchange Commission or any
other governmental regulatory body, which the Committee shall in its sole
discretion deem necessary or advisable;
(b) The obtaining of any approval or other clearance from any federal
or state governmental agency which the Committee shall, in its sole
discretion, determine to be necessary or advisable; and
(c) The lapse of such reasonable period of time following the exercise
of the Option as the Committee from time to time may establish for reasons
of administrative convenience.
7.2. Compliance With Securities and Other Laws. In no event shall the
Company be required to sell or issue Shares or Debentures pursuant to Options
granted under this Plan if the
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issuance thereof would constitute a violation by either the Optionee or the
Company of any provision of any law or regulation of any governmental authority
or any national securities exchange. As a condition of any sale or issuance of
Shares and Debentures pursuant to Options granted hereunder, the Company may
place legends on the Shares or Debentures, issue stop-transfer orders and
require such agreements or undertakings from the Optionee as the Company may
deem necessary or advisable to assure compliance with any such law or
regulation, including, if the Company or its counsel deems it appropriate,
representations from the Optionee that he or she is acquiring the Shares or
Debentures solely for investment and not with a view to distribution and that no
distribution of the Shares or Debentures acquired by him or her will be made
unless registered pursuant to applicable federal and state securities laws or
unless, in the opinion of counsel to the Company, such registration is
unnecessary.
7.3. Rights as Shareholder. An Optionee or transferee of an Option shall
have no rights as a shareholder with respect to any Shares subject to such
Option prior to the purchase of such Shares by exercise of such Option as
provided herein.
7.4. Repurchase of Shares. The Committee may, by agreement providing for
right of first refusal, limit a holder's rights to sell or otherwise dispose of
Shares or Debentures acquired pursuant to this Plan.
SECTION 8. TERMINATION, AMENDMENT
AND MODIFICATION OF PLAN
8.1. Board Termination, Amendment and Modification of Plan. The Board may
at any time, terminate, and may at any time and from time to time and in any
respect, amend or modify, the Plan, including the form of Option Agreement;
provided, however, that no such action of the Board, without approval of the
shareholders of the Company, may:
(a) Increase the total number of Shares and Debentures subject to the
Plan except as contemplated in Section 5.2 hereof;
(b) Restrict, expand or otherwise change the class or classes of
employees eligible to participate in the Plan;
(c) Change the Option Price other than pursuant to Section 5.2 or to
change the manner of determining the Fair Market Value of the Shares to
conform with any then applicable provisions of the Code or regulations or
rulings thereunder; or
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(d) Withdraw the administration of the Plan from the Committee.
8.2. Plan Termination. Unless terminated earlier as provided in Section
8.1, the Plan shall terminate on December 31, 2002, and no Option shall be
granted under this Plan after that date.
8.3. Effect of Termination, Amendment or Modification of Plan.
Notwithstanding Sections 8.1 and 8.2, no termination, amendment or modification
of the Plan shall in any manner adversely affect any Option theretofore granted
under the Plan without the consent of the Optionee or a person who shall have
acquired the right to exercise the Option by will or the laws of descent and
distribution.
SECTION 9. MISCELLANEOUS
9.1. No Employment Rights. Nothing in the Plan or in any Option granted
hereunder or in any Option Agreement relating thereto shall confer upon any
employee the right to continue in the employ of the Company or affiliated
entities.
9.2. Other Compensation Plans. The adoption of the Plan shall not affect
any other securities option or incentive or other compensation plans in effect
for the Company or an affiliated entity, nor shall the Plan preclude the Company
or any affiliated entity from establishing any other forms of incentive or other
compensation for employees of the Company or such affiliated entity.
9.3. Binding Effect. The Plan shall be binding upon the successors and
assigns of the Company.
9.4. Singular, Plural; Gender. Whenever used herein, except where the
context clearly indicates to the contrary, nouns in the singular shall include
the plural, and the masculine pronoun shall include the feminine gender.
9.5. Headings. Headings of the Sections hereof are inserted for
convenience of reference and constitute no part of the Plan.
9.6. Nontransferability of Option. No Option shall be transferred by an
Optionee otherwise than by will or by the laws of descent and distribution.
During the lifetime of an Optionee the Option shall be exercisable only by him
or her. The Committee may require such evidence of a transfer by will or the
laws of descent and distribution as it deems necessary.
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9.7. No Reduction of Salary or Compensation to Participate. No employee
shall be required to forego an increase in salary, or to defer any amount of
compensation as a condition of participation in the Plan.
9.8. Withholding. The Company shall have the right to deduct from any
cash payment made pursuant to Section 6.7 of the Plan an amount equal to the
federal, state and local income taxes required to be withheld with respect to
such payment. If the cash portion of any such payment is less than the amount
of taxes required to be withheld, the Company may require the Optionee or other
person receiving such payment, as a condition of and prior to such payment, to
pay to it the balance of any such taxes required to be so withheld.
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EXHIBIT 10.34
SECURITY CAPITAL REALTY INVESTORS INCORPORATED
1991 OPTION PLAN A
(As amended and restated effective as of December 3, 1996)
<PAGE>
SECURITY CAPITAL REALTY INVESTORS INCORPORATED 1991 OPTION PLAN A
(AS AMENDED AND RESTATED EFFECTIVE AS OF DECEMBER 3, 1996)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SECTION 1. DEFINITIONS................................................ 1
SECTION 2. THE PLAN................................................... 2
2.1. Purpose............................................. 2
2.1. Effective Date...................................... 2
SECTION 3. ADMINISTRATION............................................. 2
3.1. Duties and Powers of Committee...................... 2
3.2. Majority Rule....................................... 3
SECTION 4. PARTICIPATION.............................................. 3
SECTION 5. SHARES SUBJECT TO PLAN..................................... 3
5.1. Shares.............................................. 3
5.2. Adjustments......................................... 3
SECTION 6. OPTIONS.................................................... 4
6.1. Option Grant and Agreement.......................... 4
6.2. Incentive Option.................................... 4
6.3. Option Price........................................ 5
6.4. Expiration Date..................................... 6
6.5. Replacement Options................................. 6
6.6. Exercise of Option.................................. 6
6.7. Change in Control................................... 7
6.8. Rights in Event of Termination of Employment........ 8
6.9. Rights in Event of Dissolution or Liquidation
of Company......................................... 9
SECTION 7. SHARE CERTIFICATES......................................... 10
7.1. Issuance............................................ 10
7.2. Compliance With Securities and Other Laws........... 10
7.3. Rights as Shareholder............................... 10
7.4. Repurchase of Shares................................ 11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 8. TERMINATION, AMENDMENT AND MODIFICATION OF PLAN............ 11
8.1. Board Termination, Amendment and Modification
of Plan............................................ 11
8.2. Plan Termination.................................... 11
8.3. Effect of Termination, Amendment or
Modification of Plan............................... 11
SECTION 9. MISCELLANEOUS.............................................. 11
9.1. No Employment Rights................................ 11
9.2. Other Compensation Plans............................ 12
9.3. Binding Effect...................................... 12
9.4. Singular, Plural; Gender............................ 12
9.5. Headings............................................ 12
9.6. Nontransferability of Option........................ 12
9.7. No Reduction of Salary or Compensation
to Participate..................................... 12
9.8. Withholding......................................... 12
</TABLE>
<PAGE>
SECURITY CAPITAL REALTY INVESTORS INCORPORATED 1991 OPTION PLAN A
(AS AMENDED AND RESTATED EFFECTIVE AS OF DECEMBER 3, 1996)
SECTION 1. DEFINITIONS
As used herein, the following terms have the meanings hereinafter set forth
unless the context clearly indicates to the contrary;
(a) "Board" means the Board of Directors of the Company.
(b) "Company" means Security Capital Group Incorporated (formerly
known as Security Capital Realty Investors Incorporated), a Maryland
corporation.
(c) "Fair Market Value" with respect to any Share means (i) if the
Share is not publicly traded, the fair value as determined by the Committee
(as defined in Section 3), and (ii) if the Share is publicly traded, the
closing price of the Share on the day in question. The closing price shall
be the last reported sale price regular way or, in case no such reported
sale takes place on such day, the average of the reported closing bid and
asked prices regular way, in either case on the New York Stock Exchange or,
if the Share is not listed or admitted to trading on such Exchange, on the
principal national securities exchange on which such Shares are listed or
admitted to trading or, if not listed or admitted to trading on any
national securities exchange, the average of the highest closing bid and
asked prices as reported by the National Association of Securities Dealers
Automated Quotation System.
(d) "Incentive Option" means an Option for Shares which qualifies for
treatment as an incentive stock option pursuant to Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
(e) "Non-Qualified Option" means any Option granted hereunder which is
not an Incentive Option.
(f) "Option" means an option to purchase Shares granted pursuant to
the provisions of Section 6 hereof. Except to the extent specifically
designated as Incentive Options, Options awarded hereunder are intended to
be Non-Qualified Options.
(g) "Option Agreement" means the agreement described in Section 6.1
between the Company and the Optionee under which the Optionee may purchase
Shares hereunder.
<PAGE>
(h) "Optionee" means an employee or director to whom an Option has
been granted hereunder.
(i) "Plan" means the Security Capital Realty Investors Incorporated
1991 Option Plan A, the terms of which are set forth herein.
(j) "Share" or "Shares" means the Company's present Shares of Common
Stock, or, in the event that the outstanding Shares are hereafter changed
into or exchanged for different shares or securities of the Company or some
other corporation or other entity, such other shares or securities.
(k) "Total and Permanent Disability" means the inability of an
employee to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected
to result in death or which has lasted or can be expected to last for a
continuous period of not less than twelve months.
SECTION 2. THE PLAN
2.1. PURPOSE. The purpose of the Plan is to advance the interests of the
Company and its shareholders by affording to directors and key employees of the
Company, its subsidiaries and affiliates an opportunity to acquire or increase
their proprietary interest in the Company by the grant to such individuals of
Options under the terms set forth herein. By thus encouraging such individuals
to become owners of Shares, the Company seeks to motivate, retain, and attract
those highly competent individuals upon whose judgment, initiative, leadership
and continued efforts the success of the Company in large measure depends.
2.2. EFFECTIVE DATE. This Plan is effective as of
August 27, 1992. This amendment and restatement of the Plan is effective as of
December 3, 1996.
SECTION 3. ADMINISTRATION
3.1. DUTIES AND POWERS OF COMMITTEE. The Plan shall be administered by a
Committee consisting of two or more non-employee members of the Board (the
"Committee"). Subject to the express provisions of the Plan, the Committee
shall have sole discretion and authority (a) to determine the employees (who may
also be directors) to whom and the time or times at which Options may be
granted, (b) to determine whether an Option granted pursuant to the Plan shall
be an Incentive Option, (c) to determine the persons who shall receive Options
and the number of Shares to be subject to each Option, (d) to determine the
details
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and provisions of each Option Agreement, subject, however, to the provisions of
Section 6 hereof, (e) to prescribe, amend and rescind rules and regulations
relating to the Plan, and (f) to make all other determinations necessary or
advisable in the administration of the Plan; provided, however, the Committee
shall have no power, authority or discretion to determine the number or timing
of Options granted pursuant to paragraph 4(b) or to alter the terms and
conditions of Options set forth therein.
3.2. MAJORITY RULE. A majority of the members of the Committee shall
constitute a quorum, and any action taken by a majority present at a meeting at
which a quorum is present or any action taken without a meeting evidenced by a
writing executed by all members of the Committee shall constitute the action of
the Committee.
SECTION 4. PARTICIPATION
(a) Subject to the terms and conditions of the Plan, the Committee
shall designate the key employees of the Company (who may also be directors
of the Company) or its subsidiaries or affiliates to whom Options are to be
granted.
(b) As of the Effective Date, an Option to purchase 354 Shares shall
be awarded to each individual who is a non-employee member of the Board on
such date.
SECTION 5. SHARES SUBJECT TO PLAN
5.1. SHARES. Subject to adjustment pursuant to the provisions of Section
5.2 hereof, the total number of Shares which may be issued and sold upon
exercise of all Options exercised under this Plan shall not exceed 9,492 Shares.
Shares issued upon exercise of Options may be either authorized and unissued
Shares or Shares issued and thereafter reacquired by the Company. The number of
Shares relating to an Option which expires or terminates for any reason without
the issuance of Shares (including Shares that are not issued because they are
withheld to satisfy minimum income tax withholding) shall again be available for
Options under the Plan.
5.2. ADJUSTMENTS. In the event of any change in the outstanding Shares by
reason of any stock dividend, split, merger, consolidation, recapitalization,
combination, exchange of shares or other similar corporate change:
(a) The aggregate number and kind of Shares subject to Options which
may be granted hereunder shall be adjusted appropriately;
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(b) Rights under outstanding Options granted hereunder both as to the
number of Shares and the Option Price shall be adjusted appropriately; and
(c) Subject to any required action by shareholders, if there shall be
any reorganization, consolidation or merger of the Company with any other
entity or entities, or sale by the Company of all or substantially all of
its assets in exchange for securities of another entity or entities, then
the Optionee shall be entitled, subject to the conditions set forth in the
Plan and the Option Agreement, to purchase such number of Shares or amount
of other securities of the Company or such other entity or entities as were
exchangeable for the number of Shares which the Optionee would have been
entitled to purchase except for such action, and appropriate adjustments
shall be made in the Option Price to reflect such reorganization,
consolidation, merger or sale.
The adjustments and the manner of application of the foregoing provisions
shall be determined solely by the Committee. All adjustments shall be applied in
like manner to all outstanding Options. Any adjustment may provide for the
elimination of fractional share interests.
SECTION 6. OPTIONS
6.1. OPTION GRANT AND AGREEMENT. Each Option granted hereunder shall be
evidenced by minutes of a meeting or the written consent of the Committee and by
a written Option Agreement dated as of the date of grant and executed by the
Company and the Optionee. The right to exercise Options shall vest as
determined by the Committee with respect to each Option granted; provided,
however, Options granted under paragraph 4(b) shall be exercisable, in whole or
in part, with respect to 50% of the Shares granted at any time on or after the
grant date and with respect to the remaining Shares covered by the Option at any
time on or after the fifth anniversary of the date of grant.
6.2. INCENTIVE OPTION. The Committee in its sole discretion may designate
whether an Option awarded to an employee of the Company or a subsidiary is to be
considered an Incentive Option. The Committee may grant both an Incentive Option
and a Non-Qualified Option to the same Optionee. However, where both an
Incentive Option and a Non-Qualified Option are awarded at one time, such
Options shall be deemed to have been awarded in separate grants, shall be
clearly identified, and in no event will the exercise of one such Option affect
the right to exercise the other such Option.
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Should the Committee designate an Option granted hereunder as an Incentive
Option, such Option shall be subject to the general provisions applicable to all
Options granted under the Plan; in addition, an Incentive Option shall in all
events be subject to the following provisions, which provisions shall be stated
within the applicable Option Agreement:
(a) The Committee may grant an Incentive Option to an employee who
owns, directly or indirectly by attribution, securities in the Company
possessing more than 10% of the total combined voting power of all classes
of the Company's securities only if the Option Price (as defined in Section
6.4) of a Share is at least 110% of the Fair Market Value of the Share and
such Option by its terms is not exercisable after the expiration of five
years from the date the Option is granted.
(b) The Committee shall not grant Incentive Options which are
exercisable in a manner so that the aggregate Fair Market Value (determined
at the time the Incentive Options are granted) of the Shares with respect
to which Incentive Options are exercisable for the first time by such
individual during any calendar year (under all incentive stock option plans
of the Company established pursuant to Section 422 of the Code) exceeds
$100,000.
(c) No Incentive Options shall be granted more than 10 years after the
Effective Date.
If any Option is not granted, exercised and held pursuant to the provisions
of this Section 6.2, including any acceleration of the vesting provisions of the
Option or surrender of the Option to the Company for cash pursuant to the
provisions of either Section 6.7 or Section 6.11, it will be considered a Non-
Qualified Option to the extent that it does not comply with the provisions
hereof.
6.3. OPTION PRICE. Subject to Sections 5 and 6.5:
(a) the Option Price of a Share granted under paragraph 4(a) shall be
determined by the Committee; provided, however, the Option Price of each
Share under an Incentive Option may not be less than the Fair Market Value
of a Share at the date of grant, and further provided that the Option Price
of Shares which are granted under a Non-Qualified Option shall not be less
than 70% of Fair Market Value at the date of grant; and
(b) the Option Price of a Share granted under paragraph 4(b) shall be
the Fair Market Value of the Shares at the date of grant.
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6.4. EXPIRATION DATE. The "Expiration Date" of each Option granted under
the Plan shall be determined by the Committee; provided, however, the Expiration
Date of an Incentive Option shall be no later than the tenth anniversary date of
the award, and provided further no Option shall have an Expiration Date later
than December 31, 2002. Options shall not be exercisable after their Expiration
Date and shall be subject to earlier termination as hereinafter provided.
6.5. REPLACEMENT OPTIONS. The Committee may provide either at the time of
grant or subsequently that an Option includes the right to acquire a replacement
option, provided that Options granted under paragraph 4(b) shall not include the
right to acquire a replacement option. To receive a replacement option with
respect to an Option granted under paragraph 4(a), the Option must be exercised
prior to termination of employment. A replacement option will entitle the
holder thereof to an Option for the number of Shares otherwise issuable upon
exercise of an Option that are withheld to satisfy minimum tax obligations with
respect to such exercise. In addition to any other terms and conditions the
Committee deems appropriate, the replacement option shall be subject to the
following terms:
(a) the replacement option shall be granted on the date the original
Option is exercised;
(b) the Option Price for Shares under a replacement option shall be
the Fair Market Value of a Share on the date of such exercise;
(c) the replacement option shall be exercisable no earlier than six
months after its grant date;
(d) the Expiration Date of the replacement option will be the same as
the Expiration Date of the original Option; and
(e) the replacement option shall be a Non-Qualified Option and shall
otherwise meet all conditions of this Section 6.
6.6. EXERCISE OF OPTION. Options shall be exercised by written notice of
intent to exercise the Option with respect to a specified number of Shares by
the Optionee to the Company at its principal office in Santa Fe, New Mexico, and
by tendering in cash or by certified, bank cashier's or teller's check or Shares
of the Company which have been held by the Optionee at least six months valued
at Fair Market Value as of the date of tender, or in any combination of cash and
Shares, payment in full to the Company at said office of the amount of the
Option Price for the number of Shares with respect to which the Option is then
being
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exercised, together with the full amount of all federal and state withholding or
other employment taxes applicable to the taxable income of such Optionee
resulting from such exercise. The Optionee may pay all or a portion of the
federal, state or local withholding taxes arising in connection with an Option
exercise by electing to have the Company withhold Shares or by delivering
previously-owned Shares, in each case using Shares having a Fair Market Value on
the date of exercise equal to or greater than the amount to be withheld;
provided, however, an Optionee may only tender Shares that have been held less
than six months or have Shares withheld to the extent that the Fair Market Value
of such Shares does not exceed the minimum required withholding amount with
respect to the Option exercise; provided further that this method of paying
withholding taxes with Shares that have been held for less than six months will
not be available after the Shares are publicly traded on a national securities
exchange and a registration statement with respect to the Options and Shares
underlying the Options is effective under the Securities Act of 1933, as
amended. In the event all or part of the withholding is paid by withholding
Shares, any excess of the value of the withheld Shares over the amount of the
withholding will be returned to the Optionee in whole or fractional Shares.
6.7. CHANGE IN CONTROL. In the event that (i) an Optionee's employment is
terminated by the Company or the successor to the Company or an affiliated
entity which is his or her employer for reasons other than Cause following a
Change in Control of the Company (as defined below), or (ii) the Plan is
terminated by the Company or its successor following a Change in Control without
provision for the continuation of outstanding Options hereunder, all Options
which have not otherwise expired shall become immediately exercisable and all
restrictions on stock awards shall lapse. For purposes of the Plan, a "Change
in Control" means the happening of any of the following:
(a) the stockholders of the Company approve a definitive agreement to
merge the Company into or consolidate the Company with another entity, sell
or otherwise dispose of all or substantially all of its assets; provided,
however, that a Change in Control shall not be deemed to have occurred by
reason of a transaction, or a substantially concurrent or otherwise related
series of transactions, upon the completion of which 50% or more of the
beneficial ownership of the voting power of the Company, the surviving
corporation or corporation directly or indirectly controlling the Company
or the surviving corporation, as the case may be, is held by the same
persons (as defined below) (although not necessarily in the same
proportion) as held the beneficial ownership of the voting power of the
Company immediately prior to the transaction or the substantially
concurrent or otherwise related series of
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transactions, except that upon the completion thereof, employees or
employee benefit plans of the Company may be a new holder of such
beneficial ownership; provided, further, that a transaction with an
"Affiliate" of the Company (as defined in the Securities Exchange Act of
1934, as amended (the "Exchange Act")) shall not be treated as a Change in
Control; or
(b) the "beneficial ownership" (as defined in Rule 13d-3 under the
Exchange Act) of securities representing 50% or more of the combined voting
power of the Company is acquired, other than from the Company, by any
"person" as defined in Sections 13(d) and 14(d) of the Exchange Act (other
than by an Affiliate or any trustee or other fiduciary holding securities
under an employee benefit or other similar stock plan of the Company); or
(c) at any time during any period of two consecutive years,
individuals who at the beginning of such period were members of the Board
of Directors of the Company cease for any reason to constitute at least a
majority thereof (unless the election, or the nomination for election by
the Company's stockholders, of each new director was approved by a vote of
at least two-thirds of the directors still in office at the time of such
election or nomination who were directors at the beginning of such period).
For purposes of this Section, an Optionee's employment shall also be deemed to
be terminated by the Company or the successor to the Company or an affiliated
entity if the Optionee terminates employment after (i) a substantial adverse
alteration in the nature of the Optionee's status or responsibilities from those
in effect immediately prior to the Change in Control, or (ii) a material
reduction in the Optionee's annual base salary and target bonus, if any, as in
effect immediately prior to the Change in Control.
6.8. RIGHTS IN EVENT OF TERMINATION OF EMPLOYMENT. In the event of the
Optionee's termination of employment with the Company and all affiliated
entities, the following rules shall apply:
(a) if the Optionee's employment terminates for any reason other than
death, Total and Permanent Disability, Retirement (as defined below) or
Cause (as defined below) or transfer to an affiliated entity, the Optionee
shall have the right, during the period ending three months after such
termination, to exercise outstanding Options to the extent such Options
were exercisable on the date of such termination;
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(b) if the Optionee's employment with the Company and all affiliated
entities terminates on account of death, Total and Permanent Disability or
Retirement, the Optionee (or, in the event of his or her death, the person
who acquired the right to exercise the Option) shall have the right, during
the period ending one year after such termination, to exercise outstanding
Options to the extent such Options were exercisable on the date of such
termination and in the event of termination on account of death or Total
and Permanent Disability, all such Options shall become immediately
exercisable as of the date of such termination;
(c) if the Optionee's employment is terminated for Cause, the vested
and unvested portion of the Option shall terminate and the Option shall be
cancelled and shall not be exercisable on or after such termination date;
and
(d) in the event the Optionee is transferred to an affiliated entity,
the Option shall remain in full force and effect until the Optionee is no
longer employed by the Company or any affiliated entity, in which case
paragraphs (a) through (c) next above shall apply, as applicable.
Any portion of the Option which is not exercisable on the date that the
Optionee's employment terminates for any reason shall be forfeited. "Cause"
shall mean, in the reasonable judgment of the Committee (i) the willful and
continued failure by the Optionee to substantially perform his or her duties
with the Company or any affiliated entity after written notification by the
Company or such affiliated entity, (ii) the willful engaging by the Optionee in
conduct which is demonstrably injurious to the Company or any affiliated entity,
monetarily or otherwise, or (iii) the engaging by the Optionee in egregious
misconduct involving serious moral turpitude. For purposes hereof, no act, or
failure to act, on the Optionee's part shall be deemed "willful" unless done, or
omitted to be done, by the Optionee not in good faith and without reasonable
belief that such action was in the best interest of the Company. "Retirement"
shall mean the occurrence of a termination of employment of the Optionee, other
than for Cause, death or Total and Permanent Disability, after providing at
least five years of service to the Company or affiliated entities if the
Optionee has attained at least age 60.
6.9. RIGHTS IN EVENT OF DISSOLUTION OR LIQUIDATION OF COMPANY. Options
shall terminate upon dissolution or liquidation of the Company, provided that
for a period of 60 days prior to such dissolution or liquidation, the Optionee
shall have the right to exercise outstanding Options in full even though such
Option would not otherwise be exercisable. Upon such dissolution
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or liquidation, the unexercised portion of any Options shall terminate and be of
no further effect.
SECTION 7. SHARE CERTIFICATES
7.1. ISSUANCE. The Company shall not be required to issue or deliver any
certificate for Shares purchased upon the exercise of any Option granted
hereunder, or any portion thereof, prior to fulfillment of all of the following
conditions:
(a) The completion of any registration or other qualification of such
Shares under any federal or state securities laws or under the rulings or
regulations of the Securities and Exchange Commission or any other
governmental regulatory body, which the Committee shall in its sole
discretion deem necessary or advisable;
(b) The obtaining of any approval or other clearance from any federal
or state governmental agency which the Committee shall, in its sole
discretion, determine to be necessary or advisable; and
(c) The lapse of such reasonable period of time following the exercise
of the Option as the Committee from time to time may establish for reasons
of administrative convenience.
7.2. COMPLIANCE WITH SECURITIES AND OTHER LAWS. In no event shall the
Company be required to sell or issue Shares pursuant to Options granted under
this Plan if the issuance thereof would constitute a violation by either the
Optionee or the Company of any provision of any law or regulation of any
governmental authority or any national securities exchange. As a condition of
any sale or issuance of Shares pursuant to Options granted hereunder, the
Company may place legends on the Shares, issue stop-transfer orders and require
such agreements or undertakings from the Optionee as the Company may deem
necessary or advisable to assure compliance with any such law or regulation,
including, if the Company or its counsel deems it appropriate, representations
from the Optionee that he or she is acquiring the Shares solely for investment
and not with a view to distribution and that no distribution of the Shares
acquired by him or her will be made unless registered pursuant to applicable
federal and state securities laws or unless, in the opinion of counsel to the
Company, such registration is unnecessary.
7.3. RIGHTS AS SHAREHOLDER. An Optionee or transferee of an Option shall
have no rights as a shareholder with respect to any Shares subject to such
Option prior to the purchase of such Shares by exercise of such Option as
provided herein.
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7.4. REPURCHASE OF SHARES. The Committee may, by agreement providing for
right of first refusal, limit a holder's rights to sell or otherwise dispose of
Shares acquired pursuant to the Plan.
SECTION 8. TERMINATION, AMENDMENT
AND MODIFICATION OF PLAN
8.1. BOARD TERMINATION, AMENDMENT AND MODIFICATION OF PLAN. The Board may
at any time, terminate, and may at any time and from time to time and in any
respect, amend or modify, the Plan, including the form of Option Agreement;
provided, however, that no such action of the Board, without approval of the
shareholders of the Company, may:
(a) Increase the total number of Shares subject to the Plan except as
contemplated in Section 5.2 hereof;
(b) Restrict, expand or otherwise change the class or classes of
employees eligible to participate in the Plan;
(c) Change the Option Price other than pursuant to Section 5.2 or to
change the manner of determining the Fair Market Value of the Shares to
conform with any then applicable provisions of the Code or regulations or
rulings thereunder; or
(d) Withdraw the administration of the Plan from the Committee.
8.2. PLAN TERMINATION. Unless terminated earlier as provided in Section
8.1, the Plan shall terminate on December 31, 2002, and no Option shall be
granted under this Plan after that date.
8.3. EFFECT OF TERMINATION, AMENDMENT OR MODIFICATION OF PLAN.
Notwithstanding Sections 8.1 and 8.2, no termination, amendment or modification
of the Plan shall in any manner adversely affect any Option theretofore granted
under the Plan without the consent of the Optionee or a person who shall have
acquired the right to exercise the Option by will or the laws of descent and
distribution.
SECTION 9. MISCELLANEOUS
9.1. NO EMPLOYMENT RIGHTS. Nothing in the Plan or in any Option granted
hereunder or in any Option Agreement relating thereto shall confer upon any
employee the right to continue in the employ of the Company or affiliated
entities.
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9.2. OTHER COMPENSATION PLANS. The adoption of the Plan shall not affect
any other securities option or incentive or other compensation plans in effect
for the Company or an affiliated entity, nor shall the Plan preclude the Company
or any affiliated entity from establishing any other forms of incentive or other
compensation for employees of the Company or such affiliated entity.
9.3. BINDING EFFECT. The Plan shall be binding upon the successors and
assigns of the Company.
9.4. SINGULAR, PLURAL; GENDER. Whenever used herein, except where the
context clearly indicates to the contrary, nouns in the singular shall include
the plural, and the masculine pronoun shall include the feminine gender.
9.5. HEADINGS. Headings of the Sections hereof are inserted for
convenience of reference and constitute no part of the Plan.
9.6. NONTRANSFERABILITY OF OPTION. No Option shall be transferred by an
Optionee otherwise than by will or by the laws of descent and distribution.
During the lifetime of an Optionee the Option shall be exercisable only by him
or her. The Committee may require such evidence of a transfer by will or the
laws of descent and distribution as it deems necessary.
9.7. NO REDUCTION OF SALARY OR COMPENSATION TO PARTICIPATE. No employee
shall be required to forego an increase in salary, or to defer any amount of
compensation as a condition of participation in the Plan.
9.8. WITHHOLDING. The Company shall have the right to deduct from any
cash payment made pursuant to Section 6.7 of the Plan an amount equal to the
federal, state and local income taxes required to be withheld with respect to
such payment. If the cash portion of any such payment is less than the amount
of taxes required to be withheld, the Company may require the Optionee or other
person receiving such payment, as a condition of and prior to such payment, to
pay to it the balance of any such taxes required to be so withheld.
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EXHIBIT 10.35
SECURITY CAPITAL REALTY INVESTORS INCORPORATED
1991 OPTION PLAN B
(As amended and restated effective as of December 3, 1996)
<PAGE>
SECURITY CAPITAL REALTY INVESTORS INCORPORATED 1991 OPTION PLAN B
(AS AMENDED AND RESTATED EFFECTIVE AS OF DECEMBER 3, 1996)
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
SECTION 1. DEFINITIONS................................................. 1
SECTION 2. THE PLAN.................................................... 2
2.1. Purpose............................................... 2
2.1. Effective Date........................................ 2
SECTION 3. ADMINISTRATION.............................................. 2
3.1. Duties and Powers of Committee........................ 2
3.2. Majority Rule......................................... 3
SECTION 4. PARTICIPATION............................................... 3
SECTION 5. SHARES SUBJECT TO PLAN...................................... 3
5.1. Shares................................................ 3
5.2. Adjustments........................................... 3
SECTION 6. OPTIONS..................................................... 4
6.1. Option Grant and Agreement............................ 4
6.2. Incentive Option...................................... 4
6.3. Option Price.......................................... 5
6.4. Expiration Date....................................... 5
6.5. Replacement Options................................... 5
6.6. Exercise of Option.................................... 6
6.7. Change in Control..................................... 7
6.8. Rights in Event of Termination of Employment.......... 8
6.9. Rights in Event of Dissolution or Liquidation
of Company........................................... 9
SECTION 7. SHARE CERTIFICATES.......................................... 9
7.1. Issuance.............................................. 9
7.2. Compliance With Securities and Other Laws............. 10
7.3. Rights as Shareholder................................. 10
7.4. Repurchase of Shares.................................. 10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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<S> <C> <C>
SECTION 8. TERMINATION, AMENDMENT AND MODIFICATION OF PLAN.............. 10
8.1. Board Termination, Amendment and Modification
of Plan.............................................. 10
8.2. Plan Termination...................................... 11
8.3. Effect of Termination, Amendment or Modification
of Plan.............................................. 11
SECTION 9. MISCELLANEOUS................................................ 11
9.1. No Employment Rights.................................. 11
9.2. Other Compensation Plans.............................. 11
9.3. Binding Effect........................................ 11
9.4. Singular, Plural; Gender.............................. 11
9.5. Headings.............................................. 11
9.6. Nontransferability of Option.......................... 11
9.7. No Reduction of Salary or Compensation to
Participate.......................................... 12
9.8. Withholding........................................... 12
</TABLE>
<PAGE>
SECURITY CAPITAL REALTY INVESTORS INCORPORATED 1991 OPTION PLAN B
(AS AMENDED AND RESTATED EFFECTIVE AS OF DECEMBER 3, 1996)
SECTION 1. DEFINITIONS
As used herein, the following terms have the meanings hereinafter set forth
unless the context clearly indicates to the contrary;
(a) "Board" means the Board of Directors of the Company.
(b) "Company" means Security Capital Group Incorporated (formerly
known as Security Capital Realty Investors Incorporated), a Maryland
corporation.
(c) "Fair Market Value" with respect to any Share means (i) if the
Share is not publicly traded, the fair value as determined by the Committee
(as defined in Section 3), and (ii) if the Share is publicly traded, the
closing price of the Share on the day in question. The closing price shall
be the last reported sale price regular way or, in case no such reported
sale takes place on such day, the average of the reported closing bid and
asked prices regular way, in either case on the New York Stock Exchange or,
if the Share is not listed or admitted to trading on such Exchange, on the
principal national securities exchange on which such Shares are listed or
admitted to trading or, if not listed or admitted to trading on any
national securities exchange, the average of the highest closing bid and
asked prices as reported by the National Association of Securities Dealers
Automated Quotation System.
(d) "Incentive Option" means an Option for Shares which qualifies for
treatment as an incentive stock option pursuant to Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
(e) "Non-Qualified Option" means any Option granted hereunder which is
not an Incentive Option.
(f) "Option" means an option to purchase Shares granted pursuant to
the provisions of Section 6 hereof. Except to the extent specifically
designated as Incentive Options, Options awarded hereunder are intended to
be Non-Qualified Options.
(g) "Option Agreement" means the agreement described in Section 6.1
between the Company and the Optionee under which the Optionee may purchase
Shares hereunder.
<PAGE>
(h) "Optionee" means an employee to whom an Option has been granted
hereunder.
(i) "Plan" means the Security Capital Realty Investors Incorporated
1991 Option Plan B, the terms of which are set forth herein.
(j) "Share" or "Shares" means the Company's present Shares of Common
Stock, or, in the event that the outstanding Shares are hereafter changed
into or exchanged for different shares or securities of the Company or some
other corporation or other entity, such other shares or securities.
(k) "Total and Permanent Disability" means the inability of an
employee to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected
to result in death or which has lasted or can be expected to last for a
continuous period of not less than twelve months.
SECTION 2. THE PLAN
2.1. PURPOSE. The purpose of the Plan is to advance the interests of the
Company and its shareholders by affording to key employees of the Company, its
subsidiaries and affiliates an opportunity to acquire or increase their
proprietary interest in the Company by the grant to such employees of Options
under the terms set forth herein. By thus encouraging such individuals to
become owners of Shares, the Company seeks to motivate, retain, and attract
those highly competent individuals upon whose judgment, initiative, leadership
and continued efforts the success of the Company in large measure depends.
2.2. EFFECTIVE DATE. This Plan is effective as of
August 27, 1992. This amendment and restatement of the Plan is effective as of
December 3, 1996.
SECTION 3. ADMINISTRATION
3.1. DUTIES AND POWERS OF COMMITTEE. The Plan shall be administered by a
Committee consisting of two or more non-employee members of the Board (the
"Committee"). Subject to the express provisions of the Plan, the Committee
shall have sole discretion and authority (a) to determine the employees (who may
also be directors) to whom and the time or times at which Options may be
granted, (b) to determine whether an Option granted pursuant to the Plan shall
be an Incentive Option, (c) to determine the persons who shall receive Options
and the number of Shares to be subject to each Option, (d) to determine the
details and provisions of each Option Agreement, subject, however, to the
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provisions of Section 6 hereof, (e) to prescribe, amend and rescind rules and
regulations relating to the Plan, and (f) to make all other determinations
necessary or advisable in the administration of the Plan.
3.2. MAJORITY RULE. A majority of the members of the Committee shall
constitute a quorum, and any action taken by a majority present at a meeting at
which a quorum is present or any action taken without a meeting evidenced by a
writing executed by all members of the Committee shall constitute the action of
the Committee.
SECTION 4. PARTICIPATION
Subject to the terms and conditions of the Plan, the Committee shall
designate the key employees of the Company (who may also be directors of the
Company) or its subsidiaries or affiliates to whom Options are to be granted.
SECTION 5. SHARES SUBJECT TO PLAN
5.1. SHARES. Subject to adjustment pursuant to the provisions of Section
5.2 hereof, the total number of Shares which may be issued and sold upon
exercise of all Options exercised under this Plan shall not exceed 6,667 Shares.
Shares issued upon exercise of Options may be either authorized and unissued
Shares or Shares issued and thereafter reacquired by the Company. The number of
Shares relating to an Option which expires or terminates for any reason without
the issuance of Shares (including Shares that are not issued because they are
withheld to satisfy minimum income tax withholding) shall again be available for
Options under the Plan.
5.2. ADJUSTMENTS. In the event of any change in the outstanding Shares by
reason of any stock dividend, split, merger, consolidation, recapitalization,
combination, exchange of shares or other similar corporate change:
(a) The aggregate number and kind of Shares subject to Options which
may be granted hereunder shall be adjusted appropriately;
(b) Rights under outstanding Options granted hereunder both as to the
number of Shares and the Option Price shall be adjusted appropriately; and
(c) Subject to any required action by shareholders, if there shall be
any reorganization, consolidation or merger of the Company with any other
entity or entities, or sale by the Company of all or substantially all of
its assets in exchange for securities of another entity or entities, then
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the Optionee shall be entitled, subject to the conditions set forth in the
Plan and the Option Agreement, to purchase such number of Shares or amount
of other securities of the Company or such other entity or entities as were
exchangeable for the number of Shares which the Optionee would have been
entitled to purchase except for such action, and appropriate adjustments
shall be made in the Option Price to reflect such reorganization,
consolidation, merger or sale.
The adjustments and the manner of application of the foregoing provisions
shall be determined solely by the Committee. All adjustments shall be applied in
like manner to all outstanding Options. Any adjustment may provide for the
elimination of fractional share interests.
SECTION 6. OPTIONS
6.1. OPTION GRANT AND AGREEMENT. Each Option granted hereunder shall be
evidenced by minutes of a meeting or the written consent of the Committee and by
a written Option Agreement dated as of the date of grant and executed by the
Company and the Optionee. The right to exercise Options shall vest as
determined by the Committee with respect to each Option granted.
6.2. INCENTIVE OPTION. The Committee in its sole discretion may designate
whether an Option awarded to an employee of the Company or a subsidiary is to be
considered an Incentive Option. The Committee may grant both an Incentive Option
and a Non-Qualified Option to the same Optionee. However, where both an
Incentive Option and a Non-Qualified Option are awarded at one time, such
Options shall be deemed to have been awarded in separate grants, shall be
clearly identified, and in no event will the exercise of one such Option affect
the right to exercise the other such Option.
Should the Committee designate an Option granted hereunder as an Incentive
Option, such Option shall be subject to the general provisions applicable to all
Options granted under the Plan; in addition, an Incentive Option shall in all
events be subject to the following provisions, which provisions shall be stated
within the applicable Option Agreement:
(a) The Committee may grant an Incentive Option to an employee who
owns, directly or indirectly by attribution, securities in the Company
possessing more than 10% of the total combined voting power of all classes
of the Company's securities only if the Option Price (as defined in Section
6.4) of a Share is at least 110% of the Fair Market Value of the Share and
such Option by its terms is not exercisable
-4-
<PAGE>
after the expiration of five years from the date the Option is granted.
(b) The Committee shall not grant Incentive Options which are
exercisable in a manner so that the aggregate Fair Market Value (determined
at the time the Incentive Options are granted) of the Shares with respect
to which Incentive Options are exercisable for the first time by such
individual during any calendar year (under all incentive stock option plans
of the Company established pursuant to Section 422 of the Code) exceeds
$100,000.
(c) No Incentive Options shall be granted more than 10 years after the
Effective Date.
If any Option is not granted, exercised and held pursuant to the provisions
of this Section 6.2, including any acceleration of the vesting provisions of the
Option or surrender of the Option to the Company for cash pursuant to the
provisions of either Section 6.7 or Section 6.11, it will be considered a Non-
Qualified Option to the extent that it does not comply with the provisions
hereof.
6.3. OPTION PRICE. Subject to Sections 5 and 6.5, the Option Price of a
Share granted under paragraph 4(a) shall be determined by the Committee;
provided, however, the Option Price of each Share under an Incentive Option may
not be less than the Fair Market Value of a Share at the date of grant, and
further provided that the Option Price of Shares which are granted under a Non-
Qualified Option shall not be less than 70% of Fair Market Value at the date of
grant.
6.4. EXPIRATION DATE. The "Expiration Date" of each Option granted under
the Plan shall be determined by the Committee; provided, however, the Expiration
Date of an Incentive Option shall be no later than the tenth anniversary date of
the award, and provided further no Option shall have an Expiration Date later
than December 31, 2002. Options shall not be exercisable after their Expiration
Date and shall be subject to earlier termination as hereinafter provided.
6.5. REPLACEMENT OPTIONS. The Committee may provide either at the time of
grant or subsequently that an Option includes the right to acquire a replacement
option. To receive a replacement option, the Option must be exercised prior to
termination of employment. A replacement option will entitle the holder thereof
to an Option for the number of Shares otherwise issuable upon exercise of an
Option that are withheld to satisfy minimum tax obligations with respect to such
exercise. In addition to any other terms and conditions the Committee deems
appropriate, the replacement option shall be subject to the following terms:
-5-
<PAGE>
(a) the replacement option shall be granted on the date the original
Option is exercised;
(b) the Option Price for Shares under a replacement option shall be
the Fair Market Value of a Share on the date of such exercise;
(c) the replacement option shall be exercisable no earlier than six
months after its grant date;
(d) the Expiration Date of the replacement option will be the same as
the Expiration Date of the original Option; and
(e) the replacement option shall be a Non-Qualified Option and shall
otherwise meet all conditions of this Section 6.
6.6. EXERCISE OF OPTION. Options shall be exercised by written notice of
intent to exercise the Option with respect to a specified number of Shares by
the Optionee to the Company at its principal office in Santa Fe, New Mexico, and
by tendering in cash or by certified, bank cashier's or teller's check or Shares
of the Company which have been held by the Optionee at least six months valued
at Fair Market Value as of the date of tender, or in any combination of cash and
Shares, payment in full to the Company at said office of the amount of the
Option Price for the number of Shares with respect to which the Option is then
being exercised, together with the full amount of all federal and state
withholding or other employment taxes applicable to the taxable income of such
Optionee resulting from such exercise. The Optionee may pay all or a portion of
the federal, state or local withholding taxes arising in connection with an
Option exercise by electing to have the Company withhold Shares or by delivering
previously-owned Shares, in each case using Shares having a Fair Market Value on
the date of exercise equal to or greater than the amount to be withheld;
provided, however, an Optionee may only tender Shares that have been held less
than six months or have Shares withheld to the extent that the Fair Market Value
of such Shares does not exceed the minimum required withholding amount with
respect to the Option exercise; provided further that this method of paying
withholding taxes with Shares that have been held for less than six months will
not be available after the Shares are publicly traded on a national securities
exchange and a registration statement with respect to the Options and Shares
underlying the Options is effective under the Securities Act of 1933, as
amended. In the event all or part of the withholding is paid by withholding
Shares, any excess of the value of the withheld Shares over the amount of the
withholding will be returned to the Optionee in whole or fractional Shares.
-6-
<PAGE>
6.7. CHANGE IN CONTROL. In the event that (i) an Optionee's employment is
terminated by the Company or the successor to the Company or an affiliated
entity which is his or her employer for reasons other than Cause following a
Change in Control of the Company (as defined below), or (ii) the Plan is
terminated by the Company or its successor following a Change in Control without
provision for the continuation of outstanding Options hereunder, all Options
which have not otherwise expired shall become immediately exercisable and all
restrictions on stock awards shall lapse. For purposes of the Plan, a "Change
in Control" means the happening of any of the following:
(a) the stockholders of the Company approve a definitive agreement to
merge the Company into or consolidate the Company with another entity, sell
or otherwise dispose of all or substantially all of its assets; provided,
however, that a Change in Control shall not be deemed to have occurred by
reason of a transaction, or a substantially concurrent or otherwise related
series of transactions, upon the completion of which 50% or more of the
beneficial ownership of the voting power of the Company, the surviving
corporation or corporation directly or indirectly controlling the Company
or the surviving corporation, as the case may be, is held by the same
persons (as defined below) (although not necessarily in the same
proportion) as held the beneficial ownership of the voting power of the
Company immediately prior to the transaction or the substantially
concurrent or otherwise related series of transactions, except that upon
the completion thereof, employees or employee benefit plans of the Company
may be a new holder of such beneficial ownership; provided, further, that a
transaction with an "Affiliate" of the Company (as defined in the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) shall not
be treated as a Change in Control; or
(b) the "beneficial ownership" (as defined in Rule 13d-3 under the
Exchange Act) of securities representing 50% or more of the combined voting
power of the Company is acquired, other than from the Company, by any
"person" as defined in Sections 13(d) and 14(d) of the Exchange Act (other
than by an Affiliate or any trustee or other fiduciary holding securities
under an employee benefit or other similar stock plan of the Company); or
(c) at any time during any period of two consecutive years,
individuals who at the beginning of such period were members of the Board
of Directors of the Company cease for any reason to constitute at least a
majority thereof (unless the election, or the nomination for election by
the Company's stockholders, of each new director was approved by
-7-
<PAGE>
a vote of at least two-thirds of the directors still in office at the time
of such election or nomination who were directors at the beginning of such
period).
For purposes of this Section, an Optionee's employment shall also be deemed to
be terminated by the Company or the successor to the Company or an affiliated
entity if the Optionee terminates employment after (i) a substantial adverse
alteration in the nature of the Optionee's status or responsibilities from those
in effect immediately prior to the Change in Control, or (ii) a material
reduction in the Optionee's annual base salary and target bonus, if any, as in
effect immediately prior to the Change in Control.
6.8. RIGHTS IN EVENT OF TERMINATION OF EMPLOYMENT. In the event of the
Optionee's termination of employment with the Company and all affiliated
entities, the following rules shall apply:
(a) if the Optionee's employment terminates for any reason other than
death, Total and Permanent Disability, Retirement (as defined below) or
Cause (as defined below) or transfer to an affiliated entity, the Optionee
shall have the right, during the period ending three months after such
termination, to exercise outstanding Options to the extent such Options
were exercisable on the date of such termination;
(b) if the Optionee's employment with the Company and all affiliated
entities terminates on account of death, Total and Permanent Disability or
Retirement, the Optionee (or, in the event of his or her death, the person
who acquired the right to exercise the Option) shall have the right, during
the period ending one year after such termination, to exercise outstanding
Options to the extent such Options were exercisable on the date of such
termination and in the event of termination on account of death or Total
and Permanent Disability, all such Options shall become immediately
exercisable as of the date of such termination;
(c) if the Optionee's employment is terminated for Cause, the vested
and unvested portion of the Option shall terminate and the Option shall be
cancelled and shall not be exercisable on or after such termination date;
and
(d) in the event the Optionee is transferred to an affiliated entity,
the Option shall remain in full force and effect until the Optionee is no
longer employed by the Company or any affiliated entity, in which case
paragraphs (a) through (c) next above shall apply, as applicable.
-8-
<PAGE>
Any portion of the Option which is not exercisable on the date that the
Optionee's employment terminates for any reason shall be forfeited. "Cause"
shall mean, in the reasonable judgment of the Committee (i) the willful and
continued failure by the Optionee to substantially perform his or her duties
with the Company or any affiliated entity after written notification by the
Company or such affiliated entity, (ii) the willful engaging by the Optionee in
conduct which is demonstrably injurious to the Company or any affiliated entity,
monetarily or otherwise, or (iii) the engaging by the Optionee in egregious
misconduct involving serious moral turpitude. For purposes hereof, no act, or
failure to act, on the Optionee's part shall be deemed "willful" unless done, or
omitted to be done, by the Optionee not in good faith and without reasonable
belief that such action was in the best interest of the Company. "Retirement"
shall mean the occurrence of a termination of employment of the Optionee, other
than for Cause, death or Total and Permanent Disability, after providing at
least five years of service to the Company or affiliated entities if the
Optionee has attained at least age 60.
6.9. RIGHTS IN EVENT OF DISSOLUTION OR LIQUIDATION OF COMPANY. Options
shall terminate upon dissolution or liquidation of the Company, provided that
for a period of 60 days prior to such dissolution or liquidation, the Optionee
shall have the right to exercise outstanding Options in full even though such
Option would not otherwise be exercisable. Upon such dissolution or
liquidation, the unexercised portion of any Options shall terminate and be of no
further effect.
SECTION 7. SHARE CERTIFICATES
7.1. ISSUANCE. The Company shall not be required to issue or deliver any
certificate for Shares purchased upon the exercise of any Option granted
hereunder, or any portion thereof, prior to fulfillment of all of the following
conditions:
(a) The completion of any registration or other qualification of such
Shares under any federal or state securities laws or under the rulings or
regulations of the Securities and Exchange Commission or any other
governmental regulatory body, which the Committee shall in its sole
discretion deem necessary or advisable;
(b) The obtaining of any approval or other clearance from any federal
or state governmental agency which the Committee shall, in its sole
discretion, determine to be necessary or advisable; and
(c) The lapse of such reasonable period of time following the exercise
of the Option as the Committee from
-9-
<PAGE>
time to time may establish for reasons of administrative convenience.
7.2. COMPLIANCE WITH SECURITIES AND OTHER LAWS. In no event shall the
Company be required to sell or issue Shares pursuant to Options granted under
this Plan if the issuance thereof would constitute a violation by either the
Optionee or the Company of any provision of any law or regulation of any
governmental authority or any national securities exchange. As a condition of
any sale or issuance of Shares pursuant to Options granted hereunder, the
Company may place legends on the Shares, issue stop-transfer orders and require
such agreements or undertakings from the Optionee as the Company may deem
necessary or advisable to assure compliance with any such law or regulation,
including, if the Company or its counsel deems it appropriate, representations
from the Optionee that he or she is acquiring the Shares solely for investment
and not with a view to distribution and that no distribution of the Shares
acquired by him or her will be made unless registered pursuant to applicable
federal and state securities laws or unless, in the opinion of counsel to the
Company, such registration is unnecessary.
7.3. RIGHTS AS SHAREHOLDER. An Optionee or transferee of an Option shall
have no rights as a shareholder with respect to any Shares subject to such
Option prior to the purchase of such Shares by exercise of such Option as
provided herein.
7.4. REPURCHASE OF SHARES. The Committee may, by agreement providing for
right of first refusal, limit a holder's rights to sell or otherwise dispose of
Shares acquired pursuant to the Plan.
SECTION 8. TERMINATION, AMENDMENT
AND MODIFICATION OF PLAN
8.1. BOARD TERMINATION, AMENDMENT AND MODIFICATION OF PLAN. The Board may
at any time, terminate, and may at any time and from time to time and in any
respect, amend or modify, the Plan, including the form of Option Agreement;
provided, however, that no such action of the Board, without approval of the
shareholders of the Company, may:
(a) Increase the total number of Shares subject to the Plan except as
contemplated in Section 5.2 hereof;
(b) Restrict, expand or otherwise change the class or classes of
employees eligible to participate in the Plan;
(c) Change the Option Price other than pursuant to Section 5.2 or to
change the manner of determining the Fair Market Value of the Shares to
conform with any then
-10-
<PAGE>
applicable provisions of the Code or regulations or rulings thereunder; or
(d) Withdraw the administration of the Plan from the Committee.
8.2. PLAN TERMINATION. Unless terminated earlier as provided in Section
8.1, the Plan shall terminate on December 31, 2002, and no Option shall be
granted under this Plan after that date.
8.3. EFFECT OF TERMINATION, AMENDMENT OR MODIFICATION OF PLAN.
Notwithstanding Sections 8.1 and 8.2, no termination, amendment or modification
of the Plan shall in any manner adversely affect any Option theretofore granted
under the Plan without the consent of the Optionee or a person who shall have
acquired the right to exercise the Option by will or the laws of descent and
distribution.
SECTION 9. MISCELLANEOUS
9.1. NO EMPLOYMENT RIGHTS. Nothing in the Plan or in any Option granted
hereunder or in any Option Agreement relating thereto shall confer upon any
employee the right to continue in the employ of the Company or affiliated
entities.
9.2. OTHER COMPENSATION PLANS. The adoption of the Plan shall not affect
any other securities option or incentive or other compensation plans in effect
for the Company or an affiliated entity, nor shall the Plan preclude the Company
or any affiliated entity from establishing any other forms of incentive or other
compensation for employees of the Company or such affiliated entity.
9.3. BINDING EFFECT. The Plan shall be binding upon the successors and
assigns of the Company.
9.4. SINGULAR, PLURAL; GENDER. Whenever used herein, except where the
context clearly indicates to the contrary, nouns in the singular shall include
the plural, and the masculine pronoun shall include the feminine gender.
9.5. HEADINGS. Headings of the Sections hereof are inserted for
convenience of reference and constitute no part of the Plan.
9.6. NONTRANSFERABILITY OF OPTION. No Option shall be transferred by an
Optionee otherwise than by will or by the laws of descent and distribution.
During the lifetime of an Optionee the Option shall be exercisable only by him
or her. The
-11-
<PAGE>
Committee may require such evidence of a transfer by will or the laws of descent
and distribution as it deems necessary.
9.7. NO REDUCTION OF SALARY OR COMPENSATION TO PARTICIPATE. No employee
shall be required to forego an increase in salary, or to defer any amount of
compensation as a condition of participation in the Plan.
9.8. WITHHOLDING. The Company shall have the right to deduct from any
cash payment made pursuant to Section 6.7 of the Plan an amount equal to the
federal, state and local income taxes required to be withheld with respect to
such payment. If the cash portion of any such payment is less than the amount
of taxes required to be withheld, the Company may require the Optionee or other
person receiving such payment, as a condition of and prior to such payment, to
pay to it the balance of any such taxes required to be so withheld.
-12-
<PAGE>
EXHIBIT 11
Security Capital Group Incorporated
and Subsidiaries
FULLY DILUTED EARNINGS PER COMMON SHARE AND COMMON EQUIVALENT SHARE
(in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1996 1995 1994
---------------------------------------------
<S> <C> <C> <C>
Reconciliation of net earnings (loss) per primary earnings
(loss) per common share and common share equivalent
computation to amount used for fully diluted computation:
Net earnings (loss) per Consolidated Statements $ 24,145 $ (51,112) $ (7,685)
of Operations
Add: Interest expense - convertible debt 93,912 78,785 9,647
---------------------------------------------
Net earnings (loss), as adjusted $ 118,057 $ 27,673 $ 1,962
=============================================
Reconciliation of weighted average number of common shares
outstanding per primary earnings per common share
and common equivalent share computation
to amount used for fully diluted computation:
Weighted average number of common shares
outstanding per primary earnings per common share
and common equivalent share computation 1,133,711 896,681 458,945
Add: Weighted average effect of conversion of
convertible debentures into common shares 764,180 618,017 210,094
Weighted average number of common shares, ---------------------------------------------
as adjusted 1,897,891 1,514,698 669,039
=============================================
Primary earnings per common share and common
share equivalent $ 21.30 $ (57.00) $ (16.74)
=============================================
Fully diluted earnings per common share and common
share equivalent(1) $ 62.20 $ 18.27 $ 2.93
=============================================
</TABLE>
(1)Fully diluted earnings per common share and common share equivalents is not
presented on the Consolidated Statements of Operations as the effect of the
conversion of the convertible debt into common shares is not assumed as the
effect would be anti-dilutive.
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made a part of this
registration statement.
Arthur Andersen LLP
Chicago, Illinois
April 25, 1997
<PAGE>
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
The Board of Directors of
Security Capital Group Incorporated:
We consent to the use of our report included herein dated January 29, 1997,
except as to note 13, which is as of March 10, 1997, relating to the balance
sheets of Security Capital Pacific Trust as of December 31, 1996 and 1995, the
related statements of earnings, shareholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1996, and the related
schedule as of December 31, 1996, and to the reference to our firm under the
heading "Independent Public Accountants and Experts" in this registration
statement on Form S-1 of Security Capital Group Incorporated.
KPMG Peat Marwick LLP
Chicago, Illinois
April 28, 1997
<PAGE>
EXHIBIT 23.5
[LETTERHEAD OF PRICE WATERHOUSE]
PRICE WATERHOUSE [COMPANY LOGO]
Reviseur d'Entreprises
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Form S-1 Registration Statement filed by
Security Capital Group Incorporated, in connection with the registration of its
Class B common stock dated April 1997 (the "Registration Statement") of our
report dated February 28, 1997, relating to the consolidated financial
statements of Security Capital US Realty SICAV, which appears in such
Registration Statement.
/s/ Price Waterhouse
Price Waterhouse SA
24-26 avenue de Liberte
Luxembourg, L-1014
April 25, 1997
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 3, 1997 with respect to the financial
statements at December 31, 1996 and 1995 and for each of the three years in the
period ended December 31, 1996 of Security Capital Atlantic Incorporated, which
is included in the Registration Statement (Form S-1) and the related Prospectus
of Security Capital Group Incorporated for the registration of its Class B
common stock.
Ernst & Young LLP
Dallas, Texas
April 24, 1997
<PAGE>
EXHIBIT 23.7
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 24, 1997 with respect to the financial
statements at December 31, 1996 and for the year ended December 31, 1996 of
Homestead Village Incorporated, which is included in the Registration Statement
(Form S-1) and the related Prospectus of Security Capital Group Incorporated
for the registration of its Class B common stock.
Ernst & Young LLP
Dallas, Texas
April 24, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>This schedule contains summary financial information extracted from the
consolidated financial statements of Security Capital Group Incorporated as of
December 31, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 23,662
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,414,255
<DEPRECIATION> 48,882
<TOTAL-ASSETS> 3,071,884
<CURRENT-LIABILITIES> 0
<BONDS> 1,197,296
0
139,000
<COMMON> 12
<OTHER-SE> 922,290
<TOTAL-LIABILITY-AND-EQUITY> 3,071,884
<SALES> 0
<TOTAL-REVENUES> 398,122
<CGS> 0
<TOTAL-COSTS> 204,692
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 117,224
<INCOME-PRETAX> 76,206
<INCOME-TAX> 30,872
<INCOME-CONTINUING> 31,964
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,964
<EPS-PRIMARY> 21.30
<EPS-DILUTED> 0<F1>
<FN>
<F1> Earnings per share - fully diluted is not presented as the conversion of
the convertible debt into common shares is not assumed as the effect would
be anti-dilutive.
</FN>
</TABLE>
