<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 3, 1997
NO. 333-26037
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
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. [_]
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
Shares Dated July 3, 1997
[LOGO OF SECURITY CAPITAL GROUP]
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.
The Class B Shares have been approved for listing on the New York Stock
Exchange (the "NYSE") under the symbol "SCZ.B", subject to official notice of
issuance.
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 8 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.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & 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........................ 8
Use of Proceeds..................... 14
Dividend Policy..................... 14
Capitalization...................... 15
Dilution............................ 16
Business............................ 17
Management.......................... 31
Selected Financial Information...... 43
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 44
Relationships with Operating
Companies.......................... 56
Certain Relationships and
Transactions....................... 66
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Principal Shareholders.............. 68
Description of Capital Stock........ 71
Certain Provisions of Maryland Law
and of Security Capital's Charter
and Bylaws......................... 76
Shares Available for Future Sale.... 78
Certain United States Federal Tax
Considerations for Non-U.S. Holders
of Class B Shares.................. 79
ERISA Matters....................... 82
Underwriting........................ 84
Experts............................. 86
Legal Matters....................... 87
Available Information............... 87
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. The Company currently is considering several new
business initiatives. See "Business--Future Strategy." 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. See
"Business--Operating Strategy--Security Capital Strategic Group."
.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 May 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 May 31, 1997). As of June 6, 1997, Security Capital owned
approximately 35% of PTR, 51% of ATLANTIC, 64% of Homestead, 44% of SCI and 32%
of Security Capital USREALTY (based in each case on common shares outstanding)
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 May 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 $8.2 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 $4.1 billion as of May 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 recently became
operational, including Strategic Hotel Capital Incorporated, Security Capital
Preferred Growth and Security Capital Employee REIT Fund, in which Security
Capital has initially committed to invest $200 million, $50 million and $100
million, respectively, and several other 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
OWNERSHIP AND MARKET CAPITALIZATION OF INVESTEES
<TABLE>
<CAPTION>
DIRECT/INDIRECT EQUITY MARKET
INVESTEE OWNERSHIP (1)(2) CAPITALIZATION (1)
-------- ---------------- ------------------
(in millions)
<S> <C> <C>
Security Capital Pacific Trust 32% $1,879
Security Capital Atlantic
Incorporated 51% 918
Homestead Village Incorporated (3) 30% 971
Security Capital Industrial Trust 38% 2,280
------
Total $8,164
======
Security Capital USREALTY (4) 32% $2,116
CarrAmerica Realty Corporation (5) 38% 1,838
Storage USA, Inc. (5) 35% 1,110
Regency Realty Corporation (5) 39% 585
Pacific Retail Trust (5) 69% 614
------
Total $4,147
======
</TABLE>
- -------
(1) Ownership and market capitalization are as of May 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 June 6, 1997, Security Capital's percentage ownerships in its
investees, based on common shares outstanding on such date, were 35% of PTR,
51% of ATLANTIC, 64% of Homestead, 44% of SCI and 32% of Security Capital
USREALTY. Equity market capitalization, as of May 31, 1997, based on common
shares outstanding was $1,708 million for PTR, $918 million for ATLANTIC, $383
million for Homestead, $1,967 million for SCI, and $2,116 million for 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) 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.
(5) As of May 31, 1997, Security Capital USREALTY's percentage ownerships in
its investees, based on common shares outstanding on such date, were 43% of
CarrAmerica, 37% of Storage USA, 42% of REGENCY and 73% of PACIFIC RETAIL.
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.
4
<PAGE>
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 $ of ATLANTIC's
shares of common stock, $ of PTR's common shares of beneficial interest and
$ of SCI's common shares of beneficial interest. 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 at a discount to the price 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 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 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, through its
investees, 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."
5
<PAGE>
THE OFFERING
CLASS B COMMON STOCK OFFERED......
<TABLE>
<CAPTION>
Before the
Offering After the Offering
------------------ ------------------
Number Number
(1) Voting % (1) Voting %
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Class A Common Stock (1)................ 1,320,955 100 (2) 1,320,955 (2)
Class B Common Stock (3)................ -- -- (2)
</TABLE>
COMMON STOCK OUTSTANDING:
USE OF PROCEEDS...................
The Offering is intended to provide
funds to be used for the partial
repayment of outstanding indebtedness
of Security Capital, the allocation of
capital to new businesses and any
remaining amounts used for general
corporate purposes. 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."
NYSE SYMBOLS:
Class A Common Stock...........
Class B Common Stock........... "SCZ.A"
- ------- "SCZ.B"
(1) As of May 31, 1997; excludes (i) 167,502 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) 279,941 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 131,298,500 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." To the
extent Warrants are exercised for Class B Shares, the number of outstanding
Class B Shares will increase, and the interests of the shareholders who
purchase in the Offering will be diluted accordingly.
6
<PAGE>
SUMMARY SELECTED FINANCIAL INFORMATION
The following table sets forth summary selected financial information for
Security Capital as of and for the three months ended March 31, 1997, for the
three months ended March 31, 1996 and 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>
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31,
Dollars in thousands, 1997 1996 1996 1995 (1) 1994 1993 1992 1991
except per share data -------------- -------------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Equity in earnings $ 39,035 $ 14,963 $ 168,473 $ 45,685 $ 8,812 $ 6,032 $ 1,722 $ 242
Rental revenues 50,667 30,809 145,907 103,634 55,071 10,916 1,592 -
Services Division
revenues (2) 22,970 15,408 77,512 49,404 - - - -
Total revenues 114,031 61,539 398,122 200,534 156,855 17,503 3,534 467
Rental expenses 18,694 11,816 54,050 37,948 23,052 1,428 292 -
Services Division
expenses (2) 24,318 19,455 91,195 60,789 - - - -
General, administrative
and other (2) 9,970 3,837 24,927 18,311 18,755 2,555 679 205
Costs incurred in
acquiring Services
Division (2) - - - 158,444 - - - -
Interest expense:
Security Capital:
Convertible
Debentures/notes (3) 26,665 22,291 93,912 78,785 29,647 1,228 180 -
Line of credit 1,412 2,240 6,256 5,977 6,424 2,196 960 88
Majority-owned
subsidiaries (4) 4,761 4,342 17,056 19,042 17,718 362 - -
-------------- -------------- --------- --------- --------- --------- --------- ---------
Total interest expense 32,838 28,873 117,224 103,804 53,789 3,786 1,140 88
Net earnings (loss)
attributable to Class A
Shares (5) $ 3,349 $ (9,854) $ 32,067 $(201,634) $ (7,685) $ 5,155 $ 1,014 $ 141
----------------------------------------------------------------
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31,
1997 1996 1996 1995 (1) 1994 1993 1992 1991
-------------- -------------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Series A Preferred Stock
dividends $ 18.75 - $ 56.25 - - - - -
Net earnings (loss)
attributable to
Class A Shares $ 2.53 $ (9.91) $ 28.28 $ (224.87) $ (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 1,322,054 994,789 1,133,711 896,681 458,945 131,776 46,913 35,565
</TABLE>
----------------------------------------------------
<TABLE>
<CAPTION>
AS OF
MARCH 31, AS OF DECEMBER 31,
1997 1996 1995 (1) 1994 1993 1992 1991
Dollars in thousands ----------- ---------- --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Investments, at equity $1,512,391 $1,438,937 $ 930,043 $ 230,756 $ 161,270 $ 68,160 $ 24,911
Real estate, net of
accumulated
depreciation (1) 1,463,173 1,365,373 865,367 2,005,957 478,630 41,577 -
Total assets 3,222,715 2,929,284 1,855,056 2,300,613 673,019 110,765 25,003
Long-term debt:
Security Capital (3) 1,036,712 940,197 718,611 514,383 48,970 6,532 -
Majority-owned
subsidiaries (4) 273,163 257,099 118,524 301,787 47,988 - -
Minority interests 401,134 394,537 159,339 554,752 157,545 4,884 -
Total shareholders'
equity $1,018,809 $ 918,702 $ 528,539 $ 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.
7
<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 and
one-quarter year period ended March 31, 1997, 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 11.01% 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.
UNCERTAINTIES RELATING TO 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 have recently become operational or 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. These risks and their potential effect
on the Company, to the extent they are different from those described in the
Prospectus, cannot presently be determined and will only become known as
progress is made during the development of a specific new business initiative.
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 following Managing Directors:
Jeffrey A. Cozad, John H. Gardner, W. Joseph Houlihan, Anthony R. Manno, Jr.,
Todd W. Mansfield, Caroline S. McBride, Daniel F. Miranda, Mary Lou Rogers,
Donald E. Suter and Paul E. Szurek. Security Capital has experienced
individuals who manage its operating companies, including R. Scot Sellers,
President and Chief Executive Officer of PTR, Patrick R. Whelan, Managing
Director 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. 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
8
<PAGE>
"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 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 TO SHAREHOLDERS
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 March 31, 1997,
Security Capital had approximately $1.3 billion of consolidated outstanding
long-term indebtedness (of which $273 million represented indebtedness of
Security Capital's consolidated operating companies) and $295 million of
consolidated outstanding short-term indebtedness (all of which represented
indebtedness of Security Capital's consolidated operating companies) and after
giving pro forma effect to the Offering, the Company's debt-to-equity ratio
(including all outstanding Convertible Debentures as debt) at such date would
have been to 1.0. If all Convertible Debentures outstanding on such date
were converted, Security Capital's debt-to-equity ratio would have been to
1.0. On March 31, 1997, Security Capital had an accumulated deficit of $202.4
million. Of the $1.3 billion of consolidated outstanding long-term
indebtedness, approximately $1.1 billion consisted of 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 the fair market value per Class A Share. If the
Convertible Debentures were converted, the outstanding long-term indebtedness
would be reduced to approximately $273 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 Funding, 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 $50 million as of May 31, 1997. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Investing and Financing Activities--Line of Credit."
Under SC Realty's line of credit, Security Capital (as guarantor) is not
permitted to incur or assume any indebtedness other than (i) indebtedness under
the SC Realty line of credit which is guaranteed by Security Capital, (ii)
existing convertible subordinated indebtedness, (iii) subordinated
indebtedness, (iv) indebtedness represented by declared but unpaid dividends,
(v) indebtedness secured by purchase money liens in an aggregate amount not to
exceed $10 million at any time outstanding, (vi) indebtedness owing to SC
Realty (limited to a maximum of $50 million), and (vii) other indebtedness in
an aggregate amount not to exceed $10 million at any time outstanding. In
addition, the terms and conditions of SC Realty's line of credit impose
restrictions that affect, among other things, the ability of Security Capital
to (i) create liens on assets, (ii) sell or otherwise transfer certain assets,
(iii) engage in mergers or consolidations, and (iv) pay dividends. Security
Capital is also required by the terms of its guaranty to comply with certain
specified financial ratios and tests, including (i) a minimum shareholders'
equity of greater than $795 million; (ii) a maximum ratio of total liabilities
of Security Capital to the net worth of Security Capital plus the market value
net worth of SC Realty of 1.75 to 1.00; and (iii) a maximum ratio of cash flow
to mandatory interest expense of 2.00 to 1.00. Security Capital's ability to
comply with the foregoing provisions may be affected by events beyond its
control. Security Capital's failure to comply with any of these covenants could
result in a default under the line of credit. At March 31, 1997, Security
Capital was in compliance with all covenants under the guaranty and SC-Realty's
line of credit.
9
<PAGE>
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, deferring 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" for a description of this ownership restriction.
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
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, deferring 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."
10
<PAGE>
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, deferring 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 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 exemptions provided by
Rule 3a-1 promulgated under the Investment Company Act. 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
June 6, 1997, Security Capital owned approximately 35% of PTR, 51% of ATLANTIC,
64% of Homestead, 44% of SCI, and 32% of Security Capital USREALTY (based in
each case on outstanding common shares at such date) and 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
subject to the accumulated earnings tax for United States
11
<PAGE>
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 AFFECTING OPERATING COMPANIES
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.
HIGHLY COMPETITIVE BUSINESSES
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. Security
Capital's operating companies compete on a regional and national basis with no
individual market material to Security Capital as a whole. 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; SHARE PRICE FLUCTUATIONS
Prior to the Offering, there has been no public market for the Class B Shares.
There can be no assurance that an active trading market will develop for the
Class B Shares. From time to time, the stock market experiences
12
<PAGE>
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.
POTENTIAL ADVERSE 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 1,320,955 Class A Shares outstanding, which
will be convertible beginning January 1, 1998 into a total of 66,047,750 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 May 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 279,941 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 114,684 Class A Shares and
approximately $55 million principal amount of 2014 Convertible Debentures
(convertible into 52,818 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 and the Offering, 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.
IMPACT OF ENVIRONMENTAL REGULATIONS
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.
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." In addition, to the extent Warrants
are exercised for Class B Shares, the number of outstanding Class B Shares will
increase, and the interests of the shareholders who purchase in the Offering
will be diluted.
13
<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 the partial
repayment of outstanding indebtedness (approximately $ million), the
allocation of capital to new businesses (approximately $ million) and any
remaining amounts will be used for general corporate purposes. 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 May 31, 1997, SC Realty, a wholly owned subsidiary of Security Capital, had
$50 million in outstanding borrowings under its $300 million revolving line of
credit with Wells Fargo. The weighted average interest rate on the line of
credit balance at May 31, 1997 was 7.1875%. 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 May 31, 1997, the aggregate market value of
the securities pledged pursuant to the line of credit was approximately $2.9
billion. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Investing and Financing Activities--Line of Credit."
DIVIDEND POLICY
Security Capital is not a REIT and is not required to make distributions to its
common shareholders. The declaration and payment of dividends by Security
Capital is subject to the discretion of the Board. Any determination as to the
payment of dividends will depend upon the results of operations, capital
requirements and financial condition of Security Capital and such other factors
as the Board deems relevant. The Company believes that there currently are
substantial investment opportunities available to Security Capital and, as a
result, the Board intends to follow a policy of retaining earnings to finance
Security Capital's growth and for general corporate purposes. Therefore,
Security Capital does not anticipate paying any cash dividends on the Class A
Shares or the Class B Shares in the foreseeable future.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Security Capital as of
March 31, 1997 and as adjusted to give effect to (i) the Offering ($ in
net proceeds based on a Class B Share price equal to the mid-point of the range
set forth on the cover hereof) and (ii) 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>
---------------------
MARCH 31, 1997
AS
HISTORICAL ADJUSTED
---------- ---------
<S> <C> <C>
Dollars in thousands
Long-term debt:
Security Capital
2014 Convertible Debentures (1) $ 713,678 $ 713,678
2016 Convertible Debentures (2) 323,034 323,034
Majority-owned subsidiaries (3)
Mortgage notes payable 273,163 273,163
---------- ---------
Total long-term debt 1,309,875 1,309,875
---------- ---------
Minority interests 401,134 401,134
Shareholders' equity:
Class A Shares, par value $.01 per share; 20,000,000
shares
authorized; 1,301,027 shares issued and outstanding
(4); Class B Shares, par value $.01 per share;
229,861,000 shares authorized; shares
issued as adjusted (5) 13
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 1,082,149
Accumulated deficit (202,353)
---------- ---------
Total shareholders' equity 1,018,809
---------- ---------
Total capitalization $2,729,818 $
========== =========
</TABLE>
- --------
(1) Convertible into 682,293 Class A Shares. Does not include $86,057,406
principal amount of 2014 Convertible Debentures issuable upon exercise of
outstanding options and warrants convertible into 82,310 Class A Shares.
(2) Convertible into 279,949 Class A Shares.
(3) Security Capital does not guarantee the debt of any of its consolidated or
unconsolidated operating companies.
(4) Does not include an aggregate of 1,285,091 Class A Shares, 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 64,254,550 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.
15
<PAGE>
DILUTION
At March 31, 1997, Security Capital had a net tangible book value of $879.8
million, or $13.52 per Class B Share based on 65,051,350 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 March 31, 1997 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 March 31,
1997 (1) $ 13.52
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 March 31, 1997 into
Class B Shares.
The following table sets forth, as of March 31, 1997, (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 65,051,350 % $943,887,000 % $14.51 (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 $18.01 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 1,285,091 Class A Shares (convertible into 64,254,550 Class B
Shares) would have been outstanding as of March 31, 1997 and the Company would
have reduced its liabilities by $1,129.30 million and increased its
shareholders' equity by $1,425.30 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 March 31, 1997:
---------------------------------------------------
<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 129,305,900 % $2,369,181,000 % $18.01
New investors % $ % $
----------- --------- -------------- ---------
Total 100.00% $ 100.00%
=========== ========= ============== =========
</TABLE>
16
<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. The Company currently is considering several new
business initiatives. See "--Future Strategy." 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. See "--
Operating Strategy--Security Capital Strategic Group."
. 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 May 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 May 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.
17
<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
------------------------------
SECURITY CAPITAL GROUP
INCORPORATED
REAL ESTATE RESEARCH,
INVESTMENT AND MANAGEMENT
$ (1)
------------------------------
|
---------------------------------------------------------------
| | | |
- ---------------- ---------------- ----------------- -------------------
REAL ESTATE INVESTMENT STRATEGIC GROUP FINANCIAL
RESEARCH GROUP RESEARCH GROUP (SG) SERVICES GROUP
(RERG) (IRG) (FSG)
BUSINESS STRATEGY
REAL ESTATE REAL ESTATE AND CAPITAL ADMINISTRATIVE
RESEARCH SECURITIES DEPLOYMENT AND CAPITAL
MANAGEMENT OVERSIGHT MARKETS SERVICES
(Intermediate
Term) Brussels-Chicago- Chicago-El Paso-
Brussels-Chicago- London-Luxembourg- London-Luxembourg-
Santa Fe Brussels-Chicago New York-Santa Fe New York-Santa Fe
- ---------------- ---------------- ----------------- -------------------
CLIENTS CLIENTS CLIENTS CLIENTS
Investment Special Security Capital Limited to
Research Group Opportunity Pacific Trust Direct/Indirect
Strategic Group Investments Security Capital Affiliates
(Security Atlantic
Capital U.S. Incorporated
Realty) (2) Homestead Village
Security Capital Incorporated
Employee REIT Security Capital
Fund (3) Industrial Trust
Security Capital Strategic Hotel
Preferred Growth Capital
Incorporated (3) Incorporated (3)
SCG Box X-3 (3)(4)
Security Capital
U.S. Realty (2)
CarrAmerica
Realty
Corporation (5)
Storage USA,
Inc. (5)
Regency Realty
Corporation (5)
Pacific Retail
Trust (5)
National Parking
Corporation--
national parking
operator (3)(5)
Urban Growth
Property Trust
--national urban
property (3)(5)
City Center Retail
Trust
--urban retail (3)(5)
- --------
(1) Pre-Offering, equity market capitalization on a fully converted basis as of
May 31, 1997, which assumes all convertible instruments have been converted
into, and options and warrants have been exercised for, Class A Shares, which
in turn are assumed to be converted into Class B Shares, and is based on the
Class B Share price equal to the mid-point of the range set forth on the cover
hereof.
(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) 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 Security Capital has committed to make
investments in excess of $25 million in the new business.
(5) This company is an investee of Security Capital USREALTY through its
subsidiary and is not directly advised by SG.
18
<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.
19
<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
May 31, 1997, the Security Capital USREALTY Special Opportunity Investments
Portfolio had a fair market value of $308 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 became effective with the Commission in April 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. At May 31, 1997, Security Capital had invested $96.2 million in
SC-ERF.
. 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. SC-PG has received commitments to purchase $324.8 million of its
common stock including Security Capital's commitment of $50 million.
20
<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)
------- ---------------- ------------------
(in millions)
<S> <C> <C>
Security Capital Pacific Trust 32% $1,879
Security Capital Atlantic
Incorporated 51% $ 918
Homestead Village Incorporated (3) 30% $ 971
Security Capital Industrial Trust 38% $2,280
Security Capital USREALTY (4) 32% $2,116
CarrAmerica Realty Corporation (5) 38% $1,838
Storage USA, Inc. (5) 35% $1,110
Regency Realty Corporation (5) 39% $ 585
Pacific Retail Trust (5) 69% $ 614
</TABLE>
- --------
(1) Ownership and market capitalization are as of May 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 June 6, 1997, Security Capital's percentage ownerships in its
investees, based on common shares outstanding on such date, were 35% of PTR,
51% of ATLANTIC, 64% of Homestead, 44% of SCI and 32% of Security Capital
USREALTY. Equity market capitalization, as of May 31, 1997, based on common
shares outstanding was $1,708 million for PTR, $918 million for ATLANTIC, $383
million for Homestead, $1,967 million for SCI and $2,116 million for 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."
21
<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 May 31, 1997, PTR's portfolio of multifamily communities
included 40,390 operating units, 5,588 units under construction and an
estimated 7,524 units in planning. In addition, PTR owns or controls land for
future development of an expected 4,102 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 35% of the fully converted common shares of Homestead.
Since February 1991, when Security Capital took its initial position in PTR,
through May 31, 1997, PTR's equity market capitalization has increased from $34
million to $1,879 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 May 31, 1997,
ATLANTIC's portfolio included 19,361 operating multifamily units, 5,079 units
under construction and an estimated 5,054 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 May 31, 1997, ATLANTIC had an equity market capitalization of
$918 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 May 31, 1997, Homestead had developed, owned
and operated 40 properties representing in the aggregate 5,323 units and had 44
properties under construction totaling 5,958 units. At May 31, 1997, Homestead
had an equity market capitalization of $971 million. From its spin-off 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.
22
<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 International Operating System(TM) which is committed to creating
shareholder value by targeting the Fortune 1000 companies and providing
exceptional customer service at the international, 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
Europe 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 May 31, 1997, SCI had distribution
properties operating or under development in 39 target markets, totaling 90.3
million square feet. At May 31, 1997, SCI had an equity market capitalization
of $2,280 million. Since 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 May 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. At May 31, 1997, Security Capital had
invested $23 million in SHC, and two hotels had been purchased by 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 May 31, 1997, Security Capital USREALTY had an equity market capitalization
of $2,116 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 May 31, 1997, Security Capital
USREALTY had $308 million (market value) of publicly traded positions in 23
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 May 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.
23
<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 May 31, 1997, CarrAmerica had an
equity market capitalization of $1,838 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 May
31, 1997, Storage USA had an equity market capitalization of $1,110 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 May 31, 1997, REGENCY had an equity
market capitalization of $585 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 early 1998, after it
reaches critical mass in several key growth markets. At May 31, 1997, PACIFIC
RETAIL had a private equity market capitalization of $614 million, based on the
per share sales price obtained in PACIFIC RETAIL's most recent private offering
of its common shares.
Security Capital USREALTY has committed to invest in two real estate operating
companies: City Center Retail Trust, a REIT which intends to invest in urban
retail development properties ($75 million commitment for an approximate 100%
ownership interest with an option to invest an additional $75 million); and
Urban Growth Property Trust, a REIT which intends to invest in strategically
located urban properties including parking garages, as well as corporate and
retail land leases ($75 million commitment for an approximate 100% ownership
interest with an option to invest an additional $75 million). Although both
companies currently are privately held, it is expected that both companies
ultimately will conduct initial public offerings. As of May 31, 1997, Security
Capital USREALTY had invested $29.5 million in City Center Retail Trust.
24
<PAGE>
- ------------------- ------------------------------------------------------
--------------
FINANCIAL SECURITY
SERVICES GROUP CAPITAL
(FSG) --------------
------------------------------------------
ADMINISTRATIVE
AND CAPITAL --------- --------- --------- ---------
MARKET SERVICES FSG
--------- --------- --------- ---------
Chicago-El Paso-
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 May 31, 1997, Security Capital USREALTY had an equity market capitalization
of $2,116 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 May 31,
1997, approximately $389 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 May 31, 1997, Homestead had an equity market
capitalization of $971 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 new
businesses recently began operations.
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.
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 OF SECURITY CAPITAL GROUP INCORPORATED]
Security Capital SCGroup
Pacific Trust Incorporated (1)
Security Capital Security Capital
Atlantic Incorporated Markets Group
Incorporated (1)
Homestead Village
Incorporated (2)
Security Capital Security Capital
Industrial Trust Real Estate
Research Group
Incorporated (1)
Security Capital U.S.
Realty (2)(3)
Security Capital Security Capital
Employee REIT (EU) Investment
Fund (4) Research Group
S.A. (1)
Security Capital Security Capital
Preferred Growth (US) Investment
Incorporated (4) Research
Incorporated (1)(4)
Strategic Hotel
Capital
Incorporated (2)(4)
SCG Box X-3 (2)(4)
- -------
(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) Represents non-dividend paying entity.
(3) 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.
(4) 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
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 May 31) 20 3/4 7/8 0.2675 22 3/8 20 3/4 0.39 24 1/4 1/8 0.325
<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 May 31) 18 1/2 7/8 - 16.00 13.40 -
</TABLE>
On May 31, 1997, the last reported sale price of a common share of (i) SCI was
$20 1/8, (ii) ATLANTIC was $21 7/8, (iii) PTR was $22 1/4, (iv) Homestead was
$17 1/4 and (v) Security Capital USREALTY was $15.50. On June 6, 1997, Security
Capital owned (i) 43,086,724 common shares of SCI, (ii) 21,546,620 shares of
common stock of ATLANTIC, (iii) 27,391,539 common shares of PTR, (iv)
14,144,401 shares of common stock of Homestead and (v) 43,436,254 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 to below 50%.
27
<PAGE>
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.
<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 May 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 May 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>
PTR Common Shares $ 381,421,263 $ 22.250 $ 609,461,743 $ 228,040,480
ATLANTIC Common Shares 417,732,742 21.875 471,332,313 53,599,571
Homestead Common Shares 121,698,638 17.250 243,990,917 122,292,279
Homestead Warrants 19,685,627 7.250 19,970,973 285,346
SCI Common Shares 582,798,700 20.125 867,120,326 284,321,626
Security Capital
USREALTY
Common Shares 488,044,355 15.500 673,261,940 185,217,585
-------------- -------------- -------------
Total at May 31, 1997 $2,011,381,325 $2,885,138,212 $ 873,756,887
============== ============== =============
</TABLE>
- --------
(1) Represents the closing price of the common shares and warrants on May 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 350 employees, none of whom are covered by collective
bargaining agreements. 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. Security Capital's operating companies compete on a regional and
national basis with no individual market material to Security Capital as a
whole. 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
28
<PAGE>
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.
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, if not maintained, expire over various periods of time beginning
in 2005. 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 administrative offices in El Paso, Texas. The
Santa Fe office is leased from an unaffiliated third party and the El Paso
offices are leased from SCI at an annual rental of $802,577. 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 at
a discount to the 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 a
discount to 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 and the Offering. 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. The Warrants have been approved for listing on the NYSE under
the symbol "SCZ WS". 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. 62 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 60 Director 1999
C. Ronald Blankenship* 47 Managing Director, Security -
Capital
Jeffrey A. Cozad 32 Managing Director, Security -
Capital USREALTY
John H. Gardner, Jr. 43 Managing Director, Security -
Capital Investment Research
Group
C. Robert Heaton 51 Senior Vice President, Security -
Capital
W. Joseph Houlihan 49 Managing Director, Security -
Capital (EU) Investment
Research Group
Jeffrey A. Klopf 49 Senior Vice President and -
Secretary, Security Capital
Anthony R. Manno, Jr. 45 Managing Director, Security -
Capital Investment Research
Group
Todd W. Mansfield 39 Managing Director, Security -
Capital Strategic Group
Caroline S. McBride 43 Managing Director, Security -
Capital Strategic Group
Daniel F. Miranda 44 Managing Director, Security -
Capital Investment Research
Group
Mary Lou Rogers 46 Managing Director, Security -
Capital Strategic Group
Donald E. Suter 40 Managing Director, Security -
Capital Markets Group
Paul E. Szurek 36 Managing Director, SCGroup -
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 Non-Executive Chairman of PTR since June 1997. From June 1991 to June 1997,
Mr. Blankenship was 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").
JOHN H. GARDNER, JR. Managing Director of Investment Research Group since July
1997. Prior thereto, Director of the PTR REIT Manager from February 1995 to
June 1997 and Senior Vice President of PTR and the PTR REIT Manager from
September 1994 to June 1997, where he had overall responsibility for
multifamily dispositions; from December 1984 to January 1993, Vice President of
Asset Management and through September 1994, Managing Director and Principal of
Copley Real Estate Advisors in Boston, where he had overall responsibility for
the portfolio management function for eight accounts valued at $7.5 billion;
prior thereto, he was Real Estate Manager of Equity Real Estate at John Hancock
Companies.
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<PAGE>
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 Company's and the operating
companies' 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; 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.
TODD W. MANSFIELD. Managing Director of the Strategic Group since May 1997,
where he manages operations for companies in which Security Capital has direct
or indirect ownership positions. Prior thereto, from 1986 to May 1997, he was
Executive Vice President and general manager of Disney Development Company,
where he was responsible for Disney's non-theme-park real estate activities
worldwide.
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 private equity 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 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.
33
<PAGE>
DONALD E. SUTER. Managing Director of Security Capital Markets Group since July
1997 where he provides capital markets services for affiliates of Security
Capital. From May 1996 to June 1997, Mr. Suter was Senior Vice President of
Security Capital Markets Group. 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.
PAUL E. SZUREK. Managing Director of SCGroup since July 1997. From January 1996
to June 1997, Managing Director of Security Capital USREALTY, Security Capital
(EU) Management Group S.A. and Security Capital (UK) Management Limited, where
he was 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.
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.
NANSIE J. BERNARD--35--Vice President of Security Capital Markets Group in its
New York office since April 1997, where she provides capital markets services
for affiliates of Security Capital. Prior thereto, a member of the Capital
Markets Group team since February 1997. From August 1992 to February 1997, she
was Vice President at Thompson Doyle & Company managing real estate
transactions and portfolios for corporate clients. From May 1989 to August
1992, she was Vice President at McFarland Associates, Inc.
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--40--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.
34
<PAGE>
ROBERT H. FIPPINGER--54--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--38--Vice President of the Strategic Group since March 1997
where she oversees strategic communications for Security Capital and its
affiliates. Prior thereto, Ms. Hefele was with Security Capital Markets Group
from February 1994 to February 1997, where she provided capital markets
services for affiliates of Security Capital. 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 Management Development Program from May 1993 to May 1994. He
is a general securities representative registered with the NASD.
THOMAS J. IKELER--41--Vice President of Security Capital since May 1997 with
responsibilities for treasury and financial matters for affiliated companies.
Prior thereto, from June 1994 to May 1997, he was with 139 Culpeper, Ltd.,
providing real estate advisory services to institutional clients; from January
1990 to June 1994, Mr. Ikeler was Project Director for the Zeckendorf Company.
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--36--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.
MARK P. PEPPERCORN--34--Vice President of Security Capital Markets Group since
July 1997. From February 1995 to June 1997, Vice President of PTR and the PTR
REIT Manager, where he was responsible for the acquisition of land and existing
communities in Northern California; from September 1994 to February 1995, a
member of the acquisitions group for ATLANTIC and, previously, for PTR from
June 1993 to September 1994; from March 1991 to June 1993, Mr. Peppercorn was
responsible for the multifamily brokerage division of Transwestern Property
Company in Houston; and prior thereto, an Associate Vice President of Eastdil
Realty Incorporated.
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
35
<PAGE>
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--33--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.
JONATHAN L. SMITH--44--Senior Vice President of the Strategic Group since June
1997, where he is responsible for retail companies such as REGENCY and PACIFIC
RETAIL. Prior thereto, from May 1991 to June 1997, he was Managing Director of
Citicorp Real Estate, Inc., where he managed shopping center and residential
commercial real estate lending units.
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.
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.
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
36
<PAGE>
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.
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 - $250,000(1) 60,000(1) -
</TABLE>
37
<PAGE>
- --------
(1) Represents 25,000 restricted shares of Homestead common stock purchased
from Homestead, and options to purchase 60,000 shares of Homestead common stock
granted by Homestead, in October 1996. At December 31, 1996, the value of the
restricted shares of Homestead common stock was $450,000. These restricted
shares of Homestead common stock will vest upon the earlier to occur of (i)
October 15, 1998, (ii) the date on which Mr. Dressler terminates his employment
with Homestead or its affiliates by reason of death or disability or (iii)
immediately prior to a change-in-control (as defined) of Homestead. Although
Homestead does not currently intend to pay dividends on its shares of common
stock, to the extent it pays dividends in the future, it will pay dividends
with respect to these restricted shares.
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
- ---- -------------- ------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
William D. Sanders 1,097.5 2.29% $1,139 12/3/06 $497,705(1)
C. Ronald Blankenship 1,031.6 2.15 1,139 12/3/06 467,843(1)
Thomas G. Wattles 921.9 1.92 1,139 12/3/06 418,072(1)
K. Dane Brooksher 658.5 1.37 1,139 12/3/06 298,623(1)
David C. Dressler, Jr. 439.0 .91 1,139 12/3/06 199,082(1)
60,000(2) 10.34(2) 10.00(2) 10/15/06(2) 385,320(2)(3)
</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) Represents options to purchase 60,000 shares of Homestead common stock at
$10 per share which were granted on October 15, 1996 to Mr. Dressler by
Homestead, and which expire on October 15, 2006. The options vest ten percent
in the second year after the date of grant, twenty percent in the third year
after the date of grant, thirty percent in the fourth year after the date of
grant and forty percent in the fifth year after the date of grant.
(3) The amounts shown are based on the Black-Scholes option pricing model. The
material assumptions incorporated in the Black-Scholes model in estimating the
value of the options include the following: an exercise price of $10.00 per
share equal to the estimated fair market value of a share of Homestead common
stock on the date of grant; average expected option term of 5.5 years; a risk-
free interest rate of 6.23%; no expected dividend yield; and expected
volatility of 37%. The actual value, if any, an optionee will realize upon
exercise of an option will depend on the excess of the market value of the
shares over the exercise price on the date the option is exercised. There can
be no assurance that the value realized by an optionee will be at or near the
value estimated by using the Black-Scholes model.
38
<PAGE>
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
-----------------------------------------------------------------------------
HOMESTEAD VALUE OF UNEXERCISED
CLASS A CLASS A SHARE COMMON STOCK IN-THE-MONEY OPTIONS AT
SHARES OPTIONS (#) 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
C. Ronald
Blankenship - - 3,558.8 2,955.4 - - 2,014,341 1,071,792
Thomas G.
Wattles - - 2,918.5 2,486.0 - - 1,651,728 874,547
K. Dane
Brooksher - - 854.6 2,583.3 - - 426,000 1,362,449
David C. Dressler, Jr.(3) - - 1,330.3 1,648.4 - 60,000 752,979 687,976
<CAPTION>
2014 CONVERTIBLE
DEBENTURE OPTIONS
-------------------------
NAME EXERCISABLE UNEXERCISABLE
- ---- ----------- -------------
<S> <C> <C>
William D.
Sanders(2) $4,300,573 $ 356,110
C. Ronald
Blankenship 4,010,002 1,868,414
Thomas G.
Wattles 3,288,369 1,491,834
K. Dane
Brooksher 960,971 2,687,823
David C. Dressler, Jr.(3) 1,499,024 1,562,507
</TABLE>
- -------
(1) Based on a December 31, 1996 estimate of fair market 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) Includes 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.
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
39
<PAGE>
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.
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.
40
<PAGE>
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 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.
41
<PAGE>
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 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 three months ended March 31, 1997, for the three
months ended March 31, 1996 and 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. Arthur Andersen LLPs 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-3. 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>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
1997 1996 1996 1995 (1) 1994 1993 1992 1991
---------- ---------- ----------- ----------- ---------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dollars in thousands, except per share data
OPERATING DATA:
Equity in earnings $ 39,035 $ 14,963 $ 168,473 $ 45,685 $ 8,812 $ 6,032 $ 1,722 $ 242
Rental revenues 50,667 30,809 145,907 103,634 55,071 10,916 1,592 -
Services Division
revenues (2) 22,970 15,408 77,512 49,404 - - - -
Total revenues 114,031 61,539 398,122 200,534 156,855 17,503 3,534 467
Rental expenses 18,694 11,816 54,050 37,948 23,052 1,428 292 -
Services Division
expenses (2) 24,318 19,455 91,195 60,789 - - - -
General, administrative
and other (2) 9,970 3,837 24,927 18,311 18,755 2,555 679 205
Costs incurred in
acquiring Services
Division (2) - - - 158,444 - - - -
Interest expense:
Security Capital:
Convertible Debentures/
notes (3) 26,665 22,291 93,912 78,785 29,647 1,228 180 -
Line of credit 1,412 2,240 6,256 5,977 6,424 2,196 960 88
Majority-owned
subsidiaries (4) 4,761 4,342 17,056 19,042 17,718 362 - -
---------- ---------- ----------- ----------- ---------- --------- --------- ---------
Total interest expense 32,838 28,873 117,224 103,804 53,789 3,786 1,140 88
Net earnings (loss)
attributable to Class A
Shares $ 3,349 $ (9,854) $ 32,067 $ (201,634) $ (7,685) $ 5,155 $ 1,014 $ 141
---------------------------------------------------------------------------------------------------------
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
1997 1996 1996 1995 (1) 1994 1993 1992 1991
---------- ---------- ----------- ----------- ---------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Series A Preferred Stock
dividends $ 18.75 - $ 56.25 - - - - -
Net earnings (loss)
attributable to Class A
Shares $ 2.53 $ (9.91) $ 28.28 $ (224.87) $ (16.74) $ 39.12 $ 21.61 $ 3.96
Class A Share
distributions paid (5) - - - - $ 33.50 $ 60.00 $ 55.00 $ 24.95
Weighted average Class A
Shares outstanding 1,322,054 994,789 1,133,711 896,681 458,945 131,776 46,913 35,565
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
MARCH 31, 1997 1996 1995 (1) 1994 1993 1992 1991
Dollars in thousands -------------- ---------- --------- ---------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Investments, at equity $1,512,391 $1,438,937 $ 930,043 $ 230,756 $161,270 $ 68,160 $24,911
Real estate, net of
accumulated
depreciation (1) 1,463,173 1,365,373 865,367 2,005,957 478,630 41,577 -
Total assets 3,222,715 2,929,284 1,855,056 2,300,613 673,019 110,765 25,003
Long-term debt:
Security Capital (3) 1,036,712 940,197 718,611 514,383 48,970 6,532 -
Majority-owned
subsidiaries (4) 273,163 257,099 118,524 301,787 47,988 - -
Minority interests 401,134 394,537 159,339 554,752 157,545 4,884 -
Total shareholders'
equity $1,018,809 $ 918,702 $ 528,539 $ 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 Agreements."
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
occupancy level (91.2% as of December 31, 1996 compared to 93.5% as of December
31, 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 $39.9 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 October
1995, 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-off 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>
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."
Expenses
Services Division expenses increased by $30.4 million, or 50%, in 1996 to $91.2
million from $60.8 million in 1995. The increase was primarily attributable to
growth of the REIT and property management companies, 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. Services Division expenses
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".
DEPRECIATION AND AMORTIZATION
Total depreciation and amortization for Security Capital was $26.6 million and
$18.1 million in 1996 and 1995, respectively. Of those amounts, $22.1 million
and $15.9 million represented depreciation and amortization from rental
operations (i.e., ATLANTIC and Homestead) 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 $1.3 million for the two and one-half month period ended December
31, 1996. The remaining depreciation and amortization of $4.5 million and $2.2
million in 1996 and 1995, respectively, is attributable to the Services
Division and the administrative support functions, representing an increase of
$2.3 million over such depreciation and amortization for 1995 of $2.2 million.
The $2.3 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-off 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-off.
GENERAL, ADMINISTRATIVE AND OTHER
General, administrative and other expenses increased by $6.6 million, or 36%,
in 1996 to $24.9 million from $18.3 million in 1995. This increase results
primarily from the consolidation of Homestead's accounts ($2.2 million), the
inclusion of ATLANTIC's provision for a possible loss on investments ($2.5
million) as well as additional personnel and related costs applicable to
information systems, human resources and other administrative support
functions.
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. 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.
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
47
<PAGE>
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 occupancy level (93.5% as of December 31, 1995 compared
to 92.4% as of December 31, 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 $48.5 million, or
88%, to $103.6 million in 1995 from $55.1 million in 1994. Rental expenses
increased $14.8 million, or 64%, to $37.9 million in 1995 (excluding REIT and
property management fees) from $23.1 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.
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.
Expenses
During 1995, Security Capital incurred Services Division expenses (primarily
payroll, occupancy and related expenses) of $60.8 million as a result of the
acquisition of the Services Division companies in the 1995 Merger.
DEPRECIATION AND AMORTIZATION
Total depreciation and amortization for Security Capital was $18.1 million for
1995, which represented an increase of $9.3 million from depreciation and
amortization of $8.8 million for 1994. Depreciation and amortization from
rental operations (ATLANTIC) 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 $2.2 million in 1995 was attributable to the Services
Division and the administrative support functions and was attributable to
depreciation on furniture, fixtures and equipment (primarily computer and
communications equipment) which was not owned by Security Capital in 1994.
48
<PAGE>
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.
GENERAL, ADMINISTRATIVE AND OTHER
General, administrative and other expenses increased to $18.3 million in 1995
from $6.2 million in 1994 primarily as a result of the acquisition of the
Services Division in the 1995 Merger. Such expenses in 1995 relate primarily to
payroll, occupancy and related expenses applicable to corporate administration,
information systems, human resources, legal and accounting departments.
General, administrative and other expenses 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
companies.
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.
COSTS INCURRED IN ACQUIRING SERVICES DIVISION FROM RELATED PARTY
The Services Division companies do not qualify as "businesses" for purposes of
applying APB Opinion No. 16, "Business Combinations". Accordingly, the excess
of the aggregate value of the securities issued ($233,708,000) over the fair
value of the net tangible assets acquired ($75,264,000) has been recorded as
"Costs incurred in acquiring Services Division from related party"
($158,444,000) in Security Capital's 1995 Consolidated Statement of Operations.
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.
49
<PAGE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31,
1996.
CAPITAL DIVISION INVESTMENTS
Dividends Received
Security Capital's dividends received increased $2.0 million, or 7%, from $26.8
million for the three months ended March 31, 1996 to $28.8 million for the
three months ended March 31, 1997.
Equity in earnings of less than 50% owned investees
Security Capital's share of SCI's earning increased 32% from $5.7 million to
$7.5 million for the three months ended March 31, 1996 and 1997, respectively.
This increase was primarily attributable to an increase in the amount of
distribution space owned and leased by SCI (82.7 million square feet at March
31, 1997 compared to 65.1 million square feet at March 31, 1996) and increased
rental rates on renewal leases for previously occupied space, and was partly
offset by a small decrease in SCI's occupancy level (91.1% as of March 31, 1997
compared to 94.1% at March 31, 1996). At March 31, 1997 and 1996, Security
Capital's ownership interest in the outstanding common shares of SCI was 44%
and 48%, respectively.
Security Capital's share of PTR's earnings increased 97% from $7.4 million for
the first three months of 1996 to $14.6 million for the first three months of
1997. This increase was attributable to a slight net increase in the number of
multifamily properties owned by PTR (40,874 operating units at March 31, 1997
compared to 38,970 operating units at March 31, 1996), interest income on the
Homestead convertible mortgage notes and gains of $25.3 million on sales of
properties in the first quarter of 1997. At March 31, 1997 and 1996, 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 $1.9 million for the three months ended March 31, 1996 to
$16.9 million for the three months ended March 31, 1997. Security Capital
USREALTY effectively commenced its investment activities in October 1995, and
at March 31, 1996, Security Capital USREALTY had investments at cost of
approximately $185 million with a fair market value of approximately $191
million. At March 31, 1997, Security Capital USREALTY had investments at a cost
of $1.50 billion with a fair market value of $1.78 billion. Unrealized
appreciation on Security Capital USREALTY's investments were $27.1 million and
$4.8 million for the three months ended March 31, 1997 and 1996, respectively.
In addition, Security Capital USREALTY recorded net investment income of $16.1
million and $0.3 million for the three months ended March 31, 1997 and 1996,
respectively. At March 31, 1997 and 1996, Security Capital's ownership interest
in the outstanding common stock of Security Capital USREALTY was 37% and 39%,
respectively.
Rental Operations--from greater than 50% owned consolidated investees
Rental Revenues
Rental revenues increased $19.9 million, or 65%, from $30.8 million for the
three months ended March 31, 1996 to $50.7 million for the same period in 1997.
This increase was attributable to an increase in the number of multifamily
units owned and operated by ATLANTIC (19,241 operating units at March 31, 1997
compared to 16,159 operating units at March 31, 1996), coupled with stable
occupancies (approximately 95%) for the first quarter of both 1997 and 1996.
This resulted in an $8.9 million increase in rental revenues between the
quarter periods. Also accounting for part of the increase in rental revenues is
the consolidation of Homestead after the spin-off transaction completed on
October 17, 1996 by Security Capital, ATLANTIC and PTR of their extended-stay
lodging assets. Homestead generated $11.0 million in revenues for the three
month period ended March 31, 1997.
Other Income, Net
Other income consists of interest and miscellaneous income of $1.4 million and
$0.4 million for the three months ended March 31, 1997 and 1996, respectively.
The majority of the increase in other income is due to the formation of SC-ERF.
Security Capital's equity in earnings of SC-ERF amounted to $0.7 million for
the three months ended March 31, 1997 and was included in other income.
Rental Expenses
Rental expenses increased by $6.9 million, or 58%, to $18.7 million for the
three months ended March 31, 1997 from $11.8 million for the same period in
1996. The increase was primarily attributable to the increase in the number of
ATLANTIC's operating multifamily communities discussed previously. ATLANTIC's
rental expenses
50
<PAGE>
increased $2.1 million (excluding REIT and property management fees) in the
first quarter of 1997 compared to the first quarter of 1996. Homestead's rental
expenses were $4.8 million for the first quarter of 1997.
SERVICES DIVISION
Revenues
Services Division revenues increased from $15.4 million for the three months
ended March 31, 1996 to $23.0 million for the same period in 1997. The increase
of $7.6 million in Services Division revenues in 1997 as compared to 1996 was
primarily attributable to growth in operations at each of the Company's non-
consolidated investees. In particular, advisory revenues from Security Capital
USREALTY increased $4.5 million and financial services revenues earned from SCI
and PTR increased the remaining $2.9 million.
Expenses
Services Division expenses increased by $4.9 million, or 25%, for the three
months ended March 31, 1997, to $24.3 million from $19.4 million for the same
period in 1996. This increase resulted from the expansion of the Services
Division, including the hiring of additional professionals primarily for the
REIT and property management companies.
DEPRECIATION AND AMORTIZATION
Total depreciation and amortization for Security Capital was $8.8 million and
$5.5 million for the three months ended March 31, 1997 and 1996, respectively.
Of those amounts, $7.9 million and $4.8 million represented depreciation and
amortization from rental operations for those same periods in 1997 and 1996,
respectively. Depreciation for ATLANTIC increased $1.3 million to $6.1 million
for the first quarter of 1997 from $4.8 million for the first quarter of 1996,
an increase of 27%, due to the increase in the number of operating multifamily
communities between those quarter periods. Depreciation for Homestead was $1.8
million for the three months period ended March 31, 1997. The remaining
depreciation and amortization of $0.9 million and $0.7 million in 1997 and
1996, respectively, is attributable to the Services Division and the
administrative support functions, representing an increase of $0.2 million over
such depreciation and amortization for the first quarter of 1996. The increase
of $0.2 million between 1997 and 1996 is primarily a result of depreciation on
additional furniture, fixtures and equipment.
INTEREST EXPENSE
Interest expenses on the Convertible Debentures increased $4.4 million or 20%
to $26.7 million for the first quarter of 1997 compared to $22.3 million for
the same period in 1996. The increase is attributable to the receipt of the
subscriptions of the 2016 Convertible Debentures from a private placement
offering completed in March, 1996, which totalled $323 million.
Interest expense on other obligations decreased by $0.4 million from the first
quarter of 1996 to the same period in 1997, largely due to Homestead's
increased construction and development activity which resulted in additional
interest capitalization in the first quarter of 1997.
GENERAL, ADMINISTRATIVE AND OTHER
General, administrative and other expenses increased by $6.1 million, or 160%,
for the three months ended March 31, 1997, to $10.0 million from $3.9 million
for the same period in 1996. This increase resulted primarily from the
consolidation of Homestead's accounts in 1997 ($2.8 million) as well as
additional personnel and related costs and professional fees applicable to (a)
expansion of the Services Division and (b) enhancing information systems, human
resources and other administrative support functions.
PROVISION FOR INCOME TAXES
The provision for income taxes for the first quarter of 1997 was primarily
attributable to deferred income taxes on the equity in earnings of Security
Capital USREALTY. During the first quarter of 1996, 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 for the three months period ended March 31, 1996.
51
<PAGE>
MINORITY INTERESTS
Minority interests increased from $1.9 million for the three months ended March
31, 1996 to $5.0 million for the three months ended March 31, 1997 due to
increased earnings at ATLANTIC and Homestead, coupled with an increase in
minority ownership interests in ATLANTIC in conjunction with its initial public
offering in October 1996 and the spin-off of Homestead which also occurred 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 $2.6 million in dividends on the
Series A Preferred Stock for the three months ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
Security Capital's investment activities consist primarily of the investment in
the common shares of its Capital Division investees and capital expenditures
relating to expansion of its Services Division business. The investment
activities of Security Capital's operating companies consist primarily of the
acquisition and development of real estate. 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.
After the Offering, Security Capital intends to distribute Warrants to purchase
$250 million of Class B Shares to the shareholders of SCI, PTR and ATLANTIC
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 May 1997, ATLANTIC completed an $87 million (gross proceeds) equity
offering to finance development and acquisition plans for 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 March 31, 1997 (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.
52
<PAGE>
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 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.
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THREE MONTHS ENDED MARCH 31, 1997 INVESTING AND FINANCING ACTIVITIES
Security Capital recorded investments of $236 million for the first quarter of
1997 consisting primarily of (i) $51 million invested by ATLANTIC for the
development and acquisition of multifamily communities; (ii) $52 million
invested by Homestead for the development of extended-stay lodging properties;
(iii) $55 million invested by Security Capital for common shares of Security
Capital USREALTY; (iv) $65 million invested by Security Capital in SC-ERF and
(v) $11 million invested by Security Capital to purchase Homestead warrants in
the open market.
Security Capital obtained financing of $234 million in the first quarter of
1997 primarily from (i) net proceeds from the sale of common stock of $97
million and convertible debentures of $97 million; and (ii) net proceeds from
line of credit borrowings of $33 million. Other financing transactions resulted
in additional net proceeds from financing activities of $7 million.
LINES OF CREDIT
Security Capital
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 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 March 31, 1997,
Security Capital and SC Realty were in compliance with all financial covenants.
The line of credit also provides for loans of up to $50,000,000 from SC Realty
to Security Capital. Any unpaid principal amounts are due thirty days after
written notice from SC Realty. Interest on unpaid principal amounts is payable
monthly at the rate paid by SC Realty under the credit agreement. If SC Realty
has no borrowings outstanding under the credit agreement, then interest is
computed using the "base rate" (defined as the higher of the Wells Fargo prime
rate or the Federal Funds Rate plus .50%).
As of May 31, 1997, SC Realty had borrowed $50 million under the line of
credit. The weighted average interest rate on the line of credit balance at May
31, 1997 was 7.1875%. See "Use of Proceeds."
ATLANTIC
ATLANTIC has obtained a $350 million unsecured line of credit from Morgan
Guaranty Trust Company of New York ("MGT"). The line of credit matures in
December 1998 and may be extended for one year with the approval of MGT and the
other participating lenders. Borrowings on the line of credit bear interest at
ATLANTIC's option at either (i) 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, or (ii) the higher of the federal funds rate plus a
margin of .50% or MGT's prime rate, with interest payable monthly in arrears.
ATLANTIC pays a commitment fee ranging from .125% to .25% per annum based on
the average unfunded line of credit balance. ATLANTIC's line of credit is not
guaranteed by Security Capital.
ATLANTIC's line of credit contains restrictive covenants which prohibit
dividends and distributions on ATLANTIC's capital stock in excess of 95% of
ATLANTIC's Funds From Operations (as defined). The line of credit also contains
various financial and other covenants, including a net worth test, a total
liabilities to net worth ratio, an interest coverage ratio and a fixed charge
coverage ratio, as well as restrictions on ATLANTIC's ability to incur
indebtedness and effect consolidations, mergers and sales of assets. ATLANTIC
was in compliance with all financial covenants at March 31, 1997.
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As of May 31, 1997, ATLANTIC had borrowed $257.8 million under the line of
credit.
MORTGAGE NOTES PAYABLE
Mortgage notes payable totalled $273.2 million at March 31, 1997 and consisted
of the following: (i) conventional fixed rate mortgage obligations of ATLANTIC
in the amount of $34.1 million; (ii) tax exempt mortgage obligations of
ATLANTIC of $121.4 million; and (iii) convertible mortgage obligations of
Homestead of $117.7 million. Mortgage note obligations of ATLANTIC and
Homestead are not guaranteed by Security Capital.
The Homestead convertible mortgage notes are convertible, at the option of PTR,
into 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 (nine months from April 1 to December
31) $ 1,164
1998 7,136
1999 1,576
2000 3,554
2001 1,812
Thereafter 257,921
--------
$273,163
========
</TABLE>
CONVERTIBLE DEBENTURES
2014 Convertible Debentures
At May 31, 1997, 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. On conversion, any
accrued and unpaid deferred interest shall be deemed to be paid in full upon
delivery of the Class A Shares.
2016 Convertible Debentures
At May 31, 1997, the Company had approximately $323.0 million principal amount
of 2016 Convertible Debentures outstanding. The 2016 Convertible Debentures
accrue interest at an annual rate of 6.5% and require semi-annual cash interest
payments. The principal amount of the 2016 Convertible Debentures are
convertible into Class A Shares at $1,153.90 per share at the option of the
holder at any time after the earlier to occur of (i) the first anniversary of
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 2016 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 $3.0 million for the three months ended March 31, 1997,
and $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 May 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 $1.3 million for the three months ended
March 31, 1997, and $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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<PAGE>
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 May 31, 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. As of May 31, 1997,
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 to Security Capital for administrative services of $525,000
for the three months ended March 31, 1997 and $375,000 for the period from
October 17, 1996 (the spin-off date) to December 31, 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 the three months ended March 31, 1997 and the years ended December
31, 1996, 1995 and 1994, the PTR REIT Manager earned REIT management fees
totalling $4.6 million, $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 May 31, 1997, SCG Realty Services Incorporated ("SCG Realty Services"), as
property manager for most of PTR's multifamily communities, managed
approximately 93.9% 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 the three months ended March 31, 1997 and the years ended
December 31, 1996, 1995 and 1994, PTR paid aggregate fees of $2.7 million, $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 the three months ended March 31, 1997 and the year ended December
31, 1996, PTR made mortgage loans to PTR Development Services in an aggregate
amount of $19.2 million and $18.8 million, respectively, 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.
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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 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 the three months ended March 31, 1997 and for
the years ended December 31, 1996, 1995 and 1994, the SCI REIT Manager earned
REIT management fees of $6.6 million, $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
SCI Client Services Incorporated ("Client Services"), an affiliate of the SCI
REIT Manager, began providing property management services for certain SCI
properties in January 1994. At May 31, 1997, the Property Manager was providing
property management services in 29 target market cities and was actively
managing 81.1 million square feet, 96.3% of SCI's operating portfolio of 84.3
million square feet. Rates for services performed by Client Services range
between 1.5% and 3.0% per annum of property revenues and are subject to annual
approval by SCI's independent trustees and are at or below market rates. SCI
may terminate the property management agreements on 60 days' notice. During the
three months ended March 31, 1997 and the year ended December 31, 1996, SCI
paid property management fees and leasing commissions of $3.6 million and $10.1
million to Client Services, respectively, and reimbursed Client Services for
maintenance recovery expenditures collected from SCI's customers of $506,000
and $1.7 million, respectively. The management agreements between SCI and
Client Services will be terminated upon 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.
As 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.
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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 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 the three months ended March 31, 1997 and the years ended December
31, 1996 and 1995 was approximately $606,000, $1.3 million and $700,000,
respectively (there was no fee incurred in 1994). During the three months ended
March 31, 1997 and the years ended December 31, 1996, 1995 and 1994, SCI earned
$5.5 million, $8.5
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million, $2.2 million and $17,000, respectively, in interest income and had
$6.9 million, $7.4 million, $1.9 million and $17,000, respectively, in accrued
interest receivable from SCI Development Services. As of March 31, 1997 and
December 31, 1996, 1995 and 1994, SCI had outstanding $175.7 million, $162.0
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 1, 1997 (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 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 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
the three months ended March 31, 1997 and the years ended December 31, 1996 and
1995, the USREALTY Adviser received fees of $4.8 million, $8.0 million and
$99,000, respectively, pursuant to the Advisory Agreement.
Sub-Advisory Agreements
Pursuant to an agreement dated July 1, 1997 (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.
Pursuant to its Sub-Advisory Agreement, Security Capital Investment Research
receives (i) an annual fee based on .06% on the aggregate average monthly value
of strategic investments up to $1 billion and .03% on the aggregate average
monthly value of 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, (iii) an annual fee equal to .50% on
Security Capital USREALTY's other investments and (iv) reimbursement of certain
expenses. The Sub-Advisory Agreement expires on July 1, 1999 and is
automatically renewable for successive two-year periods unless the USREALTY
Adviser notifies Security Capital Investment Research that such Sub-Advisory
Agreement will not be renewed; provided, however, after the first anniversary
date of the agreement or at any time during a renewal period, the USREALTY
Adviser may terminate such agreement on not less than sixty days' prior written
notice to Security Capital Investment Research. During the three months ended
March 31, 1997 and the years ended December 31, 1996 and 1995, Security Capital
Investment Research earned $664,000, $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
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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, $100 million of SCI's
common shares in 1995 at a price of $15.375 per share and $64 million of SCI's
common shares in 1996 at a price of $17.25 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.
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, 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, 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.
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<PAGE>
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
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 estimated fair market 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
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approximately $73.4 million for its interest in CSI and the affiliate of Hunt
Financial Corporation paid approximately $49.0 million for its interest in CSI,
with approximately 80% being funded through debt and 20% being funded through
equity capital by each affiliate. 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
equity capital. Hunt Financial Corporation is a wholly owned subsidiary of Hunt
Consolidated Inc., which is part of the Hunt family interests headed by Ray L.
Hunt, who is a director of Security Capital.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of May 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 3,933 * 196,650
Hermann Buerger - (4) * -
John P. Frazee, Jr. 3,527(5) * 176,350
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 2,658(8) * 132,900
William D. Sanders 59,063(9) 4.53 2,953,100
Peter S. Willmott 3,353(10) * 167,650
C. Ronald Blankenship 3,853 * 192,650
Thomas G. Wattles 3,177(11) * 158,850
K. Dane Brooksher 1,361 * 68,050
David C. Dressler, Jr. 2,326 * 116,300
All directors and
executive officers
as a group (25 persons) 111,092(12) 8.52 5,554,600
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.
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<PAGE>
(5) Includes five shares held by Mr. Frazee's children, and one share held by
his wife.
(6) Includes one share 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 1,296 shares held by a trust of which Mr. Kelley is trustee.
(9) Includes 430 shares held by the Sanders Foundation; an aggregate of 93
shares held by Mr. Sanders' wife and children; 17,993 warrants held by Mr.
Sanders; and one share held by a partnership.
(10) Includes two shares held by Mr. Willmott's children.
(11) Includes one share held by Mr. Wattles' wife; five shares held by his
children; and 90 shares held in an IRA account.
(12) Includes options to purchase 23,417 Class A Shares exercisable within 60
days.
The following table sets forth, as of May 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 * 6,758(7) * 7,637 * 40,223 * - -
Cyrus F. Freidheim,
Jr. (8) 2,500 * 1,102 * 3,055 * 5,477 * 5,000 *
H. Laurance Fuller (9) 500 * 216 * 610 * 2,850 * - -
Ray L. Hunt 17,000(10) * 85,567(11) * 390,404(12) * 160,135(13) * 2,131,056(14) 1.56
John T. Kelley III (15) 250 * 2,739 * 16,835 * 90,288 * 25,000 *
William D. Sanders (16) 6,155 * 232,486 1.00 287,938 * 269,403 * 611,038 *
Peter S. Willmott (17) 1,250 * 3,447 * 15,327 * 10 * - -
C. Ronald Blankenship (18) 500 * 7,311 * 34,385 * 447 * - -
Thomas G. Wattles (19) 12 * 1,837 * 8,750 * 26,267 * - -
David C. Dressler (20) 500 * 25,629 * 6,611 * 2,621 * 1,600 *
K. Dane Brooksher (21) 1,075 * 325 * 611 * 30,246 * 5,000 *
All directors and
executive officers as a
group (25 persons) 39,578 * 385,434 1.38% 785,300 1.02% 689,329 * 3,050,330 2.23%
</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.
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<PAGE>
(7) Includes option to acquire 4,000 shares.
(8) Security Capital USREALTY shares are held by Mr. Freidheim's wife.
(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,
594 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, 833 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, SCI shares and Homestead shares are held in a trust for
which Mr. Kelley is trustee.
(16) Homestead shares includes 40,340 shares and 61,080 shares held by
partnerships 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 510 shares held by Mr. Sanders' children.
(17) Includes eight 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 648 shares held in Mr. Brooksher's wife's name;
Security Capital USREALTY shares are held in an IRA account.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary of terms of the stock of Security Capital does not
purport to be complete and is subject to and qualified in its entirety by
reference to Maryland law and to the Charter and Bylaws, copies of which are
filed as exhibits to the Registration Statement of which this Prospectus is a
part.
GENERAL
The authorized 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 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 authorized 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
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<PAGE>
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).
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
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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 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 to the
Charter and Bylaws, copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part.
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 or for a judgment of liability on the basis
that personal benefit was improperly received, unless in either case a court
orders indemnification and then only for expenses. In addition, Maryland law
permits a corporation to advance reasonable
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expenses to a director or officer upon the corporation's receipt of (a) a
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
the corporation and (b) a written statement by or on his or her behalf to repay
the amount paid or reimbursed by the corporation 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 becomes 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 supermajority 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 May 31, 1997, Security Capital had 1,320,955 Class A Shares issued and
outstanding, which will be convertible beginning January 1, 1998 into a total
of 66,047,750 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
279,941 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 114,684 Class A Shares and
$55,209,000 principal amount of 2014 Convertible Debentures (convertible into
52,818 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 summary 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"). To the extent such
summary discusses matters of law, it is based upon the opinion of Mayer, Brown
& Platt. 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).
In the opinion of Mayer, Brown & Platt, based on certain representations of
Security Capital, Security Capital currently is not, as of the date hereof, a
"United States real property holding corporation." However, such opinion is not
binding on the IRS nor will it preclude the IRS from adopting a contrary
position. Moreover, since no ruling from the IRS will be sought, there can be
no complete assurance that the IRS will agree with the conclusions set forth
herein. 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., Goldman, Sachs
& Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated are acting as
representatives (the "Representatives"), 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......................
Goldman, Sachs & Co. ...........................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................
----------
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 Representatives have informed Security Capital that they do 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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The Class B Shares have been approved for listing on the NYSE under the symbol
"SCZ.B", subject to official notice of issuance. 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, executive 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, (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
(including by means of a "cashless exercise"), (4) the issuance of up to $250
million of Warrants pursuant to the terms of the Merger Agreements and the
issuance of Class B Shares upon exercise thereof, (5) the sale to the
Underwriters of Class B Shares under the Underwriting Agreement and (6) the
issuance of Class A Shares pursuant to the Company's Convertible Debenture
interest reinvestment plans as in effect on the date hereof.
Prior to the offering, there has been no public market for the Class B Shares,
although there has been a private market for the Class A Shares. The initial
offering price will be determined by agreement among Security Capital and the
Underwriters and will be based on a methodology which takes into account
Security Capital's value components and assumes the exercise and conversion and
the related receipt of proceeds therefrom of all outstanding Convertible
Debentures, Series A Preferred Stock and options and warrants to purchase Class
A Shares and Convertible Debentures. These value components include (i) the
market value of Security Capital's securities holdings in public operating
companies ("Public Company Equity Value"), (ii) the fair value of its
securities holdings in private/start-up companies ("Private/Start-up Company
Equity Value"), (iii) the value of the Services Division based on its future
income generating capability ("Services Division") and (iv) estimates of the
business potential and prospects for future value creation from new businesses
that are in research and development ("R&D"). In addition, Security Capital and
the Underwriters will take into account other factors including an assessment
of Security Capital's management, the current state of Security Capital's
industry and the economy as a whole, and the general conditions of the
securities market at the time of the Offering.
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At May 31, 1997 the market value of Security Capital's holdings in its public
operating companies was as outlined below:
PUBLIC COMPANY EQUITY VALUE ($ IN MILLIONS)
<TABLE>
<CAPTION>
DIRECT
SECURITY CAPITAL
OWNERSHIP(1)
----------------
<S> <C> <C> <C>
Security Capital Pacific Trust 35% Common Shares $ 609.5
Security Capital Atlantic Incorporated 51% Common Shares 471.3
Homestead Village Incorporated 64% Common Shares 244.0
Homestead Village Incorporated Warrants 20.0
Security Capital Industrial Trust 44% Common Shares 867.1
Security Capital USREALTY 32% Common Shares 673.3
--------
$2,885.2
========
</TABLE>
(1) Percentage ownership is as of June 6, 1997, and represents Security
Capital's direct ownership in its investees, based on common shares outstanding
on such date. Equity market capitalization, as of May 31, 1997, based on common
shares outstanding was $1,708 million for PTR, $918 million for ATLANTIC, $383
million for Homestead, $1,967 million for SCI and $2,116 million for Security
Capital USREALTY.
In addition, at May 31, 1997 Security Capital had equity investments at cost in
several recently-formed private or start-up companies as outlined below:
PRIVATE/START-UP COMPANY EQUITY VALUE ($ IN MILLIONS)
<TABLE>
<S> <C> <C>
Strategic Hotel Capital Incorporated (2) Common Shares $ 23.5
Security Capital Preferred Growth Incorporated (2) Common Shares -
Security Capital Employee REIT Fund Common Shares 96.2
------
$119.7
======
</TABLE>
- --------
(2) Security Capital has committed to purchase $176.5 million of additional
shares of common stock of Strategic Hotel Capital Incorporated and has
initially committed to purchase $50 million of common stock of Security Capital
Preferred Growth Incorporated.
In addition to the outstanding Convertible Debentures, Security Capital had $50
million in bank indebtedness under its secured revolving line of credit as of
May 31, 1997.
At May 31, 1997 on a fully converted basis, Security Capital had 2,625,970
Class A Shares outstanding or the equivalent of 131,298,500 Class B Shares.
Total proceeds to Security Capital assuming the exercise of all outstanding
options and warrants to purchase Class A Shares and Convertible Debentures at
May 31, 1997 would be $203.2 million. See "Capitalization."
Security Capital has sold Class A Shares in six private placements to
institutional investors using the foregoing methodology. The most recent
private placement occurred in March 1996 at a price of $1,049 per Class A
Share, which is the equivalent of $20.98 per Class B Share.
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., Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner
& Smith Incorporated and their respective 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.
and Goldman, Sachs & Co. are acting as financial advisors to ATLANTIC and SCI,
respectively, in connection with the proposed Mergers.
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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.
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.
With respect to the unaudited condensed interim financial statements for the
three-month periods ended March 31, 1997 and 1996, included in this Prospectus,
Arthur Andersen LLP and KPMG Peat Marwick LLP have reported that they have
applied limited procedures in accordance with professional standards for a
review of such information. However, their separate reports state that they did
not audit and they do not express an opinion on that interim financial
information. Accordingly, the degree of reliance on their reports on such
information should be restricted considering the limited nature of the review
procedures applied. Neither of such accountants is subject to the liability
provisions of Section 11 of the Securities Act for their reports on the
unaudited interim financial information because neither of those reports is a
"report" or a "part" of the Registration Statement prepared or certified by the
accountants within the meaning of Sections 7 and 11 of the Securities Act.
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.
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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.
88
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Security Capital Group Incorporated
Report of Independent Public Accountants............................... F-3
Consolidated Balance Sheets as of March 31, 1997 and December 31, 1996. F-4
Consolidated Statements of Operations for the three month periods ended
March 31, 1997 and 1996............................................... F-5
Consolidated Statement of Shareholders' Equity for the three month
period ended March 31, 1997 .......................................... F-6
Consolidated Statements of Cash Flows for the three month periods ended
March 31, 1997 and 1996............................................... F-7
Notes to Consolidated Financial Statements............................. F-8
Report of Independent Public Accountants............................... F-23
Consolidated Balance Sheets as of December 31, 1996 and 1995........... F-24
Consolidated Statements of Operations for the years ended December 31,
1996, 1995 and 1994................................................... F-25
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994...................................... F-26
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994................................................... F-27
Notes to Consolidated Financial Statements............................. F-30
Schedule I--Condensed Financial Information of Registrant.............. F-48
Schedule III--Real Estate and Accumulated Depreciation................. F-53
Security Capital Group Incorporated (acquired company)
Report of Independent Public Accountants............................... F-62
Consolidated Balance Sheet as of December 31, 1994..................... F-63
Consolidated Statement of Operations for the year ended December 31,
1994.................................................................. F-64
Consolidated Statement of Shareholders' Equity for the year ended
December 31, 1994..................................................... F-64
Consolidated Statement of Cash Flows for the year ended December 31,
1994.................................................................. F-65
Notes to Consolidated Financial Statements............................. F-66
Security Capital Pacific Trust
Report of Independent Public Accountants............................... F-71
Condensed Balance Sheets as of March 31, 1997 and December 31, 1996.... F-72
Condensed Statement of Operations for the three month periods ended
March 31, 1997 and 1996............................................... F-73
Condensed Statement of Shareholders' Equity for the three month period
ended March 31, 1997.................................................. F-74
Condensed Statements of Cash Flows for the three month periods ended
March 31, 1997 and 1996............................................... F-75
Notes to Condensed Financial Statements................................ F-76
Report of Independent Public Accountants............................... F-84
Balance Sheets as of December 31, 1996 and 1995........................ F-85
Statements of Earnings for the years ended December 31, 1996, 1995 and
1994.................................................................. F-86
Statements of Shareholders' Equity for the years ended December 31,
1996, 1995 and 1994................................................... F-87
Statements of Cash Flows for the years ended December 31, 1996, 1995
and 1994.............................................................. F-88
Notes to Financial Statements.......................................... F-89
Schedule III--Real Estate and Accumulated Depreciation................. F-107
Security Capital Industrial Trust
Report of Independent Public Accountants............................... F-113
Consolidated Balance Sheets as of March 31, 1997 and December 31, 1996. F-114
Consolidated Statement of Operations for the three month periods ended
March 31, 1997 and 1996............................................... F-115
Consolidated Statements of Cash Flows for the three month periods ended
March 31, 1997 and 1996............................................... F-116
Notes to Consolidated Financial Statements............................. F-117
Report of Independent Public Accountants............................... F-122
Consolidated Balance Sheets as of December 31, 1996 and 1995........... F-123
Consolidated Statements of Operations for the years ended December 31,
1996, 1995 and 1994................................................... F-124
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994...................................... F-125
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994................................................... F-126
Notes to Consolidated Financial Statements............................. F-127
Report of Independent Public Accountants............................... F-143
Schedule III--Real Estate and Accumulated Depreciation................. F-144
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
Security Capital U.S. Realty
Report of Independent Public Accountants............................... F-160
Consolidated Statement of Net Assets at December 31, 1996.............. F-161
Consolidated Statement of Operations for the year ended December 31,
1996.................................................................. F-162
Consolidated Statement of Cash Flows for the year ended December 31,
1996.................................................................. F-163
Consolidated Statement of Changes in Net Assets for the year/period
ended December 31, 1996 and 1995...................................... F-164
Consolidated Statement of Changes in Shares Outstanding for the
year/period ended December 31, 1996 and 1995.......................... F-164
Consolidated Financial Highlights for the year/period ended December
31, 1996 and 1995..................................................... F-164
Consolidated Schedule of Investments in Strategic Positions at December
31, 1996.............................................................. F-165
Consolidated Schedule of Investments in Special Opportunity Positions
at December 31, 1996.................................................. F-165
Notes to the Consolidated Financial Statements......................... F-166
Report of Independent Public Accountants............................... F-171
Statement of Net Assets at December 31, 1995........................... F-172
Statement of Operations for the period from incorporation (July 7,
1995) to December 31, 1995............................................ F-173
Statement of Changes in Net Assets for the period from incorporation
(July 7, 1995) to December 31, 1995................................... F-174
Statement of Changes in Shares Outstanding for the period from
incorporation (July 7, 1995) to December 31, 1995..................... F-174
Statement of Funds from Operations for the period from incorporation
(July 7, 1995) to December 31, 1995................................... F-175
Financial Highlights for the period from incorporation (July 7, 1995)
to December 31, 1995.................................................. F-175
Schedule of Strategic Investments in Real Estate Companies at December
31, 1995.............................................................. F-176
Schedule of Special Opportunity Investments at December 31, 1995....... F-176
Notes to Financial Statements.......................................... F-177
Security Capital Atlantic Incorporated
Report of Independent Public Accountants............................... F-181
Homestead Village Incorporated
Report of Independent Public Accountants............................... F-182
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Security Capital Group Incorporated:
We have reviewed the accompanying consolidated balance sheet of Security
Capital Group Incorporated and subsidiaries (see Note 1) as of March 31, 1997,
and the related consolidated statements of operations for the three-month
periods ended March 31, 1997 and 1996, the statement of shareholders' equity
for the three-month period ended March 31, 1997 and the statements of cash
flows for the three-month periods ended March 31, 1997 and 1996. These
financial statements are the responsibility of the Company's management. We
were furnished with the reports of other accountants on their reviews of the
financial statements of Security Capital Pacific Trust, Security Capital
Atlantic Incorporated and Homestead Village Incorporated, whose total assets
represent 60.1% of the total assets of Security Capital Group Incorporated and
subsidiaries as of March 31, 1997 and whose income represent 57.7% and 62.0% of
the total income in the consolidated statements of operations of Security
Capital Group Incorporated and subsidiaries for the three-month periods ended
March 31, 1997 and 1996, respectively.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review and the reports of other accountants, we are not aware of
any material modifications that should be made to the financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Security Capital Group
Incorporated and subsidiaries as of December 31, 1996, and, in our report dated
February 28, 1997, we expressed an unqualified opinion on that statement. In
our opinion, the information set forth in the accompanying consolidated balance
sheet as of December 31, 1996, is fairly stated, in all material respects, in
relation to the balance sheet from which it has been derived.
Arthur Andersen LLP
Chicago, Illinois
May 14, 1997
F-3
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
-----------------
<CAPTION>
MARCH 31, DECEMBER
1997 31, 1996
ASSETS (UNAUDITED) (AUDITED)
------ ----------- ----------
<S> <C> <C>
Investments, at equity:
Security Capital Industrial Trust $ 544,179 $ 548,194
Security Capital Pacific Trust 380,040 374,317
Security Capital U.S. Realty 588,172 516,426
---------- ----------
1,512,391 1,438,937
---------- ----------
Real estate, less accumulated depreciation, held by:
Security Capital Atlantic Incorporated 1,160,932 1,116,069
Homestead Village Incorporated 302,241 249,304
---------- ----------
1,463,173 1,365,373
---------- ----------
Total real estate investments 2,975,564 2,804,310
Cash and cash equivalents 41,360 23,662
Other assets 205,791 101,312
---------- ----------
Total assets $3,222,715 $2,929,284
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
LIABILITIES:
Lines of credit $ 295,250 $ 262,000
Mortgage notes payable 273,163 257,099
Convertible debt 1,036,712 940,197
Accrued interest on convertible debt 69,115 42,450
Accounts payable and accrued expenses 89,215 83,427
Deferred income taxes 39,317 30,872
---------- ----------
Total liabilities 1,802,772 1,616,045
---------- ----------
Minority interests 401,134 394,537
SHAREHOLDERS' EQUITY:
Common shares, $.01 par value; 20,000,000 shares
authorized, 1,301,027 and 1,209,009 shares issued
and outstanding in 1997 and 1996, respectively 13 12
Series A Preferred shares, $.01 par value; 139,000
shares issued and outstanding in 1997 and 1996;
stated liquidation preference of $1,000 per share 139,000 139,000
Additional paid-in capital 1,082,149 985,392
Accumulated deficit (202,353) (205,702)
---------- ----------
Total shareholders' equity 1,018,809 918,702
---------- ----------
Total liabilities and shareholders' equity $3,222,715 $2,929,284
========== ==========
</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 OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
-------------
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1996
---------- -----------
<S> <C> <C>
INCOME:
Equity in earnings of:
Security Capital Industrial Trust $ 7,510 $ 5,705
Security Capital Pacific Trust 14,624 7,356
Security Capital U.S. Realty 16,901 1,902
Rental revenues 50,667 30,809
Services Division revenues from related parties 22,970 15,408
Other income 1,359 359
---------- -----------
114,031 61,539
---------- -----------
EXPENSES:
Rental expenses 18,694 11,816
Services Division expenses 24,318 19,455
Depreciation and amortization 8,827 5,521
Interest expense--convertible debt 26,665 22,291
Interest expense--other obligations 6,173 6,582
General, administrative and other 9,970 3,837
---------- -----------
94,647 69,502
---------- -----------
Earnings (loss) before income taxes and minority
interests 19,384 (7,963)
Provision for income taxes 8,445 -
Minority interests in net earnings of
subsidiaries 4,984 1,891
---------- -----------
Net earnings (loss) 5,955 (9,854)
Less Series A Preferred Share dividends 2,606 -
---------- -----------
Net earnings (loss) attributable to common shares
and common equivalent shares $ 3,349 $ (9,854)
========== ===========
Weighted average common shares outstanding 1,322,054 994,789
========== ===========
Net earnings (loss) per common share and common
equivalent share $ 2.53 $ (9.91)
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
-------------------------------------------------------------------------
<CAPTION>
SERIES A
PREFERRED
SHARES 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, 1996 (Audited) 1,209,009 $12.090 $139,000 $ 985,392 $(205,702) $ 918,702
Issuance of common
shares 92,018 0.920 - 96,531 - 96,532
Income tax benefit
from stock options
exercised - - - 226 - 226
Net earnings - - - - 5,955 5,955
Series A Preferred
Share dividends - - - - (2,606) (2,606)
--------- --------- --------- ---------- --------- ----------
Balances at March 31,
1997 (Unaudited) 1,301,027 $13.010 $139,000 $1,082,149 $(202,353) $1,018,809
========= ========= ========= ========== ========= ==========
</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
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
--------------
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1997 1996
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings (loss) $ 5,955 $ (9,854)
Adjustments to reconcile net earnings (loss) to
cash flows provided by operating activities:
Provision for deferred income taxes 8,445 -
Minority interests 4,984 1,891
Equity in earnings of unconsolidated investees (39,035) (14,963)
Distributions from unconsolidated investees 20,426 18,428
Depreciation and amortization 8,827 5,521
Other 286 657
Increase in other assets (8,529) (2,416)
Increase in accrued interest on convertible debt 26,665 22,291
Decrease (increase) in accounts payable and accrued
expenses (7,592) 3,918
--------- ---------
Net cash flows provided by operating activities 20,432 25,473
--------- ---------
INVESTING ACTIVITIES:
Real estate properties (102,820) (47,201)
Investment in shares of:
Security Capital U.S. Realty (54,845) (59,910)
Security Capital Employee REIT Fund Incorporated (64,934) -
Purchase of Homestead Village Incorporated warrants (10,714) -
Other (3,011) (679)
--------- ---------
Net cash flows used in investing activities (236,324) (107,790)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from lines of credit $ 216,000 $ 111,500
Payments on lines of credit (182,750) (30,500)
Proceeds from mortgage notes payable 16,250 5,000
Principal payments on mortgage notes payable (372) (233)
Proceeds from issuance of convertible debt 96,515 4
Proceeds from issuance of common shares, net of
expenses 96,532 8
Distributions paid to minority interest holders (6,351) (3,318)
Proceeds from issuance of stock to minority
interest holders 210 431
Preferred dividends paid (2,606) -
Other 162 (302)
--------- ---------
Net cash flows provided by financing activities 233,590 82,590
--------- ---------
Net increase in cash and cash equivalents 17,698 273
Cash and cash equivalents, beginning of period 23,662 13,708
--------- ---------
Cash and cash equivalents, end of period $ 41,360 $ 13,981
========= =========
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Liability for securities purchased by Security
Capital Employee REIT Fund Incorporated $ 12,042 $ -
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
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 real estate research, investment and management.
Security Capital has invested in five real estate 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. In addition, Security Capital has invested in a real
estate investment fund that invests in securities of publicly traded real
estate companies in 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 Services Division companies do not qualify as "businesses" for purposes of
applying APB Opinion No. 16, "Business Combinations". Accordingly, the excess
of the aggregate value of the securities issued ($233,708,000) over the fair
value of the net tangible assets acquired ($75,264,000) has been recorded as
"Costs incurred in acquiring Services Division from related party"
($158,444,000) in the 1995 Consolidated Statement of Operations.
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.
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.
F-8
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
Interest:
Security Capital capitalizes interest as part of the cost of real estate
projects under development. During the three months ended March 31, 1997 and
1996, the total interest paid on all outstanding debt was $9,115,000 and
$8,023,000, respectively, including $5,913,000 and $2,036,000, 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 three months ended March 31, 1997 and 1996 was
$714,000 and $658,000, 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 Pronouncements:
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.
In March 1997, the Financial Accounting Standards Board ("FASB") released
Statement of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS
No. 128"). The new statement is effective December 15, 1997 and will require
restatement of prior years' earnings per share; early adoption is not
permitted. The adoption of SFAS No. 128 will have no material effect on
Security Capital's reported earnings per share.
F-9
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The FASB has also released Statement of Financial Accounting Standards No. 129,
Disclosure of Information about Capital Structure ("SFAS No. 129"). Security
Capital already complies with the requirements of the standard which is
effective for periods ending after December 15, 1997.
Reclassifications:
Certain amounts in the 1996 consolidated financial statements and notes to
consolidated financial statements have been reclassified to conform to the 1997
presentation.
General:
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of Security Capital's financial position and results of
operations for the interim period.
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.
In late January 1997, Security Capital made a proposal to Security Capital
Industrial Trust ("SCI"), Security Capital Pacific Trust ("PTR") and Security
Capital Atlantic Incorporated ("ATLANTIC") to exchange 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 appointed a special committee
comprised of independent directors or trustees to review the proposed
transaction.
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 and the effect of the investees' accounting for these
acquisitions, Security Capital expects the gain on sale of the management
companies to SCI and PTR will be approximately $55,000,000. 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. On April 29, 1997 Security Capital filed a registration
statement with the Securities and Exchange Commission covering its initial
public offering of Class B shares, which is expected to be effective in the
third quarter of 1997.
F-10
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
REIT, Property and Operating Advisor management fees for the three months ended
March 31, 1997 and 1996 were earned from the following sources (in thousands):
<TABLE>
---
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
REIT management fees:
Security Capital Industrial Trust $ 6,606 $ 4,641
Security Capital Pacific Trust 4,617 5,555
Security Capital Atlantic Incorporated 3,029 2,123
--------- ---------
14,252 12,319
--------- ---------
Property management fees:
Security Capital Industrial Trust 4,129 2,070
Security Capital Pacific Trust 2,689 2,854
Security Capital Atlantic Incorporated 1,280 920
--------- ---------
8,098 5,844
--------- ---------
Security Capital U.S. Realty advisory fee 4,813 288
Administrative services and other fees 641 -
--------- ---------
Total Services Division revenues 27,804 18,451
Less amounts eliminated in consolidation 4,834 3,043
--------- ---------
Consolidated Services Division revenues $22,970 $15,408
========= =========
</TABLE>
Services Division expenses in the accompanying Consolidated Statements of
Operations represent direct operating expenses consisting primarily of payroll,
occupancy and related costs.
3. REAL ESTATE INVESTMENTS:
Security Capital holds investments at March 31, 1997 through its wholly-owned
subsidiary, SC Realty Incorporated ("SC Realty"), as follows:
. 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 and in
Mexico and Europe. At March 31, 1997 and December 31, 1996, Security
Capital owned 44.08% and 46.00%, respectively, of the issued and
outstanding common shares of beneficial interest of SCI. Security
Capital accounts for its investment in SCI by the equity method.
. PTR, a publicly held REIT, primarily owns, develops, acquires and
operates income-producing multifamily properties in the western United
States. At March 31, 1997 and December 31, 1996, Security Capital owned
36.00% and 36.28%, 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.
. ATLANTIC, a publicly held REIT as of October 18, 1996, owns, acquires,
develops and operates income-producing multifamily properties in the
southeastern United States. 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 March 31, 1997 and
December 31, 1996, Security Capital owned 56.86% 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 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
F-11
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 March 31, 1997 and December 31, 1996,
Security Capital owned 36.92% and 39.44%, respectively, of the issued
and outstanding common shares of USREALTY. Security Capital accounts for
its investment in USREALTY by the equity method.
. 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 are 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 1,671,929
shares remaining in escrow which 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 the 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 $1,313,000.
Security Capital exercised $17,500,000 in warrants between October 17,
1996 and December 31, 1996.
During the first quarter of 1997, Security Capital exercised $15,000,000
of warrants and purchased 1,214,300 Homestead warrants in the open
market for $10,714,000. Security Capital's ownership of Homestead's
outstanding common shares as of March 31, 1997 and December 31, 1996 was
61.97% and 59.14%, respectively. Security Capital consolidates
Homestead's accounts in the accompanying consolidated financial
statements.
. Security Capital Employee REIT Fund ("SC-ERF") is a real estate
investment fund that invests in securities of publicly traded real
estate companies in the United States. Between December 23, 1996 and
March 31, 1997, Security Capital and a wholly-owned subsidiary purchased
8,362,849 shares of SC-ERF for $86,903,000. Such amount is included in
other assets in the accompanying consolidated balance
F-12
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
sheets. Shares of SC-ERF are being offered only to Security Capital,
directors, trustees, employees of Security Capital and its affiliates
and members of their families and approved 401(k) plans of Security
Capital and its affiliates. As of March 31, 1997, a wholly-owned
subsidiary of Security Capital was the sole shareholder of SC-ERF.
Security Capital is not consolidating its investment in SC-ERF as its
ownership interest is expected to fall below 50% prior to the end of
1997. Security Capital's equity in earnings of SC-ERF for the three
months ended March 31, 1997 of $671,000 is included in other income in
the accompanying 1997 consolidated statement of operations.
Security Capital received cash dividends from its investees for the three
months ended March 31, 1997 and 1996 as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
SCI $11,525 $ 9,937
PTR 8,901 8,491
ATLANTIC 8,404 8,349
--------- ---------
$28,830 $26,777
========= =========
</TABLE>
The following summarizes real estate investments of Security Capital's
consolidated investees as of March 31, 1997 and December 31, 1996 (in
thousands):
<TABLE>
------------------
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Multifamily properties (ATLANTIC):
Operating properties $ 956,345 $ 952,770
Developments under construction 238,176 194,587
Developments in planning 11,625 7,795
Land held for future development 2,083 2,083
---------- ----------
Subtotal 1,208,229 1,157,235
---------- ----------
Extended-stay lodging properties (Homestead):
Operating properties 153,470 129,035
Developments under construction 139,869 108,691
Developments in planning 9,264 12,256
Land held for future development 1,452 1,448
Land held for sale 7,361 5,590
---------- ----------
Subtotal 311,416 257,020
---------- ----------
Total real estate, at cost 1,519,645 1,414,255
Less accumulated depreciation 56,472 48,882
---------- ----------
Total real estate $1,463,173 $1,365,373
========== ==========
</TABLE>
F-13
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Presented below is the summary balance sheet information for SCI as of March
31, 1997 and December 31, 1996 (in thousands):
<TABLE>
-----------------
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Net real estate investments $2,466,043 $2,399,600
Cash and other assets 112,351 62,706
---------- ----------
Total assets $2,578,394 $2,462,306
========== ==========
Total liabilities $ 824,344 $ 805,933
Minority interest 56,472 56,984
Total shareholders' equity 1,697,578 1,599,389
---------- ----------
Total liabilities and shareholders' equity $2,578,394 $2,462,306
========== ==========
</TABLE>
Presented below is the summary statement of earnings information for SCI for
the three months ended March 31, 1997 and 1996 (in thousands):
<TABLE>
-----------------
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Rental and other income $69,231 $50,362
--------- ---------
Expenses:
Rental expenses, net of recoveries 5,828 6,145
Depreciation and amortization 18,048 13,089
Interest 11,375 8,508
General and administrative, including REIT
management fee 7,524 5,387
--------- ---------
42,775 33,129
--------- ---------
Net earnings before minority interest 26,456 17,233
Minority interest share in net earnings 895 756
--------- ---------
Net earnings 25,561 16,477
Less Preferred Share dividends 8,829 4,673
--------- ---------
Net earnings attributable to common shares $16,732 $11,804
========= =========
Security Capital share of net earnings $ 7,510 $ 5,705
========= =========
</TABLE>
Presented below is the summary balance sheet information for PTR as of March
31, 1997 and December 31, 1996 (in thousands):
<TABLE>
-----------------
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Net real estate investments $2,339,191 $2,245,619
Cash and other assets 102,786 36,813
---------- ----------
Total assets $2,441,977 $2,282,432
========== ==========
Total liabilities $1,135,018 $1,014,924
Total shareholders' equity 1,306,959 1,267,508
---------- ----------
Total liabilities and shareholders' equity $2,441,977 $2,282,432
========== ==========
</TABLE>
F-14
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Presented below is the summary statement of earnings information for PTR for
the three months ended March 31, 1997 and 1996 (in thousands):
<TABLE>
-----------------
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Rental and other income $83,494 $76,356
--------- ---------
Expenses:
Rental expenses 30,575 30,297
Depreciation 12,049 10,618
Interest 13,961 6,520
General and administrative, including REIT
management fee 6,633 6,001
--------- ---------
63,218 53,436
--------- ---------
Earnings from operations 20,276 22,920
Gain on sale of investments 25,335 2,923
--------- ---------
Net earnings 45,611 25,843
Less Preferred Share dividends 5,035 6,388
--------- ---------
Net earnings attributable to common shares $40,576 $19,455
========= =========
Security Capital share of net earnings $14,624 $ 7,356
========= =========
</TABLE>
Presented below is the summary balance sheet information for USREALTY as of
March 31, 1997 and December 31, 1996 (in thousands):
<TABLE>
-----------------------
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Investments in common shares of real estate
operating companies, at fair value $1,669,917 $1,408,140
Investment in common shares and debentures of
Security Capital, at cost which approximates fair
value 110,000 22,500
Cash and other assets 7,070 63,617
---------- ----------
Total assets $1,786,987 $1,494,257
========== ==========
Total liabilities $ 184,662 $ 175,158
Total shareholders' equity 1,602,325 1,319,099
---------- ----------
Total liabilities and shareholders' equity $1,786,987 $1,494,257
========== ==========
</TABLE>
F-15
<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 three months ended March 31, 1997 and 1996 (in thousands):
<TABLE>
-------------------------
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Revenues:
Dividends $16,216 $ 195
Realized gains 9,292 237
Increase in unrealized gains 27,106 4,800
Other income 373 414
--------- ---------
52,987 5,646
--------- ---------
Expenses:
Interest on line of credit 4,117 -
General and administrative, including advisory fee 5,644 541
--------- ---------
9,761 541
--------- ---------
Net earnings $43,226 $5,105
========= =========
Security Capital share of net earnings $16,901 $1,902
========= =========
</TABLE>
4. INDEBTEDNESS:
Lines of Credit:
At March 31, 1997, 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. There were no unfunded subscriptions as of March 31,
1997.
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
F-16
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 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 March 31, 1997.
A summary of the lines of credit borrowings as of and for the three months
ended March 31, 1997 is as follows (dollar amounts in thousands):
<TABLE>
<S> <C>
Total lines of credit $650,000
Borrowings outstanding at March 31, $295,250
Weighted average daily borrowings $314,236
Maximum borrowings outstanding at any month end $340,000
Weighted average daily interest rate 7.10%
Weighted average interest rate as of March 31, 7.08%
</TABLE>
Mortgage Notes Payable:
Mortgage notes payable, which are obligations of ATLANTIC and Homestead,
consisted of the following at March 31, 1997 (dollar amounts in thousands):
<TABLE>
- ----------------------------------------------------------------------------------------
<CAPTION>
INTEREST MATURITY PERIODIC PAYMENT PRINCIPAL
MORTGAGE TYPE RATE DATE TERMS BALANCE
- ------------- --------- --------- -------------------- ---------
<S> <C> <C> <C> <C>
Conventional fixed rate 7.000% 9/10/98 (a) fully amortizing $ 5,839
Conventional fixed rate 7.750% 11/01/00 (b) 1,995
Conventional fixed rate 7.655% 7/01/02 (c) 5,918
Conventional fixed rate 8.000% 7/10/03 (d) 5,967
Conventional fixed rate 8.750% 4/01/24 fully amortizing 6,327
Conventional fixed rate 7.125% 3/01/29 fully amortizing 8,005
---------
34,051
---------
Tax exempt fixed rate 6.000% 6/1/07 interest only 14,500
Tax exempt variable rate
subject to 7 year
interest rate
protection agreement 6.480%(f) 6/1/25 interest only 23,085
Tax exempt variable rate
subject to 7 year
interest rate
protection agreement 6.510%(f) 6/1/25 interest only 15,500
Tax exempt variable rate
subject to 10 year
interest rate
protection agreement 6.740%(f) 6/1/25 interest only 64,635
Tax exempt variable note
subject to 10 year
interest rate
protection agreement 6.180%(f) 6/1/25 interest only 5,000
Less amounts held in
principal reserve fund
(e) (1,353)
---------
121,367
---------
Convertible fixed rate
(g) 9.000% 10/31/06 interest only 130,728
Less discount (12,983)
---------
117,745
---------
$273,163
=========
</TABLE>
- --------
(a) This loan is callable at the option of the mortgage lender on September 10,
1998 and at subsequent five-year intervals through September 10, 2013.
(b) Interest and principal payments due monthly; balloon payment of $1,849,000
due at maturity.
F-17
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(c) Interest and principal payments due monthly; balloon payment of $5,539,000
due at maturity.
(d) Interest and principal payments due monthly; balloon payment of $5,556,000
due at maturity.
(e) 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) Interest rate is fixed through swap agreements executed in conjunction with
the credit enhancement agreement with the Federal National Mortgage
Association.
(g) 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 6.21 Morgan Guaranty Trust Company of NY
$15.5 million August 1996 to August 2006 6.50 Morgan Stanley Derivative Products Inc.
----
Weighted-average interest rate 6.63%
====
</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 $493,000 and $428,000 more in interest during the three months
ended March 31, 1997 and 1996, respectively, 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 March 31, 1997 of
$51,019,000 and $207,462,000 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.
F-18
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 (nine months from April 1 to December 31) $ 1,164
1998 7,136
1999 1,576
2000 3,554
2001 1,812
Thereafter 257,921
---------
$273,163
=========
</TABLE>
Convertible Debt:
Security Capital's 2014 Convertible Debentures totaling $713,678,000 at March
31, 1997 and $713,677,000 at December 31, 1996 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 10.535% and 9.939% per annum for 1997 and 1996,
respectively.
Security Capital's convertible subordinated debentures due March 29, 2016 (the
"2016 Convertible Debentures") totaling $323,034,000 at March 31, 1997 and
$226,520,000 at December 31, 1996 accrue interest at 6.5% per annum and require
semi-annual interest payments on the last business day of 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. All subscriptions have been funded
as of March 31, 1997. Included in the fundings was $110,000,000 received from
USREALTY.
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
F-19
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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). In the event that the holder of the Series A Preferred Shares 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
common shares, then the conversion rights of the shares of Series A Preferred
Shares by such holder shall be modified as follows: (i) the number of shares of
Series A Preferred Shares held by such holder which may then be converted by
such holder without resulting in such holder owning 5% or more of the common
shares outstanding after such conversion shall be convertible into common
shares; and (ii) any shares of Series A Preferred Shares 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 common 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 common 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 common shares as
described above. 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.
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.
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 common stock
at the estimated fair value per share determined as of the prior quarter end
date. As of March 31, 1997, 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
("SFAS No. 123"). Accordingly, no compensation cost has been recognized for the
option plans. As permitted by SFAS No. 123, Security Capital has applied its
provisions to options granted subsequent to December 31, 1994, and considers
the resulting pro forma compensation cost to be immaterial for options granted
during the three months ended March 31, 1997.
F-20
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of the status of Security Capital's stock option plans as of March
31, 1997 and changes during the three months then ended is presented in the
following table:
<TABLE>
-------------------------------------------
<CAPTION>
2014 CONVERTIBLE
COMMON STOCK DEBENTURES
--------------------- -----------------------
WTD. AVG.
WTD. AVG. CONVERSION
SHARES EX. PRICE AMOUNT PRICE
--------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Outstanding at December
31, 1996 140,314 $ 928 $56,739,674 $1,048
Granted 1,481 1,238 - -
Exercised - - - -
Forfeited (3,703) 834 (1,165,164) 1,047
--------- --------- ----------- ---------
Outstanding at March 31,
1997 138,092 $ 934 $55,574,510 $1,047
========= ========= =========== =========
</TABLE>
The following table summarizes information about options and warrants for
common stock and convertible debentures outstanding at March 31, 1997:
<TABLE>
------------------------------------------------------------------------------------
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------- ------------------------
WTD. AVG. WTD. AVG. WTD. AVG.
REMAINING EXERCISE/ EXERCISE/
RNGEAOF EXERCISE AND NUMBER/AMOUNT CONTRACTUAL CONVERSION NUMBER/AMOUNT CONVERSION
CONVERSION PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
--------------------- ------------- ----------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Stock
-------------------
$ 100-247 69,314 5.25 years $ 207 52,209 $ 216
$ 882-948 23,706 8.25 years $ 943 613 $ 948
$1139-1239 45,072 9.80 years $1089 - n/a
----------- -----------
138,092 52,822
=========== ===========
Convertible Deben-
tures
-------------------
$ 1043 $15,279,856 8.25 years $1043 $ 254,980 $1043
$1046-1191 40,294,654 5.25 years $1051 29,067,294 $1046
----------- -----------
$55,574,510 $29,322,274
=========== ===========
</TABLE>
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 March 31, 1997 are as follows (in thousands):
<TABLE>
----
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
----------------------- ---------
<S> <C>
1997 (nine months from April 1 to December 31) $ 2,289
1998 2,566
1999 2,170
2000 1,774
2001 1,496
Thereafter 3,622
---------
$13,917
=========
</TABLE>
F-21
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Lease expense for the three months ended March 31, 1997 and 1996 was $971,900
and $828,400, respectively, including $420,100 and $281,600 in 1997 and 1996,
respectively, paid to SCI. Included above are lease agreements with SCI with a
total remaining obligation of $10,803,000.
8. INCOME TAXES:
Security Capital accounts for income taxes under Statement of Financial
Accounting Standards No. 109, Accounting For Income Taxes ("SFAS No. 109").
Security Capital files a consolidated federal income tax return. Homestead also
accounts for income taxes under SFAS No. 109 and its tax effects are included
in Security Capital's consolidated financial statements. Homestead files a
separate Federal income tax return. ATLANTIC has elected to be taxed as a real
estate investment trust under the Internal Revenue Code of 1986, as amended.
Accordingly, no provisions have been made for federal income taxes for its
operations in Security Capital's consolidated financial statements.
Federal income tax expense for the three months ended March 31, 1997 and 1996
consisted of $8,445,000 and none, respectively. Security Capital had tax net
operating loss carryforwards of approximately $63,000,000 at March 31, 1997. 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 rules.
Security Capital's deferred tax assets relate primarily to its net operating
loss carryforwards and such deferred tax assets are completely offset by a
valuation allowance. Deferred tax liabilities result from Security Capital's
investments in equity method operating companies.
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 March 31, 1997, Security Capital had approximately $243,900,000 of unfunded
development commitments for developments under construction, which consist of
ATLANTIC and Homestead's commitments of $96,800,000 and $147,100,000,
respectively.
10. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, other assets, accounts
payable and accrued expenses approximate fair value as of March 31, 1997 and
December 31, 1996, 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 March 31, 1997 and December 31,
1996, 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 March 31, 1997,
($16.875) is $191,829,000.
F-22
<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 schedules referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedules 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 $2,315,847,000 (79.1%) and $1,316,951,000
(71.0%) of the total consolidated assets of Security Capital Group Incorporated
and subsidiaries as of December 31, 1996 and 1995, respectively, and
$289,515,000 (72.7%), $128,589,000 (64.1%) and $84,841,000 (54.1%) 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 audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The attached Schedules I
and III are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic consolidated
financial statements. These schedules have been subjected to the auditing
procedures applied in the audit of the basic consolidated financial statements
and, in our opinion, based on our audits and the reports of other auditors,
fairly state 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-23
<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
Other assets 101,312 45,938
---------- ----------
Total assets $2,929,284 $1,855,056
========== ==========
<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 (205,702) (237,769)
---------- ----------
Total shareholders' equity 918,702 528,539
---------- ----------
Total liabilities and shareholders' equity $2,929,284 $1,855,056
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
<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 from related parties 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
Services Division expenses 91,195 60,789 -
Depreciation and amortization 26,598 18,109 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
General, administrative and other 24,927 18,311 6,172
Costs incurred in acquiring Services Division from
related party - 158,444 -
Security Capital Industrial Trust expenses - - 46,561
Security Capital Pacific Incorporated expenses - - 15,030
---------- ---------- ---------
313,994 397,405 149,363
---------- ---------- ---------
Earnings (loss) before income taxes and minority
interests 84,128 (196,871) 7,492
Provision for income taxes 30,872 - -
Minority interests in net earnings of subsidiaries 13,370 4,763 15,177
---------- ---------- ---------
Net earnings (loss) 39,886 (201,634) (7,685)
Less Series A Preferred Stock dividends 7,819 - -
---------- ---------- ---------
Net earnings (loss) attributable to common shares
and common equivalent shares $ 32,067 $(201,634) $ (7,685)
========== ========== =========
Weighted average common shares outstanding 1,133,711 896,681 458,945
========== ========== =========
Net earnings (loss) per common share and common
equivalent share $ 28.28 $ (224.87) $ (16.74)
========== ========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-25
<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 - - - - (201,634) (201,634)
--------- --------- --------- --------- --------- ----------
Balances at December 31, 1995 994,791 $ 9.947 $ - $ 766,298 $(237,769) $ 528,539
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 - - - - 39,886 39,886
Series A preferred stock
dividends - - - - (7,819) (7,819)
--------- --------- --------- --------- --------- ----------
Balances at December 31, 1996 1,209,009 $12.090 $139,000 $ 985,392 $(205,702) $ 918,702
========= ========= ========= ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-26
<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) $ 39,886 $(201,634) $ (7,685)
Adjustments to reconcile net earnings
(loss) to cash flows provided by
operating activities:
Costs incurred in acquiring Services
Division - 158,444 -
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 26,598 18,109 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-27
<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-28
<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 identifiable assets
acquired, net of cash $ - $ 86,476 $ -
Costs incurred in acquiring Services
Division - 158,444 -
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-29
<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. For purposes of determining the value
of GROUP's Services Division companies acquired by REALTY on January 1, 1995,
Security Capital calculated for the six month period ending December 31, 1994
and for each of the years ending December 31, 1997, 1996 and 1995, the
projected management fees, net of operating overhead, which Security Capital
would have received under existing management agreements for assets currently
owned or forecasted to be owned by the operating companies during this time
period. Security Capital then multiplied the 1997 net operating income derived
from such fees by a multiple of 9.0x and discounted this value along with the
net operating income derived from such fees between 1994 and 1996 back to July
1, 1994 using an annual discount rate of 17.5%. 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 Services Division companies do not qualify as "businesses" for purposes of
applying APB Opinion No. 16, "Business Combinations". Accordingly, the excess
of the aggregate value of the securities issued ($233,708,000) over the fair
value of the net tangible assets acquired ($75,264,000) has been recorded as
"Costs incurred in acquiring Services Division from related party"
($158,444,000) in the accompanying 1995 Consolidated Statement of Operations.
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.
F-30
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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.
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
F-31
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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.
F-32
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
Services Division expenses in the accompanying Consolidated Statements of
Operations represent direct operating expenses consisting primarily of payroll,
occupancy and related costs.
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
F-33
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
. On October 17, 1996, Security Capital, ATLANTIC and PTR completed the
spin-off 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
F-34
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
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>
F-35
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
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>
F-36
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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-37
<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.
Dividends, redemptions, repurchases of stock, or other payments or transfers in
respect of such stock are limited to 95% of Security Capital's cash flow
available for distribution if no event of default has occurred and is
continuing. During default, no such payments other than mandatory interest on
subordinated debentures may be made. Additionally, dividends, redemptions,
repurchases of stock, or other payments or transfers in respect of such stock
are limited to 100% of SC Realty's cash flow available for distribution if no
event of default has occurred and is continuing. During default, no such
payments may be made.
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
F-38
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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% depending on the rating 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>
F-39
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
(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.
F-40
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
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
F-41
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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). In the event that the holder of the
Series A Preferred Shares 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 common shares, then the conversion rights of
the shares of Series A Preferred Shares by such holder shall be modified as
follows: (i) the number of shares of Series A Preferred Shares held by such
holder which may then be converted by such holder without resulting in such
holder owning 5% or more of the common shares outstanding after such conversion
shall be convertible into common shares; and (ii) any shares of Series A
Preferred Shares 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
common 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
common 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 common shares as described above. 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.
F-42
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 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.
F-43
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
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.
F-44
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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) $29,445 $(68,904)
ATLANTIC minority interest (4,840) (1,667)
Change in valuation allowance (2,674) 15,315
Net deferred tax assets in consolidated
subsidiaries 10,824 -
Costs incurred in acquiring Services Division - 55,455
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.
F-45
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
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.
F-46
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 and the effect of the investees' accounting for
these acquisitions, Security Capital expects the gain on sale of the management
companies to SCI and PTR will be approximately $55,000,000. 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-47
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS (UNCONSOLIDATED)
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
------------------
<TABLE>
<CAPTION>
ASSETS 1996 1995
------ ---------- ----------
<S> <C> <C>
Investments in and advances to subsidiaries $1,882,028 $1,261,540
Cash and cash equivalents 7,876 535
Other assets 18,464 11,347
---------- ----------
Total assets $1,908,368 $1,273,422
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
LIABILITIES:
Convertible debt $ 940,197 $ 718,611
Accrued interest on convertible debt 42,450 24,523
Accounts payable and accrued expenses 7,019 1,749
---------- ----------
Total liabilities 989,666 744,883
---------- ----------
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 (205,702) (237,769)
---------- ----------
Total shareholders' equity 918,702 528,539
---------- ----------
Total liabilities and shareholders' equity $1,908,368 $1,273,422
========== ==========
</TABLE>
See notes to consolidated financial statements and accompanying notes.
F-48
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS (UNCONSOLIDATED)
(IN THOUSANDS)
----------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
INCOME:
Equity in earnings of subsidiaries $130,445 $ 36,074 $ 34,554
Interest and other income 7,384 3,631 1,421
--------- --------- ---------
137,829 39,705 35,975
--------- --------- ---------
EXPENSES:
Interest expense--convertible debt 93,912 78,785 29,647
Interest expense--line of credit - 1,374 5,617
Loss on exchange of convertible notes for
stock and debentures - - 5,650
General, administrative and other 4,031 2,736 2,746
Costs incurred in acquiring Services
Division from related party - 158,444 -
Provision for income taxes - - -
--------- --------- ---------
97,943 241,339 43,660
--------- --------- ---------
Net earnings (loss) 39,886 (201,634) (7,685)
Less Series A Preferred Stock dividends 7,819 - -
--------- --------- ---------
Net earnings (loss) attributable to common
shares $ 32,067 $(201,634) $ (7,685)
========= ========= =========
</TABLE>
See notes to consolidated financial statements and accompanying notes.
F-49
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS (UNCONSOLIDATED)
(IN THOUSANDS)
----------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings (loss) $ 39,886 $ (201,634) $ (7,685)
Adjustments to reconcile net earnings
(loss) to cash flows provided by
operating activities:
Equity in earnings of subsidiaries (130,445) (36,074) (34,554)
Distributions from subsidiaries 51,964 47,500 48,205
Costs incurred in acquiring Services
Division - 158,444 -
Increase in other assets (6,765) (3,388) (3,456)
Increase in accrued interest on
convertible debt 17,927 18,195 6,807
Increase (decrease) in accounts payable
and accrued expenses 5,269 (5,010) 6,124
<CAPTION>
--------- --------- ---------
<S> <C> <C> <C>
Net cash flows provided by (used in)
operating activities (22,164) (21,967) 15,441
<CAPTION>
--------- --------- ---------
<S> <C> <C> <C>
INVESTING ACTIVITIES:
Investments in and advances to
subsidiaries (542,008) (245,244) (711,324)
Other (350) 5,166 8,000
<CAPTION>
--------- --------- ---------
<S> <C> <C> <C>
Net cash flows used in investing
activities (542,358) (240,078) (703,324)
<CAPTION>
--------- --------- ---------
<S> <C> <C> <C>
FINANCING ACTIVITIES:
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 line of credit - - 790,800
Payments on line of credit - (141,425) (662,275)
Proceeds from sale of preferred stock 139,000 - -
Distributions paid to shareholders - - (11,652)
Repurchase of common shares (11,483) (375) -
Retirement of convertible debt (7,840) (194) -
Preferred dividends paid (7,819) - -
<CAPTION>
--------- --------- ---------
<S> <C> <C> <C>
Net cash flows provided by financing
activities 571,863 261,782 667,661
<CAPTION>
--------- --------- ---------
<S> <C> <C> <C>
Net increase (decrease) in cash and cash
equivalents 7,341 (263) (20,222)
Cash and cash equivalents, beginning of
year 535 798 21,020
<CAPTION>
--------- --------- ---------
<S> <C> <C> <C>
Cash and cash equivalents, end of year $ 7,876 $ 535 $ 798
<CAPTION>
========= ========= =========
</TABLE>
See notes to consolidated financial statements and accompanying notes.
F-50
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS (UNCONSOLIDATED)
(IN THOUSANDS)
----------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Distribution of convertible subordinated
debentures $ - $ - $ 417,185
========= ========= =========
Purchase of GROUP on January 1, 1995:
Fair value of identifiable assets
acquired, net of cash $ - $ 86,476 $ -
Costs incurred in acquiring Services
Division - 158,444 -
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) -
--------- --------- ---------
$ - $ - $ -
========= ========= =========
Formation of SC Realty Incorporated:
Deferred loan fees assumed by SC Realty $ - $ 3,446 $ -
========= ========= =========
Line of credit assumed by SC Realty $ - $ (17,100) $ -
========= ========= =========
</TABLE>
See notes to consolidated financial statements and accompanying notes.
F-51
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNCONSOLIDATED)
1. INVESTMENTS IN SUBSIDIARIES
Security Capital has investments in SC Realty Incorporated ("SC Realty") and a
Services Division. SC Realty and the entities that comprise the Services
Division are wholly-owned subsidiaries of Security Capital.
SC Realty commenced operations February 17, 1995 when Security Capital
contributed its investments in Security Capital Industrial Trust, Security
Capital Pacific Trust, Security Capital Pacific Incorporated and Security
Capital Atlantic Incorporated. At December 31, 1996, SC Realty holds interests
in the above-mentioned companies as well as Security Capital U.S. Realty and
Homestead Village Incorporated. The Services Division subsidiaries provide
management and property management services to the companies in which SC Realty
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 accounting
services. As described in note 1 to Security Capital's consolidated financial
statements, the Services Division companies were acquired January 1, 1995.
Dividends from consolidated subsidiaries amounted to $51,964,000, $47,500,000
and $35,036,000, during 1996, 1995 and 1994 respectively. In addition, during
1994 Security Capital received dividends from an unconsolidated subsidiary
amounting to $13,169,000.
Effective February 17, 1995, SC Realty became the primary obligor under
Security Capital's revolving bank line of credit. The line is guaranteed by
Security Capital and it contains financial covenants that are applicable to
both SC Realty and Security Capital. The line of credit agreement generally
requires some or all of the following: minimum net worth, liabilities to net
worth, specified interest coverage ratios and limitations on the amount
available for dividends. At December 31, 1996, SC Realty's net assets were
approximately $1.9 billion substantially all of which were restricted and
unavailable for dividends.
The SC Realty line of credit agreement provides for loans of up to $50,000,000
to Security Capital. Any unpaid principal amounts are due thirty days after
written notice from SC Realty. Interest on unpaid principal amounts is payable
monthly at the rate per annum equal to the average interest rate paid by SC
Realty under the terms of the credit agreement. If SC Realty had no borrowings
outstanding under the credit agreement, then interest would be computed using
the "base rate" (defined as the higher of the Wells Fargo prime rate or the
Federal Funds Rate plus .50%). At December 31, 1996 and 1995, Security
Capital's loans payable to SC Realty amounted to $0 and $16,408,000,
respectively. Interest expense on these loans during 1996 and 1995 was
approximately $369,000 and $293,000, respectively, and is included in general,
administrative and other expenses in the accompanying condensed Statements of
Operations.
2. INCOME TAXES
Security Capital files a consolidated Federal income tax return which includes
SC Realty and the Services Division companies. At December 31, 1996 Security
Capital's consolidated net operating loss ("NOL") carryforwards amounted to
approximately $61,000,000. The deferred tax asset applicable to this NOL
carryforward is entirely offset by a valuation allowance. In 1996, a deferred
tax liability was recorded by SC Realty applicable to its equity method
investments. Accordingly, Security Capital's equity in earnings of SC Realty
for 1996 has been reduced by deferred income tax expense of $30,872,000.
F-52
<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-53
<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-54
<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
MUTIFAMILY COMMUNITIESL BRANCES LAND IMPROVEMENTS LANDACQUIMPROVEMENTSISITION(C)
- ----------------------- -------- -------- ------------- ------------- ---------- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Richmond,
Virginia:
Camden at
Wellesley....... $ - $ 2,878 $ 16,339 $ 293 $ 2,878 $ 16,632 $ 19,510
Potomac Hunt.... (b) 1,486 8,452 181 1,486 8,633 10,119
Sarasota,
Florida:
Camden at Palmer
Ranch........... - 3,534 20,057 607 3,534 20,664 24,198
Tampa, Florida:
Camden Downs.... - 1,840 10,447 305 1,840 10,752 12,592
Cameron
Bayshore........ - 1,607 9,105 - 1,607 9,105 10,712
Cameron Lakes... - 1,126 6,418 1,107 1,126 7,525 8,651
Country Place
Village I....... 2,004 567 3,219 140 567 3,359 3,926
Country Place
Village II...... - 644 3,658 94 644 3,752 4,396
Foxbridge on the
Bay............. 10,400 1,591 9,036 328 1,591 9,364 10,955
Summer Chase.... (b) 542 3,094 136 542 3,230 3,772
Washington, D.C.:
Camden at
Kendall Ridge... - 1,708 9,698 295 1,708 9,993 11,701
Cameron at
Saybrooke....... - 2,802 15,906 258 2,802 16,164 18,966
Sheffield
Forest.......... - 2,269 12,859 418 2,269 13,277 15,546
West Springfield
Terrace......... - 2,417 13,695 98 2,417 13,793 16,210
Less amounts
held in
principal
reserve
fund(g)......... (1,098) - - - - - -
-------- -------- -------- -------- ---------- ---------- ----------
Total Operating
Communities
Acquired........ $155,790 $124,701 $726,004 $ 27,324 $ 124,701 $ 753,328 $ 878,029
-------- -------- -------- -------- ---------- ---------- ----------
COMMUNITIES
DEVELOPED:
Birmingham,
Alabama:
Colony Woods
II.............. $ - $ 1,254 $ - $ 9,261 $ 1,551 $ 8,964 $ 10,515
Charlotte, North
Carolina:
Waterford
Hills........... - 1,508 - 11,109 1,943 10,674 12,617
Waterford Square
I............... - 1,890 - 17,763 2,053 17,600 19,653
Jacksonville,
Florida:
Cameron Lakes
I............... - 1,759 - 14,358 1,959 14,158 16,117
Raleigh, North
Carolina:
Waterford
Point........... - 985 - 14,854 1,493 14,346 15,839
-------- -------- -------- -------- ---------- ---------- ----------
Total Operating
Communities
Developed....... $ - $ 7,396 $ - $ 67,345 $ 8,999 $ 65,742 $ 74,741
-------- -------- -------- -------- ---------- ---------- ----------
TOTAL OPERATING
COMMUNITIES..... $155,790 $132,097 $726,004 $ 94,669 $ 133,700 $ 819,070 $ 952,770
-------- -------- -------- -------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------
ACCUMULATED CONSTRUCTION YEAR
MUTIFAMILY COMMUNITIESL DEPRECIATION YEAR ACQUIRED
- ----------------------- ------------ ------------ --------
<S> <C> <C> <C>
Richmond,
Virginia:
Camden at
Wellesley....... $ 1,240 1989 1994
Potomac Hunt.... 464 1987 1994
Sarasota,
Florida:
Camden at Palmer
Ranch........... 1,469 1988 1994
Tampa, Florida:
Camden Downs.... 780 1988 1994
Cameron
Bayshore........ - 1984 1996
Cameron Lakes... 365 1986 1995
Country Place
Village I....... 125 1982 1995
Country Place
Village II...... 141 1983 1995
Foxbridge on the
Bay............. 652 1986 1994
Summer Chase.... 219 1988 1994
Washington, D.C.:
Camden at
Kendall Ridge... 755 1990 1994
Cameron at
Saybrooke....... 1,190 1990 1994
Sheffield
Forest.......... 374 1987 1995
West Springfield
Terrace......... 92 1978 1996
Less amounts
held in
principal
reserve
fund(g)......... -
-------
Total Operating
Communities
Acquired........ $38,948
-------
COMMUNITIES
DEVELOPED:
Birmingham,
Alabama:
Colony Woods
II.............. $ 365 1995 1994
Charlotte, North
Carolina:
Waterford
Hills........... 476 1995 1993
Waterford Square
I............... 436 1996 1994
Jacksonville,
Florida:
Cameron Lakes
I............... 216 1996 1995
Raleigh, North
Carolina:
Waterford
Point........... 519 1996 1994
-------
Total Operating
Communities
Developed....... $ 2,012
-------
TOTAL OPERATING
COMMUNITIES..... $40,960
-------
</TABLE>
F-55
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED AND SUBSIDIARIES
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
GROSS AMOUNT AT WHICH CARRIED AT
INITIAL COST COSTS DECEMBER 31, 1996
---------------------- CAPITALIZED ------------------------------------
ENCUM- BUILDINGS AND SUBSEQUENT TO BUILDINGS AND TOTALS
MUTIFAMILY COMMUNITIESL BRANCES LAND IMPROVEMENTS LANDACQUIMPROVEMENTSISITION(C)
- ----------------------- -------- -------- ------------- ------------- ---------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMUNITIES UNDER
CONSTRUCTION:
Atlanta, Georgia:
Cameron Creek
II.............. $ - $ 2,730 $ - $ 16,602 $ 2,897 $ 16,435 $ 19,332
Birmingham,
Alabama:
Cameron at the
Summit I........ - 2,774 - 5,709 2,778 5,705 8,483
Charlotte, North
Carolina:
Waterford Square
II.............. - 2,014 - 4,578 2,065 4,527 6,592
Ft.
Lauderdale/West
Palm Beach,
Florida:
Parrot's Landing
II.............. - 1,328 - 6,742 1,367 6,703 8,070
Jacksonville,
Florida:
Cameron
Deerwood........ - 2,331 - 12,173 2,332 12,172 14,504
Cameron Lakes
II.............. - 1,340 - 1,529 1,340 1,529 2,869
Cameron
Timberlin Parc
I............... - 2,167 - 13,280 2,282 13,165 15,447
Nashville,
Tennessee:
Cameron
Overlook........ - 2,659 - 4,679 2,659 4,679 7,338
Raleigh, North
Carolina:
Cameron Brooke.. - 1,353 - 8,717 1,382 8,688 10,070
Waterford
Forest.......... - 2,371 - 17,978 2,480 17,869 20,349
Richmond,
Virginia:
Cameron at
Wyndham......... - 2,038 - 2,366 2,052 2,352 4,404
Cameron Crossing
I & II.......... - 2,752 - 8,450 2,768 8,434 11,202i)
Washington, D.C.:
Cameron at
Milestone....... - 5,477 - 24,867 5,607 24,737 30,344
Woodway at
Trinity Center.. - 5,342 - 30,241 5,584 29,999 35,583
-------- -------- -------- -------- ---------- ---------- ----------
TOTAL
COMMUNITIES
UNDER
CONSTRUCTION.... $ - $ 36,676 $ - $157,911 $ 37,593 $ 156,994 $ 194,587
-------- -------- -------- -------- ---------- ---------- ----------
</TABLE>
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
----------------------------------
ACCUMULATED CONSTRUCTION YEAR
MUTIFAMILY COMMUNITIESL DEPRECIATION YEAR ACQUIRED
- ----------------------- ------------ ------------ --------
<S> <C> <C> <C>
COMMUNITIES UNDER
CONSTRUCTION:
Atlanta, Georgia:
Cameron Creek
II.............. $ 39 -(h) 1994
Birmingham,
Alabama:
Cameron at the
Summit I........ - - 1996
Charlotte, North
Carolina:
Waterford Square
II.............. - - 1995
Ft.
Lauderdale/West
Palm Beach,
Florida:
Parrot's Landing
II.............. - - 1994
Jacksonville,
Florida:
Cameron
Deerwood........ - -(h) 1996
Cameron Lakes
II.............. - - 1996
Cameron
Timberlin Parc
I............... 16 -(h) 1995
Nashville,
Tennessee:
Cameron
Overlook........ - - 1996
Raleigh, North
Carolina:
Cameron Brooke.. - - 1995
Waterford
Forest.......... 52 -(h) 1995
Richmond,
Virginia:
Cameron at
Wyndham......... - - 1993
Cameron Crossing
I & II.......... - - 1995(i)
Washington, D.C.:
Cameron at
Milestone....... 43 -(h) 1995
Woodway at
Trinity Center.. 56 -(h) 1994
--------
TOTAL
COMMUNITIES
UNDER
CONSTRUCTION.... $ 206
--------
</TABLE>
F-56
<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 ACCUMULATEDR
MUTIFAMILY COMMUNITIESL BRANCES LAND IMPROVEMENTS LANDACIMPROVEMENTSQUISITIO(C)NDEPRECIATIOND
- ----------------------- -------- -------- ------------- ------------- -------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COMMUNITIES IN
PLANNING:
Atlanta, Georgia:
Cameron
Landing......... $ - $ 1,508 $ - $ 512 $ 1,508 $ 512 $ 2,020 $ -
Ft.
Lauderdale/West
Palm Beach,
Florida:
Cameron
Waterway........ - 4,025 - 361 4,029 357 4,386 -
Jacksonville,
Florida:
Cameron
Timberlin Parc
II.............. - 1,294 - 95 1,294 95 1,389 -
-------- -------- -------- -------- -------- -------- ---------- -------
TOTAL
COMMUNITIES IN
PLANNING........ $ - $ 6,827 $ - $ 968 $ 6,831 $ 964 $ 7,795 $ -
-------- -------- -------- -------- -------- -------- ---------- -------
LAND HELD FOR
FUTURE
DEVELOPMENT:
Birmingham,
Alabama:
Cameron at the
Summit II....... - 2,008 - 75 2,083 - 2,083 -
-------- -------- -------- -------- -------- -------- ---------- -------
TOTAL LAND HELD
FOR FUTURE
DEVELOPMENT..... $ - $ 2,008 $ - $ 75 $ 2,083 $ - $ 2,083 $ -
-------- -------- -------- -------- -------- -------- ---------- -------
TOTAL
MULTIFAMILY
COMMUNITIES,
HELD BY
ATLANTIC........ $155,790 $177,608 $726,004 $253,623 $180,207 $977,028 $1,157,235 $41,166
-------- -------- -------- -------- -------- -------- ---------- -------
</TABLE>
<TABLE>
<CAPTION>
------------------------
ED CONSTRUCTION YEAR
MUTIFAMILY COMMUNITIESL ON YEAR ACQUIRED
- ----------------------- -- ------------ --------
<S> <C> <C>
COMMUNITIES IN
PLANNING:
Atlanta, Georgia:
Cameron
Landing......... - 1996
Ft.
Lauderdale/West
Palm Beach,
Florida:
Cameron
Waterway........ - 1996
Jacksonville,
Florida:
Cameron
Timberlin Parc
II.............. - 1995
TOTAL
COMMUNITIES IN
PLANNING........
LAND HELD FOR
FUTURE
DEVELOPMENT:
Birmingham,
Alabama:
Cameron at the
Summit II....... - 1996
TOTAL LAND HELD
FOR FUTURE
DEVELOPMENT.....
TOTAL
MULTIFAMILY
COMMUNITIES,
HELD BY
ATLANTIC........
</TABLE>
F-57
<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 R
PROPERTIES BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS (C) D
------------- ------- ------- ------------- ------------- ---------- ---------------------------
<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>
F-58
<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>
<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-59
<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 ----------------------------------
EXTENDED-STAY ENCUM- BUILDINGS AND SUBSEQUENT TO BUILDINGS AND
LODGING PROPERTIES BRANCE LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTAL
- ------------------ -------- -------- ------------- ------------- -------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
San Ramon....... (l) $ 1,327 $ - $ 402 $ 1,341 $ 388 $ 1,729
Santa Clara..... - 1,423 - 25 1,428 20 1,448
Sunnyvale....... (l) 1,274 - 4,309 1,278 4,305 5,583
Seattle,
Washington:
Bellevue........ (l) 2,050 - 1,119 2,067 1,102 3,169
Mountain Lake
Terrace/N.
Seattle......... (l) 1,530 - 494 1,589 435 2,024
Redmond......... (l) 2,265 - 565 2,527 303 2,830
Tukwila......... (l) 900 - 465 937 428 1,365
Tampa Area,
Florida:
Brandon......... (m) 923 762 584 971 1,298 2,269
North Airport... (m) 615 1,142 1,883 635 3,005 3,640
St. Petersburg.. (m) 766 155 264 766 419 1,185
Washington, D.C.:
BWI............. (m) 940 - 486 1,062 364 1,426
Dulles-South.... (m) 690 - 237 722 205 927
Fair Oaks....... (m) 1,152 196 372 1,157 563 1,720
Merrifield...... (m) 1,500 - 276 1,511 265 1,776
Miscellaneous.... (k) 5,429 - 161 5,589 1 5,590
Less: Fair Value
in excess of
cost--Properties
acquired from
ATLANTIC......... (3,681) (2,623) - (3,681) (2,623) (6,304)
-------- -------- -------- -------- ---------- ----------
Total Extended-
Stay Lodging
Properties, held
by Homestead.... $ 89,638 $ 9,395 $157,988 $ 93,687 $ 163,334 $ 257,021
-------- -------- -------- -------- -------- ---------- ----------
Grand Total
Security
Capital......... $155,790 $267,246 $735,399 $411,611 $273,894 $1,140,362 $1,414,256
======== ======== ======== ======== ======== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
EXTENDED-STAY CCUMULATED CONSTRUCTION YEAR
LODGING PROPERTIES PRECIATION YEAR ACQUIRED
- ------------------ ---------- ------------ -----------
<S> <C> <C> <C>
San Ramon....... (j) (j) 1996
Santa Clara..... - (n) 1996
Sunnyvale....... (j) (j) 1995
Seattle,
Washington:
Bellevue........ (j) (j) 1996
Mountain Lake
Terrace/N.
Seattle......... (j) (j) 1996
Redmond......... (j) (j) 1996
Tukwila......... (j) (j) 1996
Tampa Area,
Florida:
Brandon......... (j) (j) 1996
North Airport... (j) (j) 1996
St. Petersburg.. (j) (j) 1996
Washington, D.C.:
BWI............. (j) (j) 1996
Dulles-South.... (j) (j) 1996
Fair Oaks....... (j) (j) 1996
Merrifield...... (j) (j) 1996
Miscellaneous.... - - 1995/1996
Less: Fair Value
in excess of
cost--Properties
acquired from
ATLANTIC......... -
-------
Total Extended-
Stay Lodging
Properties, held
by Homestead.... $ 7,717
-------
Grand Total
Security
Capital......... $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-60
<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 $631,240
========== ========= =========
<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-61
<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-62
<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-63
<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-64
<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-65
<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.
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.
F-66
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 1,816,842
-----------
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-67
<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.
F-68
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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.
F-69
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 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-70
<PAGE>
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Trustees and Shareholders
SECURITY CAPITAL PACIFIC TRUST:
We have reviewed the accompanying condensed balance sheet of SECURITY CAPITAL
PACIFIC TRUST as of March 31, 1997, and the related condensed statements of
earnings, shareholders' equity, and cash flows for the three-month periods
ended March 31, 1997 and 1996. These condensed financial statements are the
responsibility of the Trust's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed financial statements referred to above for them to be
in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of SECURITY CAPITAL PACIFIC TRUST as of December
31, 1996, and the related statements of earnings, shareholders' equity, and
cash flows for the year then ended (not presented herein); and in our report
dated January 29, 1997, except as to Note 13, which is as of March 10, 1997, we
expressed an unqualified opinion on those financial statements. In our opinion,
the information set forth in the accompanying condensed balance sheet as of
December 31, 1996 is fairly stated, in all material respects, in relation to
the balance sheet from which it has been derived.
KPMG Peat Marwick LLP
Chicago, Illinois
May 2, 1997
F-71
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
------------------
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
------
Real estate $2,233,866 $2,153,363
Less accumulated depreciation 100,041 97,574
---------- ----------
2,133,825 2,055,789
Homestead Notes 191,829 176,304
Other mortgage notes receivable 13,537 13,525
---------- ----------
Net investments 2,339,191 2,245,618
Cash and cash equivalents 7,941 5,601
Accounts receivable and accrued interest 8,487 4,157
Restricted cash in tax-deferred exchange escrow 59,000 42
Other assets 27,358 27,014
---------- ----------
Total assets $2,441,977 $2,282,432
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Credit facilities $ 193,865 $ 110,200
Long-Term Debt 630,000 580,000
Mortgages payable 230,578 217,188
Distributions payable - 24,537
Accounts payable 25,368 22,782
Accrued expenses and other liabilities 55,207 60,217
---------- ----------
Total liabilities 1,135,018 1,014,924
---------- ----------
SHAREHOLDERS' EQUITY:
Series A Preferred Shares (6,080,019 convertible
shares in 1997 and 6,494,967 in 1996; stated
liquidation preference of $25 per share) 152,000 162,374
Series B Preferred Shares (4,200,000 shares issued;
stated liquidation
preference of $25 per share) 105,000 105,000
Common Shares (shares issued--76,075,971 in 1997
and 75,510,986 in 1996) 76,076 75,511
Additional paid-in capital 928,330 918,434
Unrealized holding gain on Homestead Notes 73,886 74,923
Distributions in excess of net earnings (28,333) (68,734)
---------- ----------
Total shareholders' equity 1,306,959 1,267,508
---------- ----------
Total liabilities and shareholders' equity $2,441,977 $2,282,432
========== ==========
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
F-72
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
CONDENSED STATEMENT OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
---------------
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1997 1996
-------------- --------------
<S> <C> <C>
REVENUES:
Rental revenues $79,950 $75,809
Interest income on Homestead Notes 3,174 -
Other interest income 370 547
------------- -------------
83,494 76,356
------------- -------------
EXPENSES:
Rental expenses 20,357 20,086
Real estate taxes 7,268 7,103
Property management fees paid to affiliates 2,950 3,108
Depreciation 12,049 10,618
Interest 13,961 6,520
REIT management fee paid to affiliate 4,617 5,555
General and administrative 272 276
Other 1,744 170
------------- -------------
63,218 53,436
------------- -------------
Earnings from operations 20,276 22,920
Gain on disposition of investments, net 25,335 2,923
------------- -------------
Net earnings 45,611 25,843
Less Preferred Share dividends 5,035 6,388
------------- -------------
Net earnings attributable to common shares $40,576 $19,455
============= =============
Weighted-average Common Shares outstanding 75,872 72,211
============= =============
Per Common Share amounts:
Primary $ 0.53 $ 0.27
============= =============
Fully diluted $ 0.51 $ -
============= =============
Distributions paid $ 0.325 $ 0.310
============= =============
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
F-73
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
--------------------------------------------------------------------------------
<CAPTION>
SHARES OF BENEFICIAL
INTEREST, $1.00 PAR VALUE
---------------------------------
SERIES A SERIES B
PREFERRED PREFERRED
SHARES AT SHARES AT
AGGREGATE AGGREGATE COMMON ADDITIONAL UNREALIZED DISTRIBUTIONS
LIQUIDATION LIQUIDATION SHARES AT PAID-IN HOLDING IN EXCESS OF
PREFERENCE PREFERENCE PAR VALUE CAPITAL GAINS NET EARNINGS TOTAL
----------- ----------- --------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1,
1997 $162,374 $105,000 $75,511 $918,434 $74,923 $(68,734) $1,267,508
Net earnings - - - - - 45,611 45,611
Shareholder
Distributions - - - - - (5,210) (5,210)
Conversion of 414,948
Series A Preferred
Shares into 558,875
Common Shares (10,374) - 559 9,815 - - -
Change in unrealized
holding gain on
Homestead Notes - - - - (1,037) - (1,037)
Exercise of warrants - - 6 81 - - 87
-------- -------- ------- -------- ------- -------- ----------
Balances at March 31,
1997 $152,000 $105,000 $76,076 $928,330 $73,886 $(28,333) $1,306,959
======== ======== ======= ======== ======= ======== ==========
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
F-74
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
---------------
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1997 1996
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 45,611 $ 25,843
Adjustments to reconcile net earnings to net cash
flow provided by operating activities:
Depreciation and amortization 12,466 11,036
Gain on disposition of investments, net (25,335) (2,923)
Provision for possible loss on investments 1,500 -
Change in accounts payable (1,321) (8,658)
Change in accrued expenses and other liabilities (5,010) (8,297)
Change in other operating assets (5,186) (829)
--------- ---------
Net cash flow provided by operating activities 22,725 16,172
--------- ---------
INVESTING ACTIVITIES:
Real estate investments (177,877) (101,323)
Change in tax-deferred exchange escrow (58,958) -
Funding of Homestead Notes (16,250) -
Advances on other mortgage notes receivable (100) -
Principal repayments on other mortgage notes
receivable 88 1,081
Gross proceeds from dispositions 142,137 39,548
Closing costs related to dispositions (3,075) (401)
--------- ---------
Net cash flow used in investing activities (114,035) (61,095)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from Long-Term Debt 50,000 150,000
Debt issuance costs incurred (218) (1,598)
Prepayment of mortgages payable due to community
dispositions (9,534) -
Regularly scheduled principal payments on
mortgages payable (603) (484)
Proceeds from credit facilities 248,808 63,135
Principal payments on credit facilities (165,143) (155,886)
Cash distributions paid on Common Shares (24,712) (22,437)
Cash dividends paid on Preferred Shares (5,035) (6,388)
Proceeds from exercise of warrants 87 -
--------- ---------
Net cash flow provided by financing activities 93,650 26,342
--------- ---------
Net increase (decrease) in cash and cash equivalents 2,340 (18,581)
Cash and cash equivalents at beginning of period 5,601 26,919
--------- ---------
Cash and cash equivalents at end of period $ 7,941 $ 8,338
========= =========
Non-cash investing and financing activities:
Assumption of mortgages payable upon purchase of
multifamily communities 23,527 -
Series A Preferred Shares converted to Common
Shares 10,374 -
Fair market value adjustment related to Homestead
Notes 1,037 -
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
F-75
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
(UNAUDITED)
(1) GENERAL
The condensed financial statements of SECURITY CAPITAL PACIFIC TRUST ("PTR")
are unaudited and certain information and footnote disclosures normally
included in financial statements have been omitted. While management of PTR
believes that the disclosures presented are adequate, these interim financial
statements should be read in conjunction with the financial statements and
notes included in PTR's 1996 Annual Report on Form 10-K.
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments necessary for a fair presentation of PTR's financial
statements for the interim periods presented. The results of operations for the
three month periods ended March 31, 1997 and 1996 are not necessarily
indicative of the results to be expected for the entire year.
The accounts of PTR and its majority-owned subsidiaries are consolidated in the
accompanying condensed 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 affect 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.
Reclassifications
Certain of the 1996 amounts have been reclassified to conform to the 1997
presentation.
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
Share(s)"), 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 the weighted average number of
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. 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 the three months ended March 31, 1996.
PTR will adopt Statement of Financial Accounting Standards ("SFAS") No. 128,
Earnings per Share, which changes the method used to compute earnings per share
in the fourth quarter of 1997. The impact of SFAS No. 128 on the calculation of
PTR's earnings per share is not expected to be material.
F-76
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(2) REAL ESTATE
Investments
Equity investments in real estate, at cost, were as follows (dollar amounts in
thousands):
<TABLE>
----------------------------
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996
----------------- -----------------
INVESTMENT UNITS INVESTMENT UNITS
---------- ------ ---------- ------
<S> <C> <C> <C> <C>
Multifamily:
Operating communities $1,885,814 40,874 $1,861,561 42,702
Communities under construction 227,325 5,671(1) 186,710 5,479(1)
Development communities in
planning:
Development communities owned 59,628 3,877(1) 48,504 3,351(1)
Development communities under
control (2) 2,074(1) (2) 3,737(1)
---------- ------ ---------- ------
Total development communities 59,628 5,951 48,504 7,088
---------- ------ ---------- ------
Land held for future development 35,095 -- 30,043 --
---------- ------ ---------- ------
Total multifamily 2,207,862 52,496 2,126,818 55,269
---------- ------ ---------- ------
Non-multifamily 26,004 26,545
---------- ----------
Total real estate $2,233,866 $2,153,363
========== ==========
</TABLE>
- --------
(1)Unit information is based on management's estimates and has not been audited
or reviewed by PTR's independent auditors.
(2)PTR's investment as of March 31, 1997 and December 31, 1996 for developments
under control was $1.9 million and $1.6 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>
<S> <C>
Balance at January 1, 1997 $2,153,363
Multifamily:
Acquisition and renovation expenditures 146,801
Development expenditures, excluding land acquisitions 52,883
Acquisition and improvement of land
held for current or future development 4,095
Recurring capital expenditures 1,533
Dispositions (122,769)
Provisions for possible loss on investments (1,500)
----------
Net multifamily activity subtotal 2,234,406
Non-multifamily disposition (540)
----------
Balance at March 31, 1997 $2,233,866
==========
</TABLE>
At March 31, 1997, PTR had contingent contracts or letters of intent, subject
to PTR's final due diligence and approval of all entitlements, to acquire land
for the development of an estimated 4,621 multifamily units with an aggregate
estimated development cost of approximately $411.9 million. At the same date,
PTR also had contingent contracts or letters of intent, subject to final due
diligence, for the acquisition of 897 additional operating multifamily units
with a total expected investment of $79.7 million, including planned
renovations.
At March 31, 1997, PTR had unfunded development commitments for developments
under construction of $132.0 million.
F-77
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
Gains and Provision for Possible Loss on 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 Real Estate Research Group 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
are 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 12 multifamily communities
and one industrial building during the first quarter of 1997, representing
gross proceeds of $142.1 million, and disposed of four multifamily communities
during the first quarter of 1996, representing gross proceeds of $39.5 million.
As of March 31, 1997, PTR held a portion of the 1997 disposition proceeds
aggregating $59 million in an interest bearing escrow account, pending
acquisition of other multifamily communities to complete the tax-deferred
exchange. For federal income tax purposes, the majority of the 1997 and 1996
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 $25.3 million and $2.9
million were recorded for the three months ended March 31, 1997 and 1996,
respectively.
As part of PTR's asset optimization strategy, 18 multifamily communities were
held for disposition as of March 31, 1997. The aggregate carrying value of
properties held for disposition was approximately $144.0 million at March 31,
1997, net of a provision for possible loss of $1.5 million on certain
communities. A substantial aggregate gain is expected upon the disposition of
the remaining communities, although generally accepted accounting principles
disallows recognition of anticipated gains. Each community's carrying value is
less than or equal to its estimated fair market value, net of estimated costs
to sell. Such communities 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 communities during 1997 and redeploy
the net proceeds from such dispositions, where appropriate, through tax-
deferred exchanges into the acquisition of multifamily communities. The
property level earnings, after interest and depreciation, from communities held
for disposition at March 31, 1997 which are included in PTR's earnings from
operations for the three months ended March 31, 1997 and 1996 were $3.0 million
and $2.8 million, respectively.
(3) HOMESTEAD NOTES
In addition to multifamily investment activity, PTR had developed and operated
extended-stay lodging facilities under the Homestead Village(R) name since
1992. On October 17, 1996, PTR contributed its Homestead Village(R) properties
to Homestead Village Incorporated ("Homestead"), a newly formed company, in
exchange for Homestead securities. As of the contribution date, the Homestead
Village(R) properties constituted approximately 7.1% of PTR's total assets, at
cost. The Homestead Village(R) properties generated approximately 7.2% of PTR's
Net Operating Income for the three month period ended March 31, 1996.
During the three month period ended March 31, 1997, PTR funded an additional
$16.3 million under its $198.8 million commitment to provide development
funding to Homestead in the form of convertible mortgage notes ("Homestead
Notes"), resulting in a total amount funded of $117.4 million as of March 31,
1997.
F-78
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
Following is a reconciliation of the Homestead Notes' components to the amount
reflected in the accompanying Balance Sheet (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
1997
---------
<S> <C>
Face amount of Homestead Notes $130,728
Original issue discount (13,290)
---------
Amount funded 117,438
Amortization of original issue discount 307
Conversion feature--initial value 9,208
Unamortized discount on conversion feature (9,010)
Fair value adjustment 73,886
---------
Carrying value and fair value $191,829
=========
</TABLE>
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 face amount outstanding. Accordingly, fair value was calculated based
upon the conversion value of the Homestead Notes using the trading price of
Homestead common stock at March 31, 1997 of $16.875. The fair value adjustment
is recognized as an unrealized gain in shareholders' equity.
PTR expects to complete the funding of the remaining $81.4 million under its
funding commitment in 1997 and early 1998.
(4) 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 in 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 (8.5% at
March 31, 1997) or the federal funds rate plus 0.50%, or at PTR's option, LIBOR
(5.6875% at March 31, 1997) plus 1.125% (6.8125% at March 31, 1997). The spread
over LIBOR can vary from LIBOR plus 0.75% to LIBOR plus 1.50% based upon the
rating of PTR's long-term unsecured senior notes ("Long-Term Debt").
Additionally, there is a commitment fee on the average unfunded line of credit
balance. The commitment fee was $75,000 and $110,000 for the three month period
ended March 31, 1997 and 1996, respectively.
A summary of PTR's line of credit borrowings is as follows (dollars in
thousands):
<TABLE>
---------------------------------
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1997 1996
------------------ ----------
<S> <C> <C>
Total line of credit $350,000 $350,000
Borrowings outstanding at end of period 133,500 99,750
Weighted-average daily borrowings 151,606 112,248
Maximum borrowings outstanding at any
month end 205,000 188,750
Weighted-average daily nominal interest
rate 6.9% 7.3%
Weighted-average daily effective interest
rate 8.1% 8.8%
Weighted-average nominal interest rate at
end of period 6.7% 6.6%
</TABLE>
On September 9, 1996, PTR entered into a short-term, unsecured, borrowing
agreement with TCB. The loan matures March 18, 1998 and bears interest at an
overnight rate which ranged from 5.94% to 6.50% during the three months ended
March 31, 1997. At March 31, 1997, there was $365,000 outstanding under this
agreement.
F-79
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
On March 10, 1997, PTR borrowed $60 million under a short-term, unsecured,
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% (6.2875% at March 31, 1997). On April 4, 1997, PTR borrowed an
additional $40 million under a short-term, unsecured, borrowing agreement with
the same financial institution, having approximately the same interest rate and
repayment terms. The proceeds from both loans were used to repay borrowings
under PTR's line of credit.
The aggregate amount of borrowings outstanding under all of PTR's credit
facilities at March 31, 1997 was $193.9 million.
Long-Term Debt
PTR has issued Long-Term Debt which bear interest at fixed rates, payable semi-
annually. Funds from such issuances were used primarily for acquisition,
development and renovation of multifamily communities and to repay balances on
credit facilities incurred for such purposes. The following table summarizes
the Long-Term Debt as of March 31, 1997:
<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>
3/31/97 $ 20 million 7.500% 7.443% 4/1/07 10.00 (1)
3/31/97 30 million 8.050 8.038 4/1/17 20.00 (1)
------------ --------- --------- ---------
Subtotal/Average $ 50 million 7.905% 7.850% 16.00
------------ --------- --------- ---------
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 (2)
------------ --------- --------- ---------
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 (3)
2/23/96 100 million 7.900 8.030 2/15/16 18.00 (4)
------------ --------- --------- ---------
Subtotal/Average $150 million 7.710% 7.840% 15.50
------------ --------- --------- ---------
2/8/94 $100 million 6.875% 6.978% 2/15/08 10.50 (5)
2/8/94 100 million 7.500 7.653 2/15/14 18.00 (6)
------------ --------- --------- ---------
Subtotal/Average $200 million 7.240% 7.370% 14.25
------------ --------- --------- ---------
Grand Total/Average $630 million 7.530% 7.640% 13.37
============ ========= ========= =========
</TABLE>
- --------
(1) Entire principal amount due at maturity.
(2) 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.
(3) These notes require aggregate annual principal payments of $6.25 million
commencing in 2003.
F-80
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(4) 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.
(5) These notes require annual principal payments of $12.5 million commencing
in 2001.
(6)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.
Mortgages Payable
Mortgages payable at March 31, 1997 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 MARCH 31, DECEMBER 31,
COMMUNITY RATE(1) DATE TERMS MATURITY 1997 1996
- --------- --------- --------- -------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Conventional fixed rate:
Tigua Village 9.90% 05/01/97 (2) $ 677 $ 681 $ 683
Silvercliff 7.66 11/10/97 (2) 7,304 7,359 7,382
Braeswood Park 7.51 01/01/98 (2) 6,635 6,727 6,761
Seahawk 8.05 01/10/98 (2) 5,350 5,407 5,427
La Tierra at the Lakes 7.89 12/01/98 (2) 25,105 25,908 26,019
Windsail N/A 02/01/99 (2) 4,675 -- 4,798
Clubhouse 8.75 12/01/99 (2) 5,501 5,806 5,831
Greenpointe 8.50 03/01/00 (2) 3,410 3,622 3,638
Mountain Shadow 8.50 03/01/00 (2) 3,130 3,326 3,340
Sunterra 8.25 03/01/00 (2) 7,612 8,103 8,138
Brompton Court 8.39 09/01/00 (2) 13,340 14,259 14,318
Marina Lakes 8.20 07/19/01 (2) 12,393 13,509 --
Treat Commons 7.50 09/14/01 (2) 6,578 7,163 7,192
El Dorado 7.59 10/01/02 (2) 15,527 16,677 16,718
Ashton Place 7.75 10/01/23 (3) N/A 47,209 47,342
Double Tree II N/A 05/01/33 (3) N/A -- 4,750
-------- --------
165,756 162,337
Tax-exempt fixed rate(4):
Fox Creek 8.71 06/01/97 (2) 4,219 4,223 4,236
Cherry Creek 8.11 11/01/01 (2) 2,630 4,000 4,000
Redwood Shores 5.53 10/01/08 (2) 16,820 25,220 25,220
Summertree 6.65 12/15/18 (5) 4,435 4,435 4,435
-------- --------
37,878 37,891
Tax-exempt floating
rate(4):
River Meadows 8.66 10/01/05 (6) 10,000 10,000 --
Apple Creek 7.08 09/01/07 (6) 11,100 11,100 11,100
-------- --------
21,100 11,100
Combined(7):
Las Flores 8.42 06/01/24 (3) N/A 5,844 5,860
---- -------- --------
Total/Average Mortgage
Debt 7.62% $230,578 $217,188
==== ======== ========
</TABLE>
- --------
(1) Represents the effective interest rate, including loan cost amortization
and other ongoing fees and expenses.
(2) Regular amortization with a balloon payment due at maturity.
(3) Fully amortizing.
(4) Tax-exempt effective interest rates include credit enhancement and other
bond-related costs, where applicable.
(5) Semi-annual payments are interest only until December 2003 at 5.4%, at
which time the interest rate is adjusted to the current market rate.
F-81
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(6) Payments are interest only until maturity and the interest rate is adjusted
weekly or monthly.
(7) 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.
The changes in mortgages payable during the three months ended March 31, 1997
consisted of the following (in thousands):
<TABLE>
<S> <C>
Balance at January 1, 1997 $217,188
Mortgage notes assumed 23,527
Principal payments, including prepayments upon community
dispositions (10,137)
---------
Balance at March 31, 1997 $230,578
=========
</TABLE>
Scheduled Debt Maturities
Approximate principal payments due during each of the calendar years in the 20-
year period ending December 31, 2016 and thereafter, as of March 31, 1997, are
as follows (in thousands):
<TABLE>
-------------------------------
<CAPTION>
CREDIT LONG-TERM
FACILITIES DEBT MORTGAGES TOTAL
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
1997 $ 60,365 $ - $ 5,129 $ 65,494
1998 133,500 - 40,012 173,512
1999 - 30,000 12,790 42,790
2000 - - 29,799 29,799
2001 - 12,500 24,807 37,307
2002 - 32,500 17,348 49,848
2003 - 38,750 1,752 40,502
2004 - 38,750 1,903 40,653
2005 - 38,750 12,066 50,816
2006 - 38,750 2,241 40,991
2007 - 38,750 13,528 52,278
2008 - 38,750 18,863 57,613
2009 - 36,250 1,603 37,853
2010 - 38,750 1,732 40,482
2011 - 25,000 1,871 26,871
2012 - 30,000 2,022 32,022
2013 - 35,000 2,185 37,185
2014 - 42,500 2,361 44,861
2015 - 40,000 2,551 42,551
2016 - 45,000 2,756 47,756
Thereafter - 30,000 33,259 63,259
--------- --------- --------- ----------
Total $193,865 $630,000 $230,578 $1,054,443
========= ========= ========= ==========
</TABLE>
General
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 leverage ratios. PTR was in compliance
with all covenants pertaining to its debt instruments at March 31, 1997.
Interest paid on all borrowings for the three months ended March 31, 1997 was
$18.9 million, net of $4.4 million of interest capitalized during construction.
Interest paid on all borrowings for the three months ended March 31, 1996 was
$9.2 million, net of $3.5 million of interest capitalized during construction.
F-82
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONCLUDED)
Amortization of loan costs included in interest expense for the three months
ended March 31, 1997 and 1996 was $729,000 and $418,000, respectively.
(5) CASH DISTRIBUTIONS
PTR paid the first quarter 1997 distribution of $0.325 per Common Share on
February 20, 1997. On April 22, 1997 the Board of Trustees (the "Board")
declared a cash distribution of $0.325 per Common Share, payable on May 29,
1997, to shareholders of record on May 13, 1997. On March 31, 1997, PTR paid
quarterly dividends of $0.4377 per cumulative convertible Series A Preferred
Share and $0.5625 per cumulative redeemable Series B Preferred Share to
preferred shareholders of record on March 17, 1997.
(6) SHELF REGISTRATION
On March 27, 1997, PTR filed a $300 million shelf registration with the
Securities and Exchange Commission. These securities can be issued in the form
of Long-Term Debt, Preferred Shares or Common Shares on an as-needed basis,
subject to PTR's ability to effect offerings on satisfactory terms. As of March
31, 1997, a total of $420 million in shelf-registered securities were available
to be issued.
(7) REIT MANAGER AND PROPERTY MANAGER ACQUISITION PROPOSAL
Effective March 1, 1991, PTR entered into a REIT Management agreement with
Security Capital Pacific Incorporated (the "REIT Manager"), to provide REIT
Management services to PTR. The REIT Manager is a subsidiary of Security
Capital Group Incorporated ("Security Capital Group"), which owned
approximately 36% of PTR's outstanding Common Shares as of March 31, 1997.
SCG Realty Services Incorporated (the "Property Manager"), a wholly-owned
subsidiary of Security Capital Group, managed 95.03% and 86.61% (based on total
expected investment) of PTR's operating multifamily communities as of March 31,
1997, and 1996, respectively. Rates for services performed by SCG Realty
Services are subject to annual approval by PTR's independent Trustees (who
receive an annual review from an independent third party). Management believes
that such rates are consistent with those prevailing in the markets in which
PTR operates.
On May 1, 1997, Security Capital Group filed a Form S-4 Registration Statement
with the Securities and Exchange Commission containing PTR's preliminary proxy
statement and Security Capital Group's preliminary prospectus (relating to
warrants to purchase Class B common stock of Security Capital Group) relating
to a proposed merger transaction whereby PTR would acquire the operations and
businesses of its REIT Manager and Property Manager in exchange for Common
Shares, valued at approximately $75.8 million. The number of Common Shares
issuable to Security Capital Group will depend on the average market price of
the Common Shares over the five-day period prior to the record date, subject to
such average not being more than $27.11475 or less than $21.63525. As a result
of the transaction, PTR would become an internally managed REIT and Security
Capital Group would remain PTR's largest shareholder. The Board recently
approved the proposed merger transaction based on the recommendation of a
special committee comprised of independent Trustees. The proposed merger
transaction requires the approval of two-thirds of the outstanding Common
Shares. PTR's proxy statement, after review and clearance by the Securities and
Exchange Commission, will be mailed to PTR's common shareholders prior to a
shareholder vote.
F-83
<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-84
<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-85
<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-86
<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-87
<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-88
<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-89
<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.
(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.
F-90
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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>
(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.
F-91
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
(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.
F-92
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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>
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.
F-93
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 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%
F-94
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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).
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.
F-95
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(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>
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.
F-96
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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, 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
F-97
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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>
- --------
(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.
F-98
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(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>
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.
F-99
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(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-100
<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
F-101
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Preferred Share dividends are payable quarterly in arrears on the last day of
March, June, September and December 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-102
<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.
(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
F-103
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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-104
<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-105
<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-106
<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-107
<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-108
<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-109
<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-110
<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-111
<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-112
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Trustees and Shareholders of
Security Capital Industrial Trust
We have reviewed the accompanying consolidated balance sheet of Security
Capital Industrial Trust and subsidiaries as of March 31, 1997, and the related
consolidated statements of operations for the three months ended March 31, 1997
and 1996, and the consolidated statements of cash flows for the three months
ended March 31, 1997 and 1996. These financial statements are the
responsibility of the Trust's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Security Capital Industrial Trust
and subsidiaries as of December 31, 1996, and in our report dated February 10,
1997, we expressed an unqualified opinion on that statement. In our opinion,
the information set forth in the accompanying consolidated balance sheet as of
December 31, 1996, is fairly stated in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
Arthur Andersen LLP
Chicago, Illinois
May 2, 1997
F-113
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
------------------
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
ASSETS (UNAUDITED) (AUDITED)
------ ----------- ------------
<S> <C> <C>
Real Estate $2,590,876 $2,508,747
Less accumulated depreciation 124,833 109,147
---------- ----------
2,466,043 2,399,600
Cash and Cash Equivalents 49,877 4,770
Accounts Receivable 7,858 5,397
Other Assets 54,616 52,539
---------- ----------
Total assets $2,578,394 $2,462,306
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
LIABILITIES:
Line of credit $ - $ 38,600
Long-term debt 624,212 524,191
Mortgage notes payable 84,298 91,757
Securitized debt 35,217 36,025
Assessment bonds payable 12,156 12,170
Accounts payable and accrued expenses 32,252 35,357
Construction payable 18,268 24,645
Distributions payable - 25,058
Other liabilities 17,941 18,130
---------- ----------
Total liabilities 824,344 805,933
---------- ----------
Commitments and Contingencies
Minority Interest 56,472 56,984
SHAREHOLDERS' EQUITY:
Series A Preferred Shares; $0.01 par value;
5,400,000 shares issued and outstanding at March
31, 1997 and December 31, 1996; 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
March 31, 1997 and December 31, 1996; stated
liquidation preference of $25 per share 201,250 201,250
Series C Preferred Shares; $0.01 par value;
2,000,000 shares issued and outstanding at March
31, 1997 and December 31, 1996; stated liquidation
preference of $50 per share 100,000 100,000
Common shares of beneficial interest, $0.01 par
value; 97,755,518 shares issued and outstanding at
March 31, 1997 and 93,676,546 shares at December
31, 1996 978 937
Additional paid-in capital 1,338,864 1,257,347
Distributions in excess of net earnings (78,514) (95,145)
---------- ----------
Total shareholders' equity 1,697,578 1,599,389
---------- ----------
Total liabilities and shareholders' equity $2,578,394 $2,462,306
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-114
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
-------------------
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1997 1996
-------------- --------------
<S> <C> <C>
INCOME:
Rental income $67,386 $50,062
Other real estate income 1,121 143
Interest income 724 157
------------- -------------
Total income 69,231 50,362
------------- -------------
EXPENSES:
Rental expenses, net of recoveries of $10,550
and $6,175 for the three month periods in 1997
and 1996, respectively 4,278 5,146
Property management fees paid to affiliate, net
of recoveries of $1,092 and $586 for the three
month periods in 1997 and 1996, respectively 1,550 999
Depreciation and amortization 18,048 13,089
Interest expense 11,375 8,508
REIT management fee paid to affiliate 6,606 4,641
General and administrative 307 249
Other expense 611 468
------------- -------------
Total expenses 42,775 33,100
------------- -------------
Net Earnings Before Minority Interest and Loss on
Disposition of Real Estate 26,456 17,262
Minority interest share in net earnings 895 756
------------- -------------
Net Earnings Before Loss on Disposition of Real
Estate 25,561 16,506
Loss on disposition of real estate - 29
------------- -------------
Net Earnings 25,561 16,477
Less preferred share dividends 8,829 4,673
------------- -------------
Net Earnings Attributable to Common Shares $16,732 $11,804
============= =============
Weighted Average Common Shares Outstanding 96,009 81,428
============= =============
Per Share Net Earnings Attributable to Common
Shares $ 0.17 $ 0.14
============= =============
Distributions Per Common Share $0.2675 $0.2525
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-115
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
-----------------
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 25,561 $ 16,477
Minority interest 895 756
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 18,048 13,089
Loss on disposition of real estate - 29
Rent leveling (1,233) (1,118)
Amortization of deferred financing costs 669 704
Increase in accounts receivable and other
assets (5,335) (3,176)
Decrease in accounts payable, accrued
expenses and other liabilities (3,294) (7,911)
------------- -------------
Net cash provided by operating activities 35,311 18,850
------------- -------------
INVESTING ACTIVITIES:
Real estate investments (105,024) (146,560)
Tenant improvements and lease commissions (2,542) (3,425)
Recurring capital expenditures (834) (41)
Proceeds from disposition of real estate 19,440 1,092
------------- -------------
Net cash used in investing activities (88,960) (148,934)
------------- -------------
FINANCING ACTIVITIES:
Net proceeds from sale of shares, exercised
warrants and dividend reinvestment and share
purchase plan 80,558 192,291
Proceeds from long-term debt offering 100,000 -
Debt issuance costs (1,168) (5)
Proceeds from interest rate contracts 1,658 -
Distributions paid to common shareholders (25,159) (19,032)
Distributions paid to minority interest
holders (1,423) (1,329)
Preferred share dividends (8,829) (4,673)
Proceeds from line of credit 27,000 127,000
Payments on line of credit (65,600) (179,500)
Regularly scheduled principal payments on
mortgage notes payable (780) (846)
Balloon principal payments made upon maturity (7,501) -
------------- -------------
Net cash provided by financing activities 98,756 113,906
------------- -------------
Net Increase/(Decrease) in Cash and Cash
Equivalents 45,107 (16,178)
Cash and Cash Equivalents, beginning of period 4,770 22,235
------------- -------------
Cash and Cash Equivalents, end of period $ 49,877 $ 6,057
============= =============
Supplemental Schedule of Noncash Investing and
Financing Activities:
In conjunction with real estate acquired:
Assumption of existing mortgage notes
payable $ - $ 9
Issuance of common shares $ 1,000 $ -
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-116
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
1. GENERAL:
The consolidated financial statements of Security Capital Industrial Trust
("SCI") as of March 31, 1997 are unaudited, and pursuant to the rules of the
Securities and Exchange Commission, certain information and footnote
disclosures normally included in financial statements have been omitted. The
consolidated financial statements for 1996 have been restated to conform to the
1997 presentation. While management of SCI believes that the disclosures
presented are adequate, these interim consolidated financial statements should
be read in conjunction with SCI's December 31, 1996 consolidated financial
statements.
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of SCI's consolidated financial position and
results of operations for the interim periods. The results of operations for
the three month periods ended March 31, 1997 and 1996 are not necessarily
indicative of the results to be expected for the entire year.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. RECENT ACCOUNTING PRONOUNCEMENTS:
In March 1997, the Financial Accounting Standards Board ("FASB") released
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS No. 128"). The new statement is effective December 15, 1997 and will
require restatement of prior years' earnings per share; early adoption is not
permitted. The adoption of SFAS No. 128 will have no material effect on SCI's
reported earnings per share.
The FASB has also released Statement of Financial Accounting Standards No. 129,
"Disclosure of Information about Capital Structure" ("SFAS No. 129"). SCI
already complies with the requirements of the standard which is effective for
periods ending after December 15, 1997.
3. REAL ESTATE:
The following summarizes real estate investments as of March 31, 1997 and
December 31, 1996 (in thousands):
<TABLE>
--------------
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
(UNAUDITED) (AUDITED)
----------- ------------
<S> <C> <C>
Land held for development $ 107,024 $ 109,316
Land under development 46,773 40,465
Improved land 371,919 356,428
Buildings and improvements 1,998,166 1,918,256
Construction in progress 61,587 77,506
Capitalized preacquisition costs 5,407 6,776
---------- ----------
Total real estate 2,590,876 2,508,747
Less accumulated depreciation 124,833 109,147
---------- ----------
Net real estate $2,466,043 $2,399,600
========== ==========
</TABLE>
F-117
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Capitalized preacquisition costs include $2,072,750 and $1,634,000 of funds on
deposit with title companies as of March 31, 1997 and December 31, 1996,
respectively, for property acquisitions.
4. BORROWINGS:
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). Effective on the May 1,
1997 renewal date 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 .95%, based upon SCI's current senior debt ratings. Additionally, there is
a commitment fee ranging from .125% to .20% per annum of the unused line of
credit balance. The line is scheduled to mature in May 1999 and may be extended
annually for an additional year with the approval of NationsBank and the other
participating lenders (the "Bank Group"); 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 $1.25 billion, to maintain interest
payment coverage of not less than 2 to 1, and to maintain a fixed charge
coverage ratio (as defined) of not less than 1.75 to 1. As of March 31, 1997,
SCI was in compliance with all covenants contained in the line of credit, and
as of May 2, 1997, $54.0 million of borrowings were outstanding on the line of
credit.
On March 19, 1997, SCI executed a promissory note (the "Note") with NationsBank
for a short term unsecured borrowing agreement of $15.0 million which matures
October 1, 1997. The rate of interest on each advance (a "Loan") and the
maturity date of each Loan will be determined by agreement between SCI and
NationsBank at the time of such Loan. There were no outstanding borrowings on
this credit line as of May 2, 1997.
Long-Term Debt
<TABLE>
-----------------
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
(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 mature 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 mature
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 14,994 14,993
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 17,451 17,448
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 17,438 17,435
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
commencing May 15, 2002 and mature on May 15, 2009 74,675 74,668
</TABLE>
F-118
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
----------------
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
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 commencing May
15, 1999 and mature on May 15, 2002 $ 49,954 $ 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 commencing May
15, 2005 and mature on May 15, 2008 99,843 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 commencing May 15, 2010 and mature on May
15, 2016 49,857 49,856
7.81% Medium-Term Notes, issued on February 4, 1997 in
an original principal amount of $100,000,000. Interest
is payable February 1 and August 1 of each year. The
Notes are payable in six annual installments ranging
from $10,000,000 to $20,000,000 commencing February 1,
2010 and mature on February 1, 2015 100,000 -
-------- --------
Total long-term debt, net of original issue discount $624,212 $524,191
======== ========
</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. Such notes are governed by
the terms and provisions of an indenture (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 March
31, 1997, SCI was in compliance with all debt covenants contained in the
Indenture.
Mortgage Notes Payable, Assessment Bonds Payable and Securitized Debt
Mortgage notes payable were secured by real estate with an aggregate
undepreciated cost of $158.8 million at March 31, 1997. Assessment bonds
payable were secured by real estate with an aggregate undepreciated cost of
$223.4 million at March 31, 1997. Securitized debt was collateralized by real
estate with an aggregate undepreciated cost of $67.8 million at March 31, 1997.
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, 2002, and thereafter are as follows (in
thousands):
<TABLE>
<S> <C>
Remainder of 1997 $ 9,984
1998 19,782
1999 25,689
2000 38,429
2001 40,686
2002 44,618
2003 and thereafter 577,483
---------
Total principal due 756,671
Less: original issue discount (788)
---------
Total carrying value $755,883
=========
</TABLE>
F-119
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
For the three month periods ended March 31, 1997 and 1996, interest expense on
all borrowings was $11,375,000 and $8,508,000, respectively, which was net of
capitalized interest of $4,594,000 and $3,311,000, respectively. The total
interest paid in cash was $12,299,000 and $13,920,000 for the three month
periods ended March 31, 1997 and 1996, respectively.
5. MINORITY INTEREST:
Minority interest represents limited partners' interests in five real estate
partnerships controlled by SCI (Red Mountain Joint Venture, SCI Limited
Partnership-I, SCI Limited Partnership-II, SCI Limited Partnership-III, and SCI
Limited Partnership-IV). As of March 31, 1997, a total of 5,194,258 limited
partnership units were held by minority interest limited partners in the
various real estate partnerships. Limited partners are entitled to exchange
each partnership unit for one common share of SCI.
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 partnership
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 totaling 3.64% in Partnership-IV. SCI
has contributed additional funds to the partnership in 1996 and 1997 in
conjunction with tax deferred exchanges of real estate which increased SCI's
interest from 96.36% to 96.62%. 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 primarily of income producing, improved real property
primarily 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 SCI IV, Inc. at March 31, 1997.
Partnership-IV had $1.7 million of borrowings from SCI IV, Inc. at March 31,
1997. SCI IV, Inc. had $1.7 million of borrowings from SCI and its affiliates
at March 31, 1997. For financial 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 of beneficial interest in SCI and are entitled to receive preferential
cumulative quarterly distributions per unit equal to the quarterly distribution
in respect of common shares. At March 31, 1997, there were 68,612 limited
partnership units outstanding in Partnership-IV.
6. SHAREHOLDERS' EQUITY:
On March 24, 1997, SCI issued 48,809 common shares in conjunction with an
acquisition of property.
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.
On February 18, 1997, SCI paid a distribution of $0.2675 per common share to
common shareholders of record as of February 4, 1997. On March 31, 1997, SCI
paid a quarterly dividend of $0.5875 per cumulative redeemable Series A
preferred share, $0.4375 per cumulative convertible Series B preferred share
and $1.0675 per cumulative redeemable Series C preferred share to preferred
shareholders of record on March 17, 1997.
On April 15, 1997, SCI declared a distribution of $0.2675 per common share,
payable on May 20, 1997, to common shareholders of record as of May 6, 1997.
7. EARNINGS PER SHARE:
Earnings per share 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 SCI common shares would not have a
F-120
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
material dilutive effect on earnings per share. The conversion of the limited
partnership units (as discussed in Note 5) and the Series B Cumulative
Convertible Redeemable Preferred Shares into common shares is not assumed since
the effect would not be dilutive.
8. SUBSEQUENT EVENTS:
On May 1, 1997, Security Capital Group Incorporated ("Security Capital") filed
a Form S-4 Registration Statement with the Securities and Exchange Commission
containing SCI's preliminary proxy statement and Security Capital's preliminary
prospectus (relating to warrants to purchase Class B common stock of Security
Capital) relating to a proposed merger transaction whereby SCI would acquire
the operations and businesses of its REIT manager and property manager in
exchange for SCI common shares valued at approximately $81.9 million. The
number of SCI common shares issuable to Security Capital will depend on the
average market price of the common shares over the five-day period prior to the
record date, subject to such average not being more than $24.75 or less than
$19.75. As a result of the transaction, SCI would become an internally managed
REIT and Security Capital would remain SCI's largest shareholder (44.1% as of
March 31, 1997). SCI's Board of Trustees recently approved the proposed merger
transaction based on the recommendation of a special committee comprised of
independent Trustees. The proposed merger transaction requires the approval of
a majority of the outstanding common shares. SCI's proxy statement, after
review and clearance by the Securities and Exchange Commission, will be mailed
to SCI's common shareholders prior to a shareholder vote.
On April 24, 1997, SCI Logistics Incorporated, a newly formed corporation,
acquired a 60% interest in a refrigerated warehouse company, renamed CS
Integrated LLC ("CSI"), for $73.4 million. CSI owns 17 refrigerated warehouses
totaling 43.4 million cubic feet. SCI will recognize substantially all economic
benefits from SCI Logistics Incorporated through its preferred stock ownership
in the company. SCI will account for its investment in SCI Logistics
Incorporated on the cost method.
F-121
<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-122
<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-123
<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
$30,469 in 1996, $17,788 in 1995 and
$10,093 in 1994 21,734 17,028 5,908
Property management fees paid to affiliate,
net of recoveries of $3,208 in 1996,
$2,351 in 1995 and $397 in 1994 4,940 1,432 1,336
Depreciation and amortization 59,850 39,767 18,169
Interest expense 38,819 32,005 7,568
REIT management fee paid to affiliate 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-124
<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-125
<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-126
<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-127
<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-128
<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-129
<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. Further, SCI
advances mortgage loans to SCI Development Services to fund acquisition,
development and construction ("AD&C") activity. In accordance with accounting
guidance for AD&C lending, therefore, SCI accounts for these loans as real
estate investments, effectively consolidating the activities of SCI Development
Services. 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-130
<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-131
<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-132
<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-133
<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-134
<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-135
<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-136
<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-137
<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-138
<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-139
<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-140
<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-141
<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-142
<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-143
<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-144
<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-145
<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-146
<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-147
<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-148
<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-149
<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-150
<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-151
<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-152
<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>
Commerce Park
Distribution
Center 4 $ 811 $ 4,597 $ 205 $ 811 $ 4,802 $ 5,613 $ (342)
Eastwood
Distribution
Center 1 (f) 122 690 36 122 726 848 (51)
Joe's Creek
Distribution
Center 3 (f) 242 1,369 174 242 1,543 1,785 (102)
Lakeland
Distribution
Center 1 938 5,313 541 938 5,854 6,792 (498)
Orchid Lake
Industrial
Center 1 41 235 10 41 245 286 (17)
Plant City
Distribution
Center 1 (f) 206 1,169 50 206 1,219 1,425 (86)
Sabal Park
Distribution
Center 1 352 - 3,042 352 3,042 3,394 (26)
Silo Bend
Distribution
Center 4 (f) 2,887 16,358 655 2,887 17,013 19,900 (1,131)
Silo Bend
Industrial
Center 1 (f) 525 2,975 222 525 3,197 3,722 (226)
St. Petersburg
Service Center 1 35 197 21 35 218 253 (15)
Tampa East
Distribution
Center 12 (f) 2,780 15,757 1,337 2,780 17,094 19,874 (1,165)
Tampa East
Industrial
Center 2 (f) 332 1,880 104 332 1,984 2,316 (139)
Tampa West
Distribution
Center 16 (d)(f) 3,341 19,046 1,663 3,400 20,650 24,050 (1,421)
Tampa West
Industrial
Center 4 (f) 700 1,161 3,569 700 4,730 5,430 (119)
Tampa West
Service Center 4 (f) 970 5,501 273 971 5,773 6,744 (405)
Tulsa, Oklahoma
52nd Street
Distribution
Center 1 340 1,924 64 340 1,988 2,328 (141)
70th East
Distribution
Center 1 129 733 131 129 864 993 (54)
East 55th Street
Distribution
Center 1 (f) 210 1,191 28 210 1,219 1,429 (88)
Expressway
Distribution
Center 4 573 3,280 322 573 3,602 4,175 (405)
Henshaw
Distribution
Center 3 500 2,829 70 499 2,900 3,399 (213)
Washington,
D.C./Baltimore
Ardmore
Distribution
Center 3 1,431 8,110 231 1,431 8,341 9,772 (549)
Ardmore
Industrial
Center 2 984 5,581 128 985 5,708 6,693 (381)
Chantilly
Distribution
Center 1 1,650 - 9,352 2,103 8,899 11,002 -
Concorde
Industrial
Center 4 1,538 8,717 319 1,538 9,036 10,574 (470)
De Soto Business
Park 5 (d) 1,774 10,055 978 1,774 11,033 12,807 (170)
Eisenhower
Industrial
Center 3 1,240 7,025 894 1,240 7,919 9,159 (515)
Fleet
Distribution
Center 8 3,198 18,121 430 3,198 18,551 21,749 (558)
Hampton Central
Distribution
Center 1 986 - 3,635 986 3,635 4,621 (59)
Patapsco
Distribution
Center 1 270 1,528 499 270 2,027 2,297 (57)
Sunnyside
Industrial
Center 3 1,541 8,733 947 1,541 9,680 11,221 (618)
Other markets 9 (f) 2,703 16,583 (105) 2,825 16,356 19,181 (748) 1996
--- -------- ---------- -------- -------- ---------- ---------- ---------
Total Operat-
ing Properties 942 $352,574 $1,406,914 $515,196 $356,428 $1,918,256 $2,274,684 $(109,147)
--- -------- ---------- -------- -------- ---------- ---------- ---------
</TABLE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
DATE OF
CONSTRUCTION/
DESCRIPTION ACQUISITION
----------- -------------
<S> <C>
Commerce Park
Distribution
Center 1994
Eastwood
Distribution
Center 1994
Joe's Creek
Distribution
Center 1994
Lakeland
Distribution
Center 1994
Orchid Lake
Industrial
Center 1994
Plant City
Distribution
Center 1994
Sabal Park
Distribution
Center 1996
Silo Bend
Distribution
Center 1994
Silo Bend
Industrial
Center 1994
St. Petersburg
Service Center 1994
Tampa East
Distribution
Center 1994
Tampa East
Industrial
Center 1994
Tampa West
Distribution
Center 1994, 1995
Tampa West
Industrial
Center 1994, 1996
Tampa West
Service Center 1994
Tulsa, Oklahoma
52nd Street
Distribution
Center 1994
70th East
Distribution
Center 1994
East 55th Street
Distribution
Center 1994
Expressway
Distribution
Center 1993
Henshaw
Distribution
Center 1994
Washington,
D.C./Baltimore
Ardmore
Distribution
Center 1994
Ardmore
Industrial
Center 1994
Chantilly
Distribution
Center 1996
Concorde
Industrial
Center 1995
De Soto Business
Park 1996
Eisenhower
Industrial
Center 1994
Fleet
Distribution
Center 1996
Hampton Central
Distribution
Center 1996
Patapsco
Distribution
Center 1995
Sunnyside
Industrial
Center 1994
1991, 1994,
Other markets 1996
Total Operat-
ing Properties
</TABLE>
F-153
<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-154
<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-155
<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-156
<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-157
<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-158
<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-159
<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
(which are substantially consistent with US generally accepted auditing
standards). 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.
Supplementary information included in this annual financial report has been
reviewed in the context of our mandate but has not been subject to specific
audit procedures carried out in accordance with the standards described above.
Consequently, we express no opinion on such information. We have no observation
to make concerning such information in the context of the consolidated
financial statements taken as a whole.
Price Waterhouse Jean-Robert Lentz
Reviseur d'enterprises
Luxembourg, February 28, 1997
F-160
<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-161
<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-162
<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-163
<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-164
<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-165
<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"), an investment company with variable capital. 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, an investment company
with fixed capital, 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-166
<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-167
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--ACCOUNTS RECEIVABLE AND PREPAYMENTS
A. Deferred Costs
The Company expensed formation costs of $1,654,000 in 1996, which should have
been amortized over the useful life of 5 years under US GAAP. Additionally, the
Company expensed line of credit fees of $3.7 million in 1996 related to costs
incurred in connection with arranging USREALTY's $300 million line of credit
while US GAAP would require such costs to be amortized over the term of the
line of credit of 3 years. These departures from US GAAP in these financial
statements are not considered material given that the total effect is
approximately 1% of "Increase in net assets resulting from operations".
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-168
<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-169
<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-170
<PAGE>
SECURITY CAPITAL U.S. REALTY
AUDITOR'S REPORT
To the Shareholders of
SECURITY CAPITAL U.S. REALTY
Luxembourg
We have audited the financial statements, which consist of the statement of net
assets, the statement of operations, the statement of changes in net assets and
the schedule of investments and the notes to the financial statements of
Security Capital U.S. Realty ("USREALTY") for the period ended December 31,
1995. These financial statements are the responsibility of the Board of
Directors of USREALTY. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with International Standards on Auditing
(which are substantially consistent with US 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 the Board of Directors of USREALTY in preparing the financial
statements, 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 attached financial statements described above give, in
conformity with the legal requirements, a true and fair view of the financial
position of USREALTY at December 31, 1995 and the results of its operations and
changes in its net assets for the period then ended.
Supplementary information included in the annual report has been reviewed in
the context of our mandate but has not been subject to specific audit
procedures carried out in accordance with the standards described above.
Consequently, we express no opinion on such information. We have no observation
to make concerning such information in the context of the financial statements
taken as a whole.
Jean-Robert Lentz Price Waterhouse S.A.
Reviseur d'enterprises Reviseur d'entreprises
Luxembourg, March 4, 1996
F-171
<PAGE>
SECURITY CAPITAL U.S. REALTY
STATEMENT OF NET ASSETS AT DECEMBER 31, 1995
(EXPRESSED IN USD)
<TABLE>
<S> <C>
----------
<CAPTION>
ASSETS USD
------ ----------
<S> <C>
Investment in Pacific Retail Trust, at fair value (cost 53,059,324) 53,000,000
Investment in Special Opportunity Investment, at market value (cost
1,594,652) 1,779,688
Cash and cash equivalents 6,960,120
Formation expenses 1,654,407
Other assets, net 5,627
----------
TOTAL ASSETS 63,399,842
----------
<CAPTION>
LIABILITIES
-----------
<S> <C>
Accounts payable and accrued expenses 224,203
Management fee payable 20,925
Income taxes payable 6,680
----------
TOTAL LIABILITIES 251,808
----------
TOTAL NET ASSETS (SHAREHOLDERS' EQUITY) 63,148,034
==========
Net assets are comprised of:
Paid in capital 62,945,730
Undistributed net investment income 76,592
Unrealized appreciation on investments 125,712
----------
63,148,034
----------
Represented by 6,294,573 shares outstanding
Net asset value per share USD 10.03
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-172
<PAGE>
SECURITY CAPITAL U.S. REALTY
STATEMENT OF OPERATIONS FOR THE PERIOD FROM INCORPORATION (JULY 7, 1995) TO
DECEMBER 31, 1995
(EXPRESSED IN USD)
<TABLE>
---
<CAPTION>
USD
---------
<S> <C>
INCOME
Dividends from strategic investments:
Pacific Retail Trust (net of withholding tax of USD 89,040) 504,560
Interest:
Interest income, other 83,682
---------
TOTAL INCOME 588,242
---------
EXPENSES
Management fees 99,374
Custodian fees 7,494
Administrative expenses 7,494
Printing and professional expenses 27,516
Directors fees 16,159
Amortization of formation expenses 147,125
Interest expense on line of credit from Security Capital Group 162,628
Subscription tax 9,471
Other fees 34,389
---------
TOTAL EXPENSES 511,650
=========
Net investment income 76,592
---------
Increase in appreciation on investments 125,712
---------
Increase in net assets resulting from operations 202,304
=========
Per share data
Earnings per share 0.03
Weighted average shares outstanding 6,294,573
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-173
<PAGE>
SECURITY CAPITAL U.S. REALTY
STATEMENT OF CHANGES IN NET ASSETS FOR THE PERIOD FROM
INCORPORATION (JULY 7, 1995) TO DECEMBER 31, 1995
(EXPRESSED IN USD)
<TABLE>
<S> <C>
----------
<CAPTION>
USD
----------
<S> <C>
Net investment income 76,592
Increase in appreciation on investments 125,712
----------
Increase in net assets resulting from operations 202,304
----------
Paid-in subscriptions 62,945,730
----------
Total increase in net assets 63,148,034
----------
Net assets at the beginning of the period 0
Net assets at the end of the period 63,148,034
==========
Net asset value at the end of the period 10.03
==========
STATEMENT OF CHANGES IN SHARES OUTSTANDING FOR THE PERIOD FROM
INCORPORATION (JULY 7, 1995) TO DECEMBER 31, 1995
Number of shares at the beginning of the period 0
Number of shares purchased 6,294,573
----------
Number of shares at the end of the period 6,294,573
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-174
<PAGE>
SECURITY CAPITAL U.S. REALTY
STATEMENT OF FUNDS FROM OPERATIONS FOR THE PERIOD FROM
INCORPORATION (JULY 7, 1995) TO DECEMBER 31, 1995
(EXPRESSED IN USD)
UNAUDITED
------
<TABLE>
<CAPTION>
USD
---------
<S> <C>
INCOME
Equity in Funds from Operations of Strategic Investees:
Pacific Retail Trust 587,034
Interest income 83,682
---------
TOTAL INCOME 670,716
---------
EXPENSES
General and administrative expenses 63,239
Management fees 99,374
Other 485
---------
Total operating expenses 163,098
Interest--Line of credit 162,612
Interest expense--other 16
Taxes 15,504
Withholding tax on dividends 89,040
---------
TOTAL EXPENSES 430,270
=========
Funds from operations 240,446
=========
Per share data
Funds from operations per share 0.04
Weighted average shares outstanding 6,294,573
FINANCIAL HIGHLIGHTS FOR THE PERIOD FROM INCORPORATION (JULY 7, 1995)
TO DECEMBER 31, 1995
(EXPRESSED IN USD)
Selected per share data
Net asset value at the beginning of the period 0.00
Initial subscription 10.00
Net investment income 0.01
Net gain on securities 0.02
---------
Total from investment operations 0.03
---------
Net asset value at the end of the period 10.03
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-175
<PAGE>
SECURITY CAPITAL U.S. REALTY
SCHEDULE OF STRATEGIC INVESTMENTS IN REAL ESTATE COMPANIES AT DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
SECURITY SHARES/UNITS COST FAIR VALUE NET ASSETS
- -------- ------------ ---- ---------- -------------
(SEE NOTE
2)
<S> <C> <C> <C> <C>
PACIFIC 5,300,000 53,059,324 53,000,000 83.93%
RETAIL TRUST
</TABLE>
Total strategic investments in real estate companies: USD 53,000,000
SCHEDULE OF SPECIAL OPPORTUNITY INVESTMENTS AT DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
PROPERTY TYPE SHARES/UNITS COST MARKET VALUE NET ASSETS
- ------------- ------------ ---- ------------ -------------
Companies in which USREALTY owns a 5% or Greater Interest:
<S> <C> <C> <C> <C> <C>
NONE
Companies in which USREALTY owns less than 5% (Grouped by Property Type):
Office 167,500 1,594,652 1,779,688 2.82%
Total special opportunity
investments:USD 1,779,688
</TABLE>
USREALTY will provide the December 31, 1995 list of its investments to
Shareholders, free of charge upon request.
The accompanying notes are an integral part of these financial statements.
F-176
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO THE FINANCIAL STATEMENTS AT DECEMBER 31, 1995
NOTE 1--ORGANIZATION
Security Capital U.S. Realty ("USREALTY") is a Luxembourg real estate
corporation organized as a "Societed'investissement a Capital Variable"
(SICAV). USREALTY was formed on July 7, 1995 for the purpose of owning United
States of America real estate primarily through companies in which it has a
strategic ownership position. USREALTY owns its assets through its wholly-owned
Luxembourg subsidiary, Security Capital Holdings S.A. ("HOLDINGS"). All
accounts of HOLDINGS have been consolidated with US REALTY and all significant
intercompany transactions have been eliminated upon consolidation. References
herein to USREALTY are to the consolidated entity unless noted otherwise.
As of December 31, 1995, $509.50 million of equity capital subscriptions were
received, of which $62.95 million have been called and funded, with the balance
of $446.55 million available for future investments. The Board of Directors may
call these subscriptions at its discretion.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
A. Fair Value Basis of Presentation:
USREALTY accounts for its investments at fair value as management believes 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 as 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.
Under fair value accounting, unrealized gains (or losses) are determined by
comparing fair value of the securities held to the cost of such securities.
Unrealized gains or losses relating to changes in 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 realized. Under current tax laws, USREALTY
investment gains generally are not subject to income taxes.
USREALTY's investments are generally long-term and it does not intend to sell
securities simply to realize gain thereon (other than in the case of special
opportunity investments).
At December 31, 1995, 96.75% of USREALTY's investments were private 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 realizable 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. Interest income
is recorded on the accrual basis. Realized gains and losses on sales of shares
are determined on the identified cost method.
C. Organization Costs:
Costs totalling $1,801,533 associated with the formation of USREALTY and its
initial private placement have been deferred and are being amortized over five
years. These costs exceeded the $1.2 million estimated in USREALTY's private
offering due to an extended offering period and greater than anticipated
documentation costs for consummating the private offering.
F-177
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO FINANCIAL STATEMENTS AT DECEMBER 31, 1995 (CONTINUED)
D. Funds from Operations:
USREALTY has elected to present a Statement of Funds from Operations ("FFO") in
the financial statements. FFO is defined by the Real Estate Investment Trust
("REIT") industry in the USA as net earnings from operations plus certain non-
cash items, principally property depreciation. USREALTY has calculated its FFO
based upon its percentage ownership of its strategic investees' FFO. The
strategic investees compute their FFO on a historical cost basis.
Most REITs utilize this measure, and REIT industry analysts generally consider
FFO to be an appropriate measure of the performance of equity REITs. FFO is not
to be construed as a substitute for "net earnings" in evaluating operating
results nor as a substitute for "cash flow" in evaluating liquidity.
USREALTY also includes dividends and realized capital gains from special
opportunity investments in calculating USREALTY's FFO. Withholding taxes and
other taxes are deducted in calculating FFO, as are all current operating
expenses and amortization of loan costs. Amortization of start-up and initial
offering costs are not deducted in calculating FFO as these do not represent an
ongoing cash cost of conducting USREALTY's business.
NOTE 3--TAXATION
USREALTY, as separate from HOLDINGS, is not liable for any Luxembourg tax on
income. USREALTY is liable in Luxembourg for a tax of 0.06% per annum of its
net asset value. Cash dividends and interest received by USREALTY or HOLDINGS
on their investments may be subject to non-recoverable withholding or other
taxes in the countries of origin which are reflected as withholding taxes in
the statement of operations.
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 REIT investments which meet certain holding period (generally one
calendar year) and size requirements. Substantially all of HOLDINGS's
investments should qualify for the exclusion. Interest accrued on advances from
USREALTY to HOLDINGS are deducted in determining HOLDINGS's taxable income.
Income paid from HOLDINGS to USREALTY is subject to various levels of tax. Cash
(but not accrued) interest payments from HOLDINGS to USREALTY, which were
$178,131, are subject to withholding tax at a rate of 3.75% and totalled $6,680
for 1995. No dividends were paid.
NOTE 4--INVESTMENTS
USREALTY plans to deploy 60-85% of its assets into long-term strategic
ownership positions and 10-25% into intermediate-term special opportunity
ownership positions and 0-10% into Security Capital Group securities.
The 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, 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 characterized
by the potential for a superior market niche and the ultimate potential for
market preeminence with a focused strategy and product.
Special opportunity (less than 10% of the fully diluted stock) positions in US
public REITs and real estate companies have and will take the form of either
direct investments in, or public market purchases of, companies that possess
the requisite fundamentals to generate strong cash flow growth and/or value
appreciation.
Pacific Retail Trust ("PRT"), a privately-held REIT considered a strategic
investment, focuses in its target market on the development, acquisition,
operation and long-term ownership of income-producing retail properties. PRT
F-178
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO FINANCIAL STATEMENTS AT DECEMBER 31, 1995 (CONTINUED)
focuses, in the western United States, specifically on neighborhood shopping
centers with protected infill locations which are anchored by grocery and drug
stores. PRT will remarket and remerchandise its centers to energize the shop
space and grow cash flow. On October 19, 1995, USREALTY invested $53,000,000 at
$10.00 per share in PRT. At December 31, 1995, USREALTY owned 81.2% of PRT's
outstanding voting shares. USREALTY has committed to invest an additional $147
million in PRT at a price of $10 per share. A majority of PRT's directors are
USREALTY nominees.
On November 5, 1995, USREALTY and HOLDINGS signed an agreement to invest $250
million into common stock of Carr Realty Corporation ("Carr") at $21.50 per
share. (Carr stock closed at $24.25 per share on the New York Stock Exchange on
January 31, 1996.) This Company is the largest owner and operator of office
space in the Washington, D.C. market. It changed its name to CarrAmerica Realty
Corporation ("CarrAmerica") and is implementing a national strategy focused on
value-driven suburban office properties which will permit CarrAmerica to
provide the highest level of service to national, regional and local users of
corporate office space in the growth markets of the U.S. USREALTY and HOLDINGS
will make an initial investment of $140 million in April 1996. Coincident with
its initial investment, USREALTY will appoint two nominees to CarrAmerica's
board, with the right to appoint an additional two when the full $250 million
is invested.
USREALTY intends to invest up to a maximum of 10% of its total assets in
securities of Security Capital Group Incorporated ("Security Capital") which,
through wholly-owned subsidiaries, has subscribed for 39% of USREALTY's total
subscribed shares and is the sole shareholder of USREALTY's Advisor. 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 arms-length basis. When and if Security Capital
becomes traded on a recognized securities market. USREALTY may purchase
Security Capital securities from third parties in open-market transactions.
USREALTY's valuation of its investment in Security Capital will take into
account the cross ownership holdings between the companies.
NOTE 5--ADVISORY AGREEMENT
USREALTY has an advisory agreement with Security Capital (EU) Management S.A.
("Advisor"), a wholly-owned subsidiary of Security Capital. The agreement
requires the Advisor to provide USREALTY with advice with respect to the
investment of assets of USREALTY. The Advisor will identify tangible investment
opportunities in US 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 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 Advisor
subcontracts for certain services through its wholly-owned affiliate, Security
Capital (UK) Management Limited, and another Security Capital subsidiary,
Security Capital Investment Research Incorporated. The Advisor is entitled to a
management fee, payable monthly, 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.
NOTE 6--OPERATING EXPENSES
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.
Operating expenses, as defined in the prospectus, will be payable by USREALTY
to the extent that they fall below 0.25% per annum of the average daily value
of long-term investments of USREALTY. Any amounts exceeding 0.25% will be borne
by the Advisor.
F-179
<PAGE>
SECURITY CAPITAL U.S. REALTY
NOTES TO FINANCIAL STATEMENTS AT DECEMBER 31, 1995 (CONTINUED)
NOTE 7--LINE OF CREDIT
USREALTY's wholly-owned subsidiary, HOLDINGS, received preliminary commitment
for a $150 million line of credit from Commerzbank International S.A.
Commerzbank proposes to syndicate the loan to an international bank group with
a view towards increasing the line of credit to $200 million.
The line of credit will bear interest at the annual rate of Libor plus 1.75%
or, at USREALTY's option, at the prime lending rate for major U.S. banks. The
line of credit will be secured by all assets owned by HOLDINGS, which
represents substantially all of USREALTY's assets. USREALTY will guarantee the
loan and secure its guarantee by pledging its stock in HOLDINGS.
In order to fund its initial investment in Pacific Retail Trust prior to
receiving subscription funds, and thereby comply with certain technical
requirements for an exemption from certain U.S. pension fund rules, USREALTY
borrowed $53 million from a subsidiary of Security Capital, which was repaid
upon receipt by USREALTY of its initial subscription amounts. USREALTY paid
interest on this loan (aggregating $162,628) at the prime rate for major U.S.
banks, which was the rate at which Security Capital borrowed the funds which it
loaned to USREALTY.
NOTE 8--CHANGES IN INVESTMENT PORTFOLIO
A detailed schedule of portfolio changes is available free of charge upon
request at the registered office of USREALTY.
F-180
<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-181
<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-182
<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
April 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 for
accredited investors 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 May 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 for accredited investors 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 May
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. Since January 1, 1996, options to purchase 8,645 Class
II-2
<PAGE>
A Shares at an aggregate exercise price of approximately $2,169,740 and
approximately $4,241,400 of 2014 Convertible Debentures (convertible into
approximately 4,055 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) and Regulation D promulgated thereunder.
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 2ND DAY OF
JULY, 1997.
Security Capital Group Incorporated
/s/ Jeffrey A. Klopf*
By: ___________________________________
Jeffrey A. Klopf
Senior Vice President
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 July 2, 1997
____________________________________ Executive Officer
William D. Sanders (Principal Executive
Officer)
/s/ Gerald R. Morgan, Jr.* Principal Financial Officer July 2, 1997
____________________________________
Gerald R. Morgan, Jr.
/s/ Jayson C. Cyr* Principal Accounting Officer July 2, 1997
____________________________________
Jayson C. Cyr
/s/ Samuel W. Bodman* Director July 2, 1997
____________________________________
Samuel W. Bodman
/s/ Hermann Buerger* Director July 2, 1997
____________________________________
Hermann Buerger
/s/ John P. Frazee, Jr.* Director July 2, 1997
____________________________________
John P. Frazee, Jr.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Cyrus F. Freidheim, Jr.* Director July 2, 1997
____________________________________
Cyrus F. Freidheim, Jr.
/s/ H. Laurance Fuller* Director July 2, 1997
____________________________________
H. Laurance Fuller
/s/ Ray L. Hunt* Director July 2, 1997
____________________________________
Ray L. Hunt
/s/ John T. Kelley III* Director July 2, 1997
____________________________________
John T. Kelley III
/s/ Peter S. Willmott* Director July 2, 1997
____________________________________
Peter S. Willmott
</TABLE>
/s/ Jeffrey A. Klopf
*By: ____________________
Jeffrey A. Klopf
Attorney-in-fact
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 (the "ATLANTIC Merger") (incorporated by
reference to Exhibit 2.1 to ATLANTIC's Form 8-K filed March
26, 1997 (File No. 1-12303) (the "ATLANTIC Form 8-K"))
2.2 Merger and Issuance Agreement, dated as of March 24, 1997,
between Security Capital Pacific Trust ("PTR") and Security
Capital (the "PTR Merger") (incorporated by reference to
Exhibit 2.1 to PTR's Form 8-K filed March 26, 1997 (File No.
1-10272) (the "PTR Form 8-K"))
2.3 Merger and Issuance Agreement, dated as of March 24, 1997,
between Security Capital Industrial Trust ("SCI") and
Security Capital (the "SCI Merger") (incorporated by
reference to Exhibit 2.1 to SCI's Form 8-K filed March 26,
1997 (File No. 1-12846) (the "SCI Form 8-K"))
2.4 ATLANTIC Merger Form of Agreement and Plan of Merger
(incorporated by reference to Exhibit 2.4 to Security
Capital's Registration Statement on Form S-4 (File No. 333-
26263) (the "ATLANTIC Form S-4"))
2.5 PTR Merger Form of Agreement and Plan of Merger (incorporated
by reference to Exhibit 2.4 to Security Capital's
Registration Statement on Form S-4 (File No. 333-26267) (the
"PTR Form S-4"))
2.6 SCI Merger Form of Agreement and Plan of Merger (incorporated
by reference to Exhibit 2.4 to Security Capital's
Registration Statement on Form S-4 (File No. 333-26259) (the
"SCI Form S-4"))
2.7 First Amendment dated April 21, 1997 to Merger and Issuance
Agreement between ATLANTIC and Security Capital (incorporated
by reference to Exhibit 2.7 to the ATLANTIC Form S-4)
2.8 First Amendment dated April 21, 1997 to Merger and Issuance
Agreement between PTR and Security Capital (incorporated by
reference to Exhibit 2.9 to the PTR Form S-4)
2.9 First Amendment dated April 21, 1997 to Merger and Issuance
Agreement between SCI and Security Capital (incorporated by
reference to Exhibit 2.11 to the SCI Form S-4)
2.10 Second Amendment dated June 26, 1997 to Merger and Issuance
Agreement between ATLANTIC and Security Capital (incorporated
by reference to Exhibit 2.8 to the ATLANTIC Form S-4)
2.11 Second Amendment dated June 26, 1997 to Merger and Issuance
Agreement between PTR and Security Capital (incorporated by
reference to Exhibit 2.10 to the PTR Form S-4)
2.12 Second Amendment dated June 26, 1997 to Merger and Issuance
Agreement between SCI and Security Capital (incorporated by
reference to Exhibit 2.12 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
4.5 Form of stock certificate for shares of Class B common stock
of Security Capital
4.6* Form of 12% Convertible Subordinated Debentures due June 30,
2014
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENT DESCRIPTION
------- --------------------
<C> <S> <C>
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 Form of Opinion of Mayer, Brown & Platt as to the legality of
the shares being registered (including form of opinion of
Ballard Spahr Andrews & Ingersoll in support thereof)
8 Form of Opinion of Mayer, Brown & Platt as to federal income
tax consequences
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"))
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"))
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENT DESCRIPTION
------- --------------------
<C> <S> <C>
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)
10.21 Advisory Agreement dated July 1, 1997 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 Acquisition Agreement and Plan of Reorganization dated as of
April 24, 1997 among Security Capital, Security Capital BVI
Holdings Incorporated and William D. Sanders
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
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
10.25 Amended and Restated Guaranty, dated as of August 19, 1996,
by Security Capital in favor of Wells Fargo Realty Advisors,
Incorporated
10.26 Form of Indemnification Agreement entered into between
Security Capital and each of its directors and employees (to
be filed by amendment)
10.27 1996 Security Capital Outside Directors Plan
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
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)
10.36 Form of Secured Promissory Note from certain executive
officers to Security Capital
11 Fully Diluted Earnings per Common Share and Common Equivalent
Share
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENT DESCRIPTION
------- --------------------
<C> <S> <C>
15.1 Letter of Arthur Andersen LLP regarding unaudited interim
financial information
15.2 Letter of KPMG Peat Marwick LLP regarding unaudited interim
financial information
21 Subsidiaries of Security Capital
23.1 Consents of Mayer, Brown & Platt (included in the opinions
filed as Exhibits 5 and 8)
23.2 Consent of Ballard Spahr Andrews & Ingersoll (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
27 Financial Data Schedule
</TABLE>
* Previously filed
II-9
<PAGE>
Exhibit 4.4
[FRONT OF CERTIFICATE]
FORMED UNDER THE LAWS SHARES OF CLASS A COMMON STOCK
OF THE STATE OF MARYLAND
NUMBER__________ ____________ SHARES
[LOGO]
THIS CERTIFICATE IS Par Value $0.01
TRANSFERABLE IN BOSTON,
MASS. AND NEW YORK, N.Y. CUSIP 81413P 10 5
SEE REVERSE FOR CERTAIN
RESTRICTIONS AND IMPORTANT
INFORMATION
SECURITY CAPITAL GROUP INCORPORATED
This certifies that
is the owner of
Fully paid and non-assessable shares of the Class A Common Stock (the "Class A
Shares") of Security Capital Group Incorporated, a corporation formed under the
laws of the State of Maryland (the "Corporation"), transferable on the books of
the Corporation by the holder hereof in person or by its duly authorized
Attorney upon the surrender of this Certificate properly endorsed.
The Class A Shares represented by this Certificate are subject to all of
the provisions of the Corporation's Charter and Bylaws as amended from time to
time. This Certificate is not valid unless countersigned by the Transfer Agent
and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signature
of its duly authorized officers.
DATED:
CHAIRMAN
COUNTERSIGNED AND REGISTERED:
THE FIRST NATIONAL BANK OF BOSTON
TRANSFER AGENT AND REGISTRAR
BY (SEAL)
SECRETARY
AUTHORIZED SIGNATURE
<PAGE>
[BACK OF CERTIFICATE]
IMPORTANT NOTICE
----------------
SECURITY CAPITAL GROUP INCORPORATED
THE CHARTER ON FILE AT THE STATE DEPARTMENT OF ASSESSMENTS AND TAXATION OF
MARYLAND SETS FORTH A FULL STATEMENT OF (A) ALL OF THE DESIGNATIONS,
PREFERENCES, CONVERSION AND OTHER RIGHTS, VOTING POWERS, RESTRICTIONS,
LIMITATIONS AS TO DIVIDENDS AND OTHER DISTRIBUTIONS, QUALIFICATIONS, AND TERMS
AND CONDITIONS OF REDEMPTION, AND OTHER RELATIVE RIGHTS OF THE SHARES OF EACH
CLASS OF STOCK AUTHORIZED TO BE ISSUED AND (B) THE AUTHORITY OF THE BOARD OF
DIRECTORS 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 OF PREFERRED STOCK. THE
CORPORATION WILL FURNISH A COPY OF SUCH STATEMENT TO ANY HOLDER OF STOCK WITHOUT
CHARGE ON REQUEST TO THE SECRETARY OF THE CORPORATION AT ITS PRINCIPAL PLACE OF
BUSINESS.
NOTICE OF CONVERSION
Beginning on January 1, 1998, each Class A Share may be converted into
fifty (50) shares of Class B Common Stock of the Corporation, par value $0.01
per share (the "Class B Shares") at the option of the holder. The undersigned
hereby irrevocably exercises the option to convert the Class A Shares
represented by this Certificate or a portion thereof below designated by the
undersigned into Class B Shares, in accordance with the terms of the Class A
Shares, and directs that the Class B Shares issuable and deliverable upon
conversion, together with any check in lieu of fractional shares, and any
Certificate representing any unconverted Class A Shares be issued and delivered
to the undersigned unless, in the case of such Class B Shares or Certificates, a
different name has been indicated below. If Class B Shares or Certificates are
to be issued in the name of a person other than the undersigned, the undersigned
will pay all transfer taxes with respect thereto.
Dated: ____________________________________ ___________________________________
Signature of Holder must conform in
all respects to the name of the
Holder appearing on the face hereof
in every particular without
alteration or enlargement, or any
change whatever.
Number of Class A Shares to be
Converted:
___________________________________________
Signature Guaranteed By:
Fill in for registration of Class B Shares
and/or Certificates if to be issued ___________________________________
otherwise than to Holder:
___________________________________________ ___________________________________
Name (Social Security or Other Taxpayer
Identifying Number of
___________________________________________ Assignee of Class B Shares and/or
Address Certificates)
___________________________________________ ___________________________________
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<PAGE>
TEN COM -- as tenants in UNIF GIFT MIN ACT - _________________________
common (Cust) (Minor)
TEN ENT -- as tenants by under Uniform Gifts
the entireties to Minors Act
JT TEN -- as joint tenants _________________________
with the right (State)
of survivorship UNIF TRF MIN ACT - ________________________
and not as (Cust) (Minor)
tenants in (until age ____) under
common Uniform Transfers to
Minors Act
________________________
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, _________________________________________ hereby sells,
assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE)
__________________________________________________________________________shares
represented by this Certificate, and do hereby irrevocably constitute
and appoint ___________________________________________________________ Attorney
________________________________________________________________________________
to transfer the shares on the books of the Corporation with full power of
substitution in the premises.
Dated _____________________________
____________________________________________________
NOTICE: The signature to this assignment must
correspond with the name as written upon the face of
this Certificate in every particular, without
alteration or enlargement or any change whatever.
THIS CERTIFICATE ALSO REPRESENTS AND ENTITLES THE HOLDER HEREOF TO CERTAIN
PREFERRED SHARE PURCHASE RIGHTS (THE "RIGHTS"), AS SET FORTH IN A RIGHTS
AGREEMENT (THE "RIGHTS AGREEMENT"), DATED AS OF APRIL 21, 1997, BETWEEN SECURITY
CAPITAL GROUP INCORPORATED AND THE FIRST NATIONAL BANK OF BOSTON, AS RIGHTS
AGENT, THE TERMS OF WHICH ARE HEREBY INCORPORATED HEREIN BY REFERENCE AND A COPY
OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF SECURITY CAPITAL GROUP
INCORPORATED. UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS
AGREEMENT, SUCH RIGHTS WILL BE REPRESENTED BY SEPARATE CERTIFICATES AND WILL NO
LONGER BE REPRESENTED BY THIS CERTIFICATE. SECURITY CAPITAL GROUP INCORPORATED
WILL MAIL TO THE HOLDER OF THIS CERTIFICATE A COPY OF THE RIGHTS AGREEMENT
WITHOUT CHARGE UPON RECEIPT OF A WRITTEN REQUEST THEREFOR. UNDER CERTAIN
CIRCUMSTANCES DESCRIBED IN THE RIGHTS AGREEMENT, RIGHTS ISSUED TO OR HELD BY ANY
PERSON WHO IS, WAS, OR BECOMES AN ACQUIRING PERSON OR ANY AFFILIATE OR ASSOCIATE
THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT), WHETHER HELD BY OR
ON BEHALF OF SUCH PERSON OR ANY SUBSEQUENT HOLDER, SHALL BECOME NULL AND VOID.
<PAGE>
Exhibit 4.5
[FRONT OF CERTIFICATE]
FORMED UNDER THE LAWS SHARES OF CLASS B COMMON STOCK
OF THE STATE OF MARYLAND
NUMBER__________ ____________ SHARES
[LOGO]
THIS CERTIFICATE IS Par Value $0.01
TRANSFERABLE IN BOSTON,
MASS. AND NEW YORK, N.Y. CUSIP 81413P 20 4
SEE REVERSE FOR CERTAIN
RESTRICTIONS AND IMPORTANT
INFORMATION
SECURITY CAPITAL GROUP INCORPORATED
This certifies that
is the owner of
Fully paid and non-assessable shares of the Class B Common Stock (the "Class B
Shares") of Security Capital Group Incorporated, a corporation formed under the
laws of the State of Maryland (the "Corporation"), transferable on the books of
the Corporation by the holder hereof in person or by its duly authorized
Attorney upon the surrender of this Certificate properly endorsed.
The Class B Shares represented by this Certificate are subject to all of
the provisions of the Corporation's Charter and Bylaws as amended from time to
time. This Certificate is not valid unless countersigned by the Transfer Agent
and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signature
of its duly authorized officers.
DATED:
CHAIRMAN
COUNTERSIGNED AND REGISTERED:
THE FIRST NATIONAL BANK OF BOSTON,
TRANSFER AGENT AND REGISTRAR
BY (SEAL)
SECRETARY
AUTHORIZED SIGNATURE
<PAGE>
[BACK OF CERTIFICATE]
IMPORTANT NOTICE
----------------
SECURITY CAPITAL GROUP INCORPORATED
THE CHARTER ON FILE AT THE STATE DEPARTMENT OF ASSESSMENTS AND TAXATION OF
MARYLAND SETS FORTH A FULL STATEMENT OF (A) ALL OF THE DESIGNATIONS,
PREFERENCES, CONVERSION AND OTHER RIGHTS, VOTING POWERS, RESTRICTIONS,
LIMITATIONS AS TO DIVIDENDS AND OTHER DISTRIBUTIONS, QUALIFICATIONS, AND TERMS
AND CONDITIONS OF REDEMPTION, AND OTHER RELATIVE RIGHTS OF THE SHARES OF EACH
CLASS OF STOCK AUTHORIZED TO BE ISSUED AND (B) THE AUTHORITY OF THE BOARD OF
DIRECTORS 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 OF PREFERRED STOCK. THE
CORPORATION WILL FURNISH A COPY OF SUCH STATEMENT TO ANY HOLDER OF STOCK WITHOUT
CHARGE ON REQUEST TO THE SECRETARY OF THE CORPORATION AT ITS PRINCIPAL PLACE OF
BUSINESS.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in UNIF GIFT MIN ACT - _________________________
common (Cust) (Minor)
TEN ENT -- as tenants by under Uniform Gifts
the entireties to Minors Act
JT TEN -- as joint tenants _________________________
with the right (State)
of survivorship UNIF TRF MIN ACT - ________________________
and not as (Cust) (Minor)
tenants in (until age ____) under
common Uniform Transfers to
Minors Act
________________________
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, _________________________________________ hereby sells,
assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
____________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE)
________________________________________________________________________shares
represented by this Certificate, and do hereby irrevocably constitute
and appoint___________________________________________________________Attorney
________________________________________________________________________________
to transfer the shares on the books of the Corporation with full power of
substitution in the premises.
Dated _____________________________
_________________________________________________________
NOTICE: The signature to this assignment must
correspond with the name as written upon the face of
this Certificate in every particular, without
alteration or enlargement or any change whatever.
THIS CERTIFICATE ALSO REPRESENTS AND ENTITLES THE HOLDER HEREOF TO CERTAIN
PREFERRED SHARE PURCHASE RIGHTS (THE "RIGHTS"), AS SET FORTH IN A RIGHTS
AGREEMENT (THE "RIGHTS AGREEMENT"), DATED AS OF APRIL 21, 1997, BETWEEN SECURITY
CAPITAL GROUP INCORPORATED AND THE FIRST NATIONAL BANK OF BOSTON, AS RIGHTS
AGENT, THE TERMS OF WHICH ARE HEREBY INCORPORATED HEREIN BY REFERENCE AND A COPY
OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF SECURITY CAPITAL GROUP
INCORPORATED. UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS
AGREEMENT, SUCH RIGHTS WILL BE REPRESENTED BY SEPARATE CERTIFICATES AND WILL NO
LONGER BE REPRESENTED BY THIS CERTIFICATE. SECURITY CAPITAL GROUP INCORPORATED
WILL MAIL TO THE HOLDER OF THIS CERTIFICATE A COPY OF THE RIGHTS AGREEMENT
WITHOUT CHARGE UPON RECEIPT OF A WRITTEN REQUEST THEREFOR. UNDER CERTAIN
CIRCUMSTANCES DESCRIBED IN THE RIGHTS AGREEMENT, RIGHTS ISSUED TO OR HELD BY ANY
PERSON WHO IS, WAS, OR BECOMES AN ACQUIRING PERSON OR ANY AFFILIATE OR ASSOCIATE
THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT), WHETHER HELD BY OR
ON BEHALF OF SUCH PERSON OR ANY SUBSEQUENT HOLDER, SHALL BECOME NULL AND VOID.
<PAGE>
Exhibit 5
[LETTERHEAD]
June __, 1997
Security Capital Group Incorporated
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Re: Registration Statement on Form S-1
(Registration No. 333-26037)
Ladies and Gentlemen:
We have acted as counsel to Security Capital Group Incorporated, a Maryland
corporation ("Security Capital"), in connection with its proposed offering of
shares of Class B common stock, par value $.01 per share (the "Class B Shares"),
and the related Preferred Share Purchase Rights, as more fully set forth in the
registration statement on Form S-1 (the "Registration Statement") relating to
the Class B Shares.
As counsel to Security Capital, we have examined originals or copies
certified to our satisfaction of Security Capital's Articles of Amendment and
Restatement, Security Capital's Amended and Restated Bylaws, resolutions of
Security Capital's Board of Directors and such records, certificates and other
documents and such questions of law as we considered necessary or appropriate
for the purpose of this opinion. As to certain facts material to our opinion, we
have relied, to the extent we deem such reliance proper, upon certificates of
public officials and officers of Security Capital. In rendering such opinion, we
have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity to authentic original
documents of all documents submitted to us as certified, confirmed or
photostatic copies.
Based upon and subject to the foregoing and to the assumptions, limitations
and qualifications referred to herein, we are of the opinion that the Class B
Shares, when sold and delivered against payment therefor and in the manner
described in the Registration Statement, will be validly issued, fully paid and
nonassessable.
Insofar as the foregoing opinion involves matters governed by Maryland law,
we have relied, with your approval, upon the opinion of the law firm of Ballard
Spahr Andrews & Ingersoll,
<PAGE>
Security Capital Group Incorporated
June __, 1997
Page 2
a copy of which is attached as Exhibit A, and our opinion is subject to the
assumptions, limitations and qualifications set forth therein.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to us under the caption "Legal Matters."
We are admitted to practice law in the State of Illinois and we express no
opinions as to matters under or involving any laws other than the laws of the
State of Illinois and the federal laws of the United States of America.
Very truly yours,
MAYER, BROWN & PLATT
<PAGE>
D R A F T
[BSAI LETTERHEAD]
File Number
874604
July ___, 1997
Security Capital Group Incorporated
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Re: Registration Statement on Form S-1
----------------------------------
Ladies and Gentlemen:
We have served as Maryland counsel to Security Capital Group Incorporated,
a Maryland corporation (the "Company"), in connection with certain matters of
Maryland law arising out of the offering of up to ___________ shares (the
"Shares") of Class B Common Stock, $.01 par value per share (the "Common
Stock"), of the Company covered by the above-referenced Registration Statement
(the "Registration Statement"), filed by the Company with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "1933 Act"). Unless otherwise defined herein, capitalized terms
used herein shall have the meanings assigned to them in the Registration
Statement.
In connection with our representation of the Company, and as a basis for
the opinion hereinafter set forth, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of the following
documents (hereinafter collectively referred to as the "Documents"):
1. The Registration Statement and the related form of prospectus included
therein in the form in which it was transmitted to the Commission under the 1933
Act;
2. The charter of the Company (the "Charter"), certified as of a recent
date by the State Department of Assessments and Taxation of Maryland (the
"SDAT");
<PAGE>
Security Capital Group Incorporated
July ____, 1997
Page 2
3. The Bylaws of the Company, certified as of a recent date by its
Secretary;
4. Resolutions adopted by the Board of Directors of the Company (the
"Board") or a duly authorized committee thereof, relating to the sale, issuance
and registration of the Shares, certified as of a recent date by the Secretary
of the Company (the "Resolutions");
5. A certificate of the SDAT as to the good standing of the Company,
dated as of a recent date; and
6. A certificate executed by the Secretary of the Company, dated as of a
recent date; and
7. Such other documents and matters as we have deemed necessary or
appropriate to express the opinion set forth in this letter, subject to the
assumptions, limitations and qualifications stated herein.
In expressing the opinion set forth below, we have assumed, and so far as
is known to us there are no facts inconsistent with, the following:
1. Each of the parties (other than the Company) executing any of the
Documents has duly and validly executed and delivered each of the Documents to
which such party is a signatory, and such party's obligations set forth therein
are legal, valid and binding.
2. Each individual executing any of the Documents on behalf of a party
(other than the Company) is duly authorized to do so.
3. Each individual executing any of the Documents, whether on behalf of
such individual or another person, is legally competent to do so.
4. All Documents submitted to us as originals are authentic. All
Documents submitted to us as certified or photostatic copies conform to the
original documents. All signatures on all such Documents are genuine. All public
records reviewed or relied upon by us or on our behalf are true and complete.
All statements and information contained in the Documents are true and complete.
There are no modifications of or amendments to the Documents, and there has been
no waiver of any of the provisions of the Documents, by actions or omission of
the parties or otherwise.
<PAGE>
Security Capital Group Incorporated
July ____, 1997
Page 2
5. The Shares will not be issued or transferred in violation of any
restriction or limitation contained in the Charter.
The phrase "known to us" is limited to the actual knowledge, without
independent inquiry, of the lawyers at our firm who have performed legal
services in connection with the issuance of this opinion.
Based upon the foregoing, and subject to the assumptions, limitations and
qualifications stated herein, it is our opinion that:
1. The Company is a corporation duly incorporated and existing under and
by virtue of the laws of the State of Maryland and is in good standing with the
SDAT.
2. The Shares have been duly authorized and, when and if delivered
against payment therefor in accordance with the Resolutions and any other
resolutions of the Board of Directors, or a duly authorized committee of the
Board of Directors, authorizing their issuance, the Shares will be duly and
validly issued, fully paid and nonassessable.
The foregoing opinion is limited to the laws of the State of Maryland and
we do not express any opinion herein concerning any other law. The opinion
expressed herein is subject to the effect of judicial decisions which may permit
the introduction of parol evidence to modify the terms or the interpretation of
agreements. We express no opinion as to compliance with the securities (or "blue
sky") laws of the State of Maryland.
We assume no obligation to supplement this opinion if any applicable law
changes after the date hereof or if we become aware of any fact that might
change the opinion expressed herein after the date hereof.
This opinion is being furnished to you solely for your use and,
accordingly, may not be relied upon by, quoted in any manner to, or delivered to
any other person or entity without, in each instance, our prior written consent.
Very truly yours,
<PAGE>
Exhibit 8
[Form of Exhibit 8 Tax Opinion]
__________ __, 1997
Security Capital Group Incorporated
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Re: Security Capital Group Incorporated Class B Common Stock
Dear Ladies and Gentlemen:
We have acted as counsel to Security Capital Group Incorporated ("Security
Capital") in connection with the public offering of Class B Common Stock, par
value $.01. You have requested that we provide an opinion regarding the
accuracy of the tax disclosure in the prospectus (the "Prospectus") included as
part of the registration statement (the "Registration Statement") on Form S-1,
file no. 333-26037.
In providing this opinion, we have relied on (i) the description of the
transaction as set forth in the Prospectus included as part of the Registration
Statement and the exhibits thereto and (ii) representations provided by Security
Capital concerning certain facts underlying and relating to the composition of
its assets.
Based upon and subject to the foregoing, it is our opinion that the summary
of Federal income tax consequences set forth in the Prospectus under the heading
"Certain United States Federal Tax Considerations for Non-U.S. Holders of Class
B Shares" is accurate in all material respects as to matters of law and legal
conclusions.
This opinion is based on current provisions of the Internal Revenue Code of
1986, as amended (the "Code"), the Treasury regulations promulgated thereunder,
and the interpretation of the Code and such regulations by the courts and the
Internal Revenue Service, as they are in effect and exist at the date of this
opinion. It should be noted that statutes, regulations, judicial decisions and
administrative interpretations are subject to change at any time and, in some
circumstances, with retroactive effect. A material change that is made after
the date hereof in any of the foregoing bases for our opinion could adversely
affect our conclusion.
<PAGE>
Security Capital Group Incorporated
Page -2-
_________ __, 1997
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to all references to this firm under the heading
"Certain United States Federal Tax Considerations for Non-U.S. Holders of Class
B Shares" in the Prospectus.
Sincerely,
MAYER, BROWN & PLATT
WAL/TCS
<PAGE>
Exhibit 10.22
ACQUISITION AGREEMENT AND PLAN OF REORGANIZATION
Acquisition Agreement and Plan of Reorganization (the "Agreement") dated as
of April 24, 1997 among Security Capital Group Incorporated, a Maryland
corporation ("Security Capital"), Security Capital BVI Holdings Incorporated, a
Maryland corporation and wholly-owned subsidiary of Security Capital
("Holdings"), and William D. Sanders ("Shareholder"), being the sole shareholder
of SCGPB Incorporated, a British Virgin Islands corporation ("SCGPB").
WHEREAS, SCGPB owns as its only assets the options and warrants to acquire
Class A common stock, $.01 par value per share, of Security Capital ("Class A
Common Stock") and debentures of Security Capital specifically set forth in
Exhibit I hereto (the "Instruments");
WHEREAS, Security Capital desires to obtain indirect ownership of the
Instruments in order to avoid the substantial interest expense which it would
incur if the warrants to obtain debentures were exercised by a party other than
an entity owned by Security Capital and the debentures remained outstanding
according to their terms;
WHEREAS, Security Capital believes that it would be advantageous to the
proposed public offering of Class B Common Stock, $.01 par value per share, of
Security Capital ("Class B Common Stock") if the Instruments were held by an
entity owned by Security Capital, and, therefore would not be considered an
overhang in the public market;
WHEREAS, Security Capital further believes that it would be advantageous to
the proposed offering of Class B Common Stock if Shareholder owned directly
additional shares of Class A Common Stock.
WHEREAS, Security Capital has formed Holdings as a wholly-owned subsidiary
solely for purposes of the transactions described herein;
WHEREAS, Shareholder will transfer all of the issued and outstanding stock
of SCGPB to Holdings in exchange for Class A Common Stock in a transaction
intended to qualify as a reorganization within the meaning of Section
368(a)(1)(B) of the Internal Revenue Code of 1986, as amended;
NOW, THEREFORE, Security Capital, Holdings and Shareholder adopt this plan
of reorganization and agree as follows:
<PAGE>
1. EXCHANGE OF STOCK
1.1 Number of Shares. Shareholder agrees to transfer to Holdings at the
Closing one share of common stock of SCGPB, $1.00 par value, representing all of
the issued and outstanding stock of SCGPB (the "SCGPB Share") in exchange for an
aggregate of 19,938 shares of Class A Common Stock (the "Security Capital
Shares") to be issued at the Closing to the Shareholder.
2. CLOSING AND DELIVERIES
2.1 Time and Place of Closing. The Closing of the transaction
contemplated by this Agreement shall be held at Sanders Partners Incorporated,
7777 Market Center Avenue, El Paso, Texas 79912, on May 5,1997, unless another
place or time is agreed upon in writing by the parties.
2.2 Delivery of Certificates by Shareholder. The transfer of the SCGPB
Share by the Shareholder shall be effected by the delivery to Holdings at the
Closing of the certificate representing the SCGPB Share endorsed in blank or
accompanied by stock powers executed in blank, and with all necessary transfer
tax and other revenue stamps, acquired at the Shareholder's expense, affixed.
2.3 Delivery of Certificates by Security Capital. Security Capital shall
deliver to Shareholder at Closing certificate(s) representing the number of
shares of Class A Common Stock set forth in Section 1.1.
2.4 Books and Records. The Shareholder shall cause SCGPB to deliver to
Security Capital all books and records of SCGPB, including minute books, stock
transfer records and true and correct copies of the articles of incorporation
and by-laws, including any and all amendments thereto.
2.5 Resignations. There shall be delivered to Security Capital the signed
resignations of all directors of SCGPB, dated as of the Closing, as soon as
reasonably practical following the Closing Date.
2.6 Officers' Certificate. Security Capital shall deliver to the
Shareholder certificates signed by the Managing Director and Secretary of
Security Capital and Holdings, dated as of the Closing, each certifying (1) to
the authenticity of the articles of incorporation and by-laws, as applicable and
(2) that resolutions have been signed by the respective boards of directors
authorizing the entering into of this Agreement and the transactions
contemplated hereby.
<PAGE>
2.7 Further Assurances. At the Closing and from time to time thereafter,
the Shareholder shall execute such additional instruments and take such other
action as Security Capital or Holdings may request in order more effectively to
sell, transfer, and assign the transferred stock to Holdings and to confirm
Holdings' title thereto.
3. REPRESENTATIONS AND COVENANTS OF THE SHAREHOLDER
The Shareholder represents and warrants to Security Capital as follows:
3.1 Corporate Status. SCGPB is a corporation duly organized, validly
existing, and in good standing under the laws of the British Virgin Islands.
3.2 Binding Obligation; No Conflicts. The execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby, have been duly authorized by all necessary actions of the
Shareholder and this Agreement has been duly executed and delivered by the
Shareholder and is a valid and binding obligation of the Shareholder,
enforceable in accordance with its terms. Neither the execution and delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will (i) conflict with or violate any provision of SCGPB's articles of
incorporation or by-laws, or any federal, state or local law, statute,
ordinance, rule, regulation, decree or order of any administrative or judicial
tribunal or governmental body (including those of the British Virgin Islands);
or (ii) violate any legally protected right of any individual or entity or give
to any individual or entity, other than Security Capital, a right or claim
against the Shareholder or the Instruments.
3.3 Capitalization. The authorized capital stock of SCGPB consists of one
share of capital stock, having a par value of $1.00 per share. That share is
issued and outstanding, and is fully paid and nonassessable.
3.4 Sole Shareholder. The Shareholder owns the SCGPB Share, free and
clear of any liens and encumbrances, and there are no other persons or entities
who have any right, title or interest in the SCGPB Share.
3.5 Assets. The sole assets and property of SCGPB consist of the
Instruments and SCGPB has no other right, title or interest in any property or
assets, real or personal and engages in no business other than the ownership of
the Instruments.
3.6 Undisclosed Liabilities. SCGPB had no liabilities of any nature.
<PAGE>
3.7 Title to Property. SCGPB has good and marketable title to the
Instruments and the Instruments are subject to no mortgage, pledge, lien, or
encumbrance.
3.8 Employees. SCGPB has no employees.
3.9 Taxes. SCGPB has timely filed all tax returns and reports required to
be filed by it and has paid in full all taxes and other charges which have
accrued or become due.
3.10 Investment Intent. The Shareholder is acquiring the Security Capital
Shares to be transferred to him pursuant to this Agreement for investment only
and not with a view to the sale or distribution thereof, and the Shareholder has
no commitment or present intention to sell or otherwise dispose of the Security
Capital Shares.
3.11 Exercise of Instruments. Neither Shareholder nor SCGPB has undertaken
any actions to exercise any of the Instruments pursuant to their terms.
4. REPRESENTATIONS AND WARRANTIES OF SECURITY CAPITAL
Security Capital represents and warrants to, and covenants with, the
Shareholder as follows:
4.1 Corporate Status. Security Capital and Holdings are corporations duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of their respective incorporations.
4.2 Due Authorization. Execution of this Agreement and performance by
Security Capital and Holdings hereunder has been duly authorized by all
requisite corporate action on the part of Security Capital and Holdings, and
this Agreement constitutes a valid and binding obligation of Security Capital
and Holdings; performance hereunder will not violate any provision of Security
Capital or Holdings' articles of incorporation, by-laws, loan agreements, or
other material commitments.
4.3 Capitalization. The authorized capital stock of Security Capital
consists of 20,000,000 shares of Class A Common Stock, having a par value of
$.01 per share, of which 1,301,014 shares are issued and outstanding, all fully
paid and nonassessable, and 229,861,000 shares of Class B Common Stock, having a
par value of $.01 per share, of which no shares are issued and outstanding. In
addition, the authorized capital stock of Security Capital consists of 139,000
preferred shares, having a par value of $.01 per share, of which 139,000
preferred shares are issued and outstanding, all fully paid and nonassessable.
<PAGE>
4.4 Financial Statements. The audited financial statements of Security
Capital furnished to Shareholder, consisting of balance sheets as of December
31, 1996, and related statements of income for the periods then ended, and the
unaudited balance sheet as of December 31, 1996 ("Security Capital's Latest
Balance Sheet"), and the related statement of income, are correct and fairly
present the financial condition of Security Capital as of the dates and for the
periods involved, and such statements were prepared in accordance with generally
accepted accounting principles consistently applied.
4.5 Undisclosed Liabilities. Security Capital had no liabilities of any
nature except to the extent reflected or reserved against in Security Capital's
Latest Balance Sheet, whether accrued, absolute, contingent, or otherwise,
including, without limitation, tax liabilities and interest due or to become
due.
4.6 Interim Changes. Between the date of Security Capital's Latest
Balance Sheet and the date of this Agreement, there have not been (1) any
material changes in Security Capital's financial condition, assets, liabilities,
or business which, in the aggregate, have been materially adverse; or (2) any
material damage, destruction, or loss of or to Security Capital's property,
whether or not covered by insurance.
4.7 Validity of Security Capital Shares. Upon issuance of the Security
Capital Shares at closing, the Security Capital Shares shall be validly issued,
fully paid and non-assessable.
4.8 Litigation. There is no material litigation or proceeding pending, or
to Security Capital's knowledge threatened, against or relating to Security
Capital, its properties or business.
4.9 Investment Intent. Holdings is acquiring the SCGPB Share for
investment and not with a view to the sale or distribution thereof, and Holdings
has no commitment or present intention to liquidate SCGPB or to sell or
otherwise dispose of its SCGPB Share.
4.10 Corporate Authority. Security Capital and Holdings have full
corporate power and authority to enter into this Agreement and to carry out
their obligations hereunder, and will deliver to the Shareholder at the Closing
a certified copy of resolutions of their respective boards of directors
authorizing execution of this Agreement by their officers and performance
thereunder.
4.11 Formation of Holdings. Holdings has been formed for purposes of
consummating the transactions contemplated herein and
<PAGE>
has no liabilities and no assets, except for cash contributed by Security
Capital to Holdings upon its formation.
5. INDEMNIFICATION
5.1 Indemnification of Security Capital. The Shareholder agrees to
indemnify Security Capital against any loss, damage, or expense (including
reasonable attorney fees, interest and penalties) suffered by Security Capital
from (1) any breach by the Shareholder of this Agreement, (2) any inaccuracy in
or breach of any of the representations, warranties, or covenants by the
Shareholder herein, and (3) any withholding or transfer tax obligation resulting
from the issuance of the Security Capital Shares pursuant to the transactions
contemplated herein; provided, however, that Security Capital shall give notice
of any claims hereunder within twenty-four months beginning on the date of the
Closing, except for any tax claims notices which shall be given within 90 days
after the close of the applicable statute of limitations. No loss, damage, or
expense shall be deemed to have been sustained by Security Capital to the extent
of insurance proceeds paid to, or tax benefits realizable by, Security Capital
or SCGPB as a result of the event giving rise to such right to indemnification.
5.2 Indemnification of Shareholder. Security Capital agrees to indemnify
the Shareholder against any loss, damage, or expense (including reasonable
attorney fees interest and penalties) suffered by the Shareholder from (1) any
breach by Security Capital of this Agreement or (2) any inaccuracy in or breach
of any of Security Capital's representations, warranties, or covenants herein;
provided, however, that Shareholder shall give notice of any claims hereunder
within twenty-four months beginning on the date of the Closing. No loss, damage,
or expense shall be deemed to have been sustained by Shareholder to the extent
of insurance proceeds paid to, or tax benefits realizable by, Shareholder as a
result of the event giving rise to such right to indemnification.
5.3 Defense of Claims. Upon obtaining knowledge thereof, the indemnified
party shall promptly notify the indemnifying party of any claim which has given
or could give rise to a right of indemnification under this Agreement. If the
right of indemnification relates to a claim asserted by a third party against
the indemnified party, the indemnifying party shall have the right to employ
counsel acceptable to the indemnified party to cooperate in the defense of any
such claim. As long as the indemnifying party is defending any such claim in
good faith, the indemnified party will not settle such claim. If the
indemnifying party does not elect to defend any such claim, the indemnified
party shall have no obligation to do so.
<PAGE>
6. GENERAL PROVISIONS
6.1 Amendment. This Agreement may be amended, modified or supplemented
but only in writing signed by each of the parties hereto.
6.2 Notices. Any notice, request, instruction or other document to be
given hereunder by a party hereto shall be in writing and shall be deemed to
have been given, (a) when received if given in person or by courier or a courier
service, (b) on the date of transmission if sent by telex, facsimile or other
wire transmission or (c) three business days after being deposited in the U.S.
mail, certified or registered mail, postage prepaid:
6.2.1 If to Security Capital, addressed as follows:
Security Capital Group Incorporated
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Attention: Jeffrey A. Klopf
Facsimile No.: (505) 988-8920
with a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attention: Edward J. Schneidman
Facsimile No.: (312) 701-7711
6.2.2 If to Shareholder, addressed as follows:
William D. Sanders
Sanders Partners Incorporated
7777 Market Center Avenue
El Paso, TX 79912
with a copy to:
Barry A. Kobren
Sanders Partners Incorporated
7777 Market Center Avenue
El Paso, TX 79912
or to such other individual or address as a party hereto may designate for
itself by notice given as herein provided.
6.3 Tax Elections. The parties will cooperate and use their best efforts
to effectuate the filing on a timely basis of any tax elections reasonably
requested by any party.
<PAGE>
6.4 Waivers. The failure of a party hereto at any time or times to
require performance of any provision hereof shall in no manner affect its right
at a later time to enforce the same. No waiver by a party of any condition or of
any breach of any term, covenant, representation or warranty contained in this
Agreement shall be effective unless in writing, and no waiver in any one or more
instances shall be deemed to be a further or continuing waiver of any such
condition or breach in other instances or a waiver of any other condition or
breach of any other term, covenant, representation or warranty.
6.5 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
6.6 Interpretation. The headings preceding the text of articles and
sections included in this Agreement and the headings to schedules attached to
this Agreement are for convenience only and shall not be deemed part of this
Agreement or be given any effect in interpreting this Agreement.
6.7 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO THE PRINCIPLES
OF CONFLICTS OF LAWS.
6.8 Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
6.9 No Third Party Beneficiaries. This Agreement is solely for the
benefit of the parties hereto and no provision of this Agreement shall be deemed
to confer upon other third parties any remedy, claim, liability, reimbursement,
cause of action or other right.
6.10 Severability. If any provision of this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality or enforceability of
the other provisions hereof shall not be affected thereby, and there shall be
deemed substituted for the provision at issue a valid, legal and enforceable
provision as similar as possible to the provision at issue.
6.11 Entire Understanding. This Agreement sets forth the entire agreement
and understanding of the parties hereto with respect to the matters set forth
herein and supersedes any and all prior agreements, arrangements and
understandings among the parties.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
date and year first above written.
SECURITY CAPITAL GROUP INCORPORATED
By:________________________________
Name: C. Ronald Blankenship
Title: Managing Director
SECURITY CAPITAL BVI HOLDINGS
INCORPORATED
By:________________________________
Name: Jeffrey D. Klopf
Title: Secretary
WILLIAM D. SANDERS
___________________________________
<PAGE>
Exhibit 10.23
EXECUTION COPY
AMENDED AND RESTATED CREDIT AGREEMENT
dated as of
August 19, 1996
among
SC REALTY INCORPORATED,
as Borrower
THE FINANCIAL INSTITUTIONS PARTY HERETO AND THEIR ASSIGNEES
UNDER SECTION 9.8. HEREOF,
as Lenders
and
WELLS FARGO REALTY ADVISORS FUNDING, INCORPORATED,
as Agent
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I. DEFINITIONS..................................................... 1
SECTION 1.1. Definitions.............................................. 1
SECTION 1.2. Accounting Terms and Determinations; Time References..... 17
SECTION 1.3. Subsidiaries............................................. 17
SECTION 1.4. Interpretation Generally................................. 17
ARTICLE II. CREDIT FACILITY................................................ 18
SECTION 2.1. Making of Revolving Loans................................ 18
SECTION 2.2. Requests for Revolving Loans............................. 18
SECTION 2.3. Funding.................................................. 19
SECTION 2.4. Continuation............................................. 19
SECTION 2.5. Conversion............................................... 20
SECTION 2.6. Interest Rate............................................ 20
SECTION 2.7. Special Provisions for LIBOR Loans....................... 20
SECTION 2.8. Capital Adequacy......................................... 23
SECTION 2.9. Repayment of Loans....................................... 23
SECTION 2.10. Voluntary Reductions of the Revolving Commitment........ 25
SECTION 2.11. Extension of Revolving Credit Termination Date.......... 25
SECTION 2.12. Term Loan Conversion.................................... 27
SECTION 2.13. Notes................................................... 27
ARTICLE III. GENERAL LOAN PROVISIONS....................................... 27
SECTION 3.1. Fees..................................................... 27
SECTION 3.2. Computation of Interest and Fees......................... 28
SECTION 3.3. Pro Rata Treatment....................................... 28
SECTION 3.4. Sharing of Payments, Etc................................. 28
SECTION 3.5. Defaulting Lenders....................................... 29
SECTION 3.6. Purchase of Defaulting Lender's Pro Rata Share........... 30
SECTION 3.7. Usury.................................................... 30
SECTION 3.8. Agreement Regarding Interest and Charges................. 31
SECTION 3.9. Statements of Account.................................... 31
SECTION 3.10. Agent's Reliance........................................ 31
SECTION 3.11. Liens on Collateral..................................... 31
SECTION 3.12. Option to Replace Lenders............................... 32
SECTION 3.13. Foreign Lenders......................................... 32
ARTICLE IV. CONDITIONS..................................................... 33
SECTION 4.1. Effectiveness............................................ 33
SECTION 4.2. Revolving Loans.......................................... 34
SECTION 4.3. Conditions to Conversion to Term Loan.................... 35
SECTION 4.4. Conditions as Covenants.................................. 35
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE V. REPRESENTATIONS AND WARRANTIES................................. 36
SECTION 5.1. Existence and Power..................................... 36
SECTION 5.2. Ownership Structure..................................... 36
SECTION 5.3. Authorization of Agreement, Notes, Loan
Documents and Borrowings......................................... 36
SECTION 5.4. Compliance of Agreement, Notes, Loan
Documents and Borrowing with Laws, etc........................... 36
SECTION 5.5. Compliance with Law; Governmental Approvals............. 37
SECTION 5.6. Indebtedness and Guarantees............................. 37
SECTION 5.7. Transactions with Affiliates............................ 37
SECTION 5.8. Absence of Defaults..................................... 37
SECTION 5.9. Financial Information................................... 37
SECTION 5.10. Litigation............................................. 38
SECTION 5.11. ERISA.................................................. 38
SECTION 5.12. Environmental Matters.................................. 38
SECTION 5.13. Taxes.................................................. 38
SECTION 5.14. Other Related Companies................................ 39
SECTION 5.15. Not an Investment Company.............................. 39
SECTION 5.16. Full Disclosure........................................ 39
SECTION 5.17. Insurance.............................................. 39
SECTION 5.18. Not Plan Assets........................................ 39
SECTION 5.19. Sole Shareholder....................................... 39
SECTION 5.20. Liens.................................................. 40
SECTION 5.21. Pledged Shares......................................... 40
SECTION 5.22. Assets................................................. 40
SECTION 5.23. Business Purposes and Objects.......................... 40
SECTION 5.24. Separateness Representations........................... 41
SECTION 5.25. Solvency............................................... 41
ARTICLE VI. COVENANTS..................................................... 41
SECTION 6.1. Information............................................. 41
SECTION 6.2. Payment of Obligations.................................. 44
SECTION 6.3. Maintenance of Property; Insurance...................... 44
SECTION 6.4. Conduct of Business and Maintenance of Existence........ 45
SECTION 6.5. Compliance with Laws.................................... 45
SECTION 6.6. Inspection of Property, Books and Records............... 45
SECTION 6.7. Accounts Payable; Indebtedness.......................... 45
SECTION 6.8. Consolidations, Mergers and Sales of Assets............. 46
SECTION 6.9. Use of Proceeds......................................... 46
SECTION 6.10. ERISA.................................................. 46
SECTION 6.11. Negative Pledge........................................ 46
SECTION 6.12. Restricted Payments; and Agreements with Affiliates.... 46
SECTION 6.13. ERISA Exemptions....................................... 47
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 6.14. Separateness Covenant................................... 47
SECTION 6.15. Independent Director.................................... 48
SECTION 6.16. Guarantor Note.......................................... 48
SECTION 6.17. Compliance with and Amendment of Charter or Bylaws...... 48
SECTION 6.18. Additional Assets....................................... 48
ARTICLE VII. DEFAULTS...................................................... 49
SECTION 7.1. Events of Default........................................ 49
SECTION 7.2. Remedies................................................. 51
ARTICLE VIII. THE AGENT.................................................... 51
SECTION 8.1. Appointment and Authorization............................ 51
SECTION 8.2. Agent and Affiliates..................................... 52
SECTION 8.3. Collateral Matters....................................... 52
SECTION 8.4. Approvals of Lenders..................................... 53
SECTION 8.5. Consultation with Experts................................ 54
SECTION 8.6. Liability of Agent....................................... 54
SECTION 8.7. Indemnification of Agent................................. 54
SECTION 8.8. Credit Decision.......................................... 55
SECTION 8.9. Successor Agent.......................................... 56
SECTION 8.10. Approvals and Other Actions by Majority Lenders......... 56
ARTICLE IX. MISCELLANEOUS.................................................. 57
SECTION 9.1. Notices.................................................. 57
SECTION 9.2. No Waivers............................................... 58
SECTION 9.3. Expenses................................................. 58
SECTION 9.4. Stamp, Intangible and Recording Taxes.................... 59
SECTION 9.5. Indemnification.......................................... 59
SECTION 9.6. Setoff................................................... 60
SECTION 9.7. Amendments............................................... 60
SECTION 9.8. Successors and Assigns................................... 62
SECTION 9.9. Governing Law............................................ 63
SECTION 9.10. Litigation.............................................. 63
SECTION 9.11. Counterparts; Integration............................... 64
SECTION 9.12. Notice of Final Agreement............................... 65
SECTION 9.13. Invalid Provisions...................................... 65
SECTION 9.14. NO NOVATION; EFFECT OF AMENDMENT AND RESTATEMENT........ 65
</TABLE>
Annex I List of Lenders, Credit Percentages and Lending Offices
Exhibit A Form of Assignment and Acceptance Agreement
Exhibit B Form of Borrower Pledge Agreement
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Exhibit C Form of Guaranty
Exhibit D Form of Note
Exhibit E Form of Notice of Borrowing
Exhibit F Form of Notice of Continuation
Exhibit G Form of Notice of Conversion
Exhibit H Form of Subscription Agreement
Exhibit I Form of Extension Request
Exhibit J Form of Opinion of Borrower and Guarantor Counsel
Exhibit K Form of Opinion of Georgia Local Counsel
Schedule 5.2. Ownership Structure
Schedule 5.17. Insurance
Schedule 5.21.(A) Acquisitions of Security Capital Industrial Trust Shares
Schedule 5.21.(B) Acquisitions of Security Capital Atlantic Incorporated Shares
Schedule 5.21.(C) Acquisitions of Security Capital Pacific Trust Shares
Schedule 5.21.(D) Acquisitions of Security Capital U.S. Realty Shares
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AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT (this "Agreement") dated as of
August 19, 1996 by and among SC REALTY INCORPORATED, a Nevada corporation
("Borrower"), each of the financial institutions initially a signatory hereto
together with those assignees pursuant to Section 9.8. ("Lenders"), and WELLS
FARGO REALTY ADVISORS FUNDING, INCORPORATED, as agent for Lenders to the extent
and in the manner provided in Article VIII. below (in such capacity "Agent").
WHEREAS, the Lenders have made available to Borrower certain financial
accommodations on the terms and conditions contained in that certain Amended and
Restated Credit Agreement dated as of February 17, 1995, as amended prior to the
date hereof (the "Existing Credit Agreement") by and among Borrower, Lenders and
Agent; and
WHEREAS, Borrower, Lenders and Agent desire to amend and restate the terms
of the Existing Credit Agreement pursuant to the terms hereof.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
hereto agree that the Existing Credit Agreement is amended and restated as
follows:
ARTICLE I. DEFINITIONS
SECTION 1.1 Definitions.
The following terms, as used herein, have the following meanings:
"Affiliate" means any Person which controls, is controlled by or is under
common control with Borrower. As used herein, the term "control" means
possession, directly or indirectly, of the power to vote twenty percent (20%) or
more of any class of voting securities of a Person or to direct or otherwise
cause the direction of the management or policies of a Person, whether through
the ownership of voting securities, by contract or otherwise.
"Applicable Law" means all applicable provisions of local, state, federal
and foreign constitutions, statutes, rules, regulations, ordinances, decrees,
permits, concessions and orders of all governmental bodies and all orders and
decrees of all courts, tribunals and arbitrators.
"Applicable Margin" means the percentage set forth below corresponding to
the ratio (expressed as a percentage) of (a) the aggregate amount of the
Commitments at the time of determination in effect to (b) the Market Value of
all Traded Securities at such time:
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Ratio of Commitments to Market Value of all Applicable Margin
Traded Securities
- -----------------------------------------------------------------------
<S> <C>
Greater than 35% but less than or equal to 50% 1.75%
- -----------------------------------------------------------------------
Greater than 25% but less than or equal to 35% 1.625%
- -----------------------------------------------------------------------
Less than or equal to 25% 1.5%
- -----------------------------------------------------------------------
</TABLE>
The Applicable Margin shall be determined by Agent on a quarterly basis on the
first Business Day of the first full calendar month following receipt by Agent
of the financial statements required to be delivered by Borrower under Section
6.1.(a) or (b), as applicable, accompanied by the certificates required under
Sections 6.1.(c) and (d). Any adjustment to the Applicable Margin shall be
effective upon determination thereof by Agent. Initially, the Applicable Margin
shall be 1.5% until redetermined by Agent as provided above.
"Assignee" has the meaning given that term in Section 9.8.(c).
"Assignment and Acceptance Agreement" means an Assignment and Acceptance
Agreement between a Lender and an Assignee, substantially in the form of Exhibit
A.
"Assignment and Assumption Agreement" means the Assignment and Assumption
Agreement dated as of February 17, 1995 among Guarantor, Borrower, certain of
the Lenders and Agent.
"Assignment of Registration Rights" means that certain Assignment of
Registration Rights dated as of February 17, 1995 executed by Guarantor in favor
of Borrower.
"Base Rate" means the greater of (a) the rate of interest per annum
established from time to time by Wells Fargo Bank, N.A., San Francisco,
California and designated as its prime rate (which rate of interest may not be
the lowest rate charged by such bank, Agent or any of Lenders on similar loans)
and (b) the Federal Funds Rate plus one-half of one percent (0.5%). Each change
in the Base Rate shall become effective without prior notice to Borrower or
Lenders automatically as of the opening of business on the date of such change
in the Base Rate.
"Base Rate Loan" means any Loan hereunder with respect to which the
interest rate is calculated by reference to the Base Rate.
"Borrower Pledge Agreement" means the Borrower Amended and Restated Pledge
Agreement dated as of the date hereof executed by Borrower in favor of Agent,
substantially in the form of Exhibit B.
"Borrowing Base" means an amount equal to the lesser of (a) 30% of the
Market Value of all Qualifying Securities and (b) 50% of the Market Value of all
Traded Securities.
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"Business Day" means (a) any day except a Saturday, Sunday or other day on
which commercial banks in Atlanta, Georgia or San Francisco, California are
authorized or required to close and (b) with reference to LIBOR Loans, any such
day on which dealings in Dollar deposits are carried out in the London interbank
market.
"Capitalized Lease Obligation" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with generally accepted accounting principles,
and the amount of such Indebtedness shall be the capitalized amount of such
obligations determined in accordance with such principles.
"Cash Flow" means, with respect to a Person for the four fiscal quarter
period ending as of the date of determination, the sum of (a) such Person's net
income for such period (exclusive of extraordinary gains and losses and any
income or loss from nonrecurring activities of such Person), (b) taxes paid or
accrued during such period, (c) interest expense paid or accrued during such
period, (d) depreciation and amortization deductions for such period (but only
to the extent, in each case, that such taxes, expenses and deductions are
reflected in the calculation of such Person's net income for such period) and
(e) the return of capital component of dividends received for such period (but
only to the extent that such component is not reflected in the calculation of
such Person's net income for such period).
"Cash Flow Available for Distribution" means, with respect to a Person for
the four fiscal quarter period ending as of the date of determination, the sum
of (a) such Person's net income for such period (exclusive of extraordinary
gains and losses and any income or loss from nonrecurring activities of such
Person), (b) depreciation and amortization deductions for such period (but only
to the extent, in each case, that such taxes, expenses and deductions are
reflected in the calculation of such Person's net income for such period), (c)
interest expense accrued but not paid during such period and (d) the return of
capital component of dividends received for such period (but only to the extent
that such component is not reflected in the calculation of such Person's net
income for such period).
"Cash Flow to Interest Ratio" means, for any Person and for any given
period, the ratio of (a) the sum of each of the following of such Person during
such period: (i) net income, (ii) taxes paid or accrued, (iii) interest expense
paid or accrued and (iv) depreciation and amortization deductions (but only to
the extent, in each case, that such taxes, expenses and deductions are reflected
in the calculation of such Person's net income for such period) to (b) interest
expense on such Person's Indebtedness during such period, including interest on
any Indebtedness of such Person convertible into capital stock of such Person.
"Change in Control" means the transfer of beneficial ownership of the
outstanding capital stock of Guarantor such that any Person owns, directly or
indirectly, more than twenty-five percent (25%) of the capital stock of
Guarantor.
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<PAGE>
"Collateral" means any real or personal property securing any of the
Obligations and includes all "Collateral" and "Pledged Collateral", as defined
in each Collateral Document.
"Collateral Assignment of Registration Rights" means the Amended and
Restated Collateral Assignment of Registration Rights Agreement Documents dated
as of February 17, 1995 executed by Borrower in favor of Agent.
"Collateral Documents" means the Guarantor Security Agreement, the
Borrower Pledge Agreement, the Guarantor Pledge Agreement, the Collateral
Assignment of Registration Rights and all other security agreements, financing
statements, and other loan and collateral documents creating, evidencing and
perfecting Agent's Liens in any of the Collateral.
"Commitment" means, as to a Lender, such Lender's obligation to make
Revolving Loans in an amount up to but not exceeding the amount set forth for
such Lender on Annex I as such Lender's "Initial Commitment Amount", as the same
may be reduced from time to time pursuant to Section 2.10.
"Compliance Certificate" means the certificate described in Section
6.1.(c).
"Consequential Loss" means, for any Lender with respect to (a) Borrower's
payment of all or any portion of the then-outstanding principal amount of a
LIBOR Loan on a day other than the last day of the Interest Period related
thereto or (b) any of the circumstances specified in Section 2.7.(d) upon which
a Consequential Loss may be incurred, any loss (excluding loss of anticipated
profits), cost or expense incurred by such Lender as a result of the timing of
such payment or Loan or in the redepositing, redeploying or reinvesting the
principal amount so paid or affected by the timing of such Loan or the
circumstances described in such Section, including without limitation, the sum
of (i) the interest which, but for the payment or timing of the Loan, such
Lender would have earned in respect of such principal amount, reduced, if such
Lender is able to redeposit, redeploy, or reinvest such principal amount by the
interest earned by such Lender as a result of so redepositing, redeploying or
reinvesting such principal amount and (ii) any expense or penalty incurred by
such Lender on redepositing, redeploying or reinvesting such principal amount.
"Consolidated Subsidiary" means, with respect to a Person at any date, any
Subsidiary or other entity the accounts of which would be consolidated with
those of such Person in its consolidated financial statements in accordance with
generally accepted accounting principles, if such statements were prepared as of
such date.
"Contingent Obligation" means, for any Person, any commitment, undertaking,
Guarantee or other obligation constituting a contingent liability that must be
accrued under generally accepted accounting principles.
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<PAGE>
"Continue", "Continuation" and "Continued" each refers to the continuation
of a LIBOR Loan from one Interest Period to the next Interest Period pursuant to
Section 2.4.
"Contribution" means the capital contribution by Guarantor to Borrower
effected on February 17, 1995 of certain of Guarantor's assets, consisting of
all of Guarantor's Securities issued by Security Capital Industrial Trust,
Security Capital Atlantic Incorporated and Security Capital Pacific Trust (or
their respective predecessors) and certain registration rights associated with
such Securities.
"Convert", "Conversion" and "Converted" each refers to the conversion of a
Loan of one Type into a Loan of another Type pursuant to Section 2.5.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Defaulting Lender" has the meaning given that term in Section 3.5.
"Dollars" or "$" means the lawful currency of the United States of
America.
"Effective Date" means the date this Agreement becomes effective in
accordance with Section 4.1.
"Environmental Laws" means any and all Applicable Laws relating to the
environment and that are applicable to Borrower and its assets or properties,
the effect of the environment on human health or to emissions, discharges or
releases of pollutants, contaminants, Hazardous Substances or wastes into the
environment including, without limitation, ambient air, surface water, ground
water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, Hazardous Substances or wastes or the clean-up or
other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means all members of a controlled group of corporations and
all trades or businesses (whether or not incorporated) under common control that
are treated as a single employer under Section 414 of the Internal Revenue Code.
"ERISA Plan" means any employee benefit plan subject to Title I of ERISA.
"Event of Default" means the occurrence of any of the events specified in
Section 7.1., whatever the reason for such event and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment or order of any court or any order, rule or regulation of any
governmental or nongovernmental body; provided that any requirement for notice
or lapse of time or any other condition has been satisfied.
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<PAGE>
"Existing Credit Agreement" has the meaning given that term in the first
WHEREAS clause hereof.
"Extension Request" has the meaning given that term in Section 2.11.
"Federal Funds Rate" means, on any day, the rate per annum (rounded upward,
if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers on such day, as published by
the Federal Reserve Bank of New York on the Business Day next succeeding such
day, provided that (a) if such day is not a Business Day, the Federal Funds Rate
for such day shall be such rate on such transactions on the next preceding
Business Day as so published on the next succeeding Business Day, and (b) if no
such rate is published on such next succeeding Business Day, the Federal Funds
Rate for such day shall be the average rate quoted to Agent on such day on such
transactions as reasonably determined by Agent.
"Foreign Lender" means any Lender organized under the laws of any
jurisdiction other than the United States of America, any State thereof or the
District of Columbia.
"Governmental Approvals" means all authorizations, consents, approvals,
licenses and exemptions of, registrations and filings with, and reports to, all
Governmental Authorities.
"Governmental Authority" means any government (or any political subdivision
or jurisdiction thereof), court, bureau, agency or other governmental authority
having jurisdiction over Guarantor, Borrower or any Subsidiary, or any of its or
their business, operations or properties.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (a) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation (whether arising by virtue of
partnership arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (b) entered into for the purpose of assuring in any
other manner the obligee of such Indebtedness or other obligation of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part), provided that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Guarantor" means Security Capital Group Incorporated, a Maryland
corporation, formerly known as Security Capital Realty Incorporated.
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<PAGE>
"Guarantor Note" means that certain Promissory Note dated as of February
17, 1995 executed by Guarantor in favor of Borrower and in the original
principal amount of $50,000,000.
"Guarantor Pledge Agreement" means the Guarantor Pledge Agreement dated as
of February 17, 1995 executed by Guarantor in favor of Agent.
"Guarantor Security Agreement" means the Guarantor Amended and Restated
Security Agreement dated as of February 17, 1995 executed by Guarantor in favor
of Agent.
"Guaranty" means the Amended and Restated Guaranty dated as of the date
hereof executed by Guarantor in favor of Agent and Lenders, substantially in the
form of Exhibit C.
"Hazardous Substances" means any toxic, radioactive, caustic or otherwise
hazardous substance, including petroleum, its derivatives, by-products and other
hydrocarbons, or any substance having any constituent elements displaying any of
the foregoing characteristics, which if managed, disposed of, released or
discharged would require reporting, clean-up or remediation under Environmental
Laws.
"Indebtedness" of any Person means at any date, without duplication, (a)
all obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or other similar debt instruments,
(c) all obligations of such Person to pay the purchase price of property or
services if such obligations are payable after the receipt of such property or
rendition of such services, except (i) accounts payable arising in the ordinary
course of business and (ii) obligations incurred in the ordinary course to pay
the purchase price of Securities so long as such obligations are paid within
customary settlement periods, (d) all Capitalized Lease Obligations of such
Person, (e) all Indebtedness secured by a Lien on any asset of such Person,
whether or not such Indebtedness is otherwise an obligation of such Person, and
(f) all Indebtedness of others Guaranteed by such Person. Notwithstanding the
foregoing, for purposes of calculating Guarantor's compliance with Sections
6.(n) through (p) of the Guaranty, accounts payable of Guarantor in excess of
$20,000,000 at any time outstanding shall be treated as Indebtedness to the
extent of such excess.
"Intangible Assets" means, with respect to any Person, the amount (to the
extent reflected in determining stockholders' equity of such Person) of (a) all
write-ups (other than write-ups resulting from foreign currency translations and
write-ups of assets of a going concern business made within twelve months after
the acquisition of such business) subsequent to December 31, 1992 in the book
value of any asset owned by such Person, and (b) all unamortized debt discount
and expense, unamortized deferred charges, goodwill, patents, trademarks,
service marks, trade names, anticipated future benefit of tax loss carry-
forwards, copyrights, organization or developmental expenses and other
intangible assets.
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<PAGE>
"Interest Period" means with respect to any LIBOR Loan, the period
commencing on the date of the borrowing, Conversion or Continuation of such Loan
and ending on the last day of the period selected by Borrower pursuant to the
provisions below. The duration of each Interest Period shall be one, two, three
or six months, in each case Borrower may, in an appropriate Notice of Borrowing,
Notice of Continuation or Notice of Conversion, select. In no event shall an
Interest Period of a Revolving Loan extend beyond the Revolving Credit
Termination Date and in no event shall an Interest Period of any Loan extend
beyond the Termination Date. Whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the last day of such
Interest Period shall be extended to occur on the next succeeding Business Day;
provided, however, that if such extension would cause the last day of such
Interest Period to occur in the next following calendar month, the last day of
such Interest Period shall occur on the next preceding Business Day.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"Investment" means, with respect to a Person, the legal or beneficial
ownership by such Person of any capital stock or other equity interest in
another Person, whether or not such ownership constitutes a controlling interest
in such other Person, and shall include all Consolidated Subsidiaries of such
Person.
"Issuer" means with respect to a Security, the Person issuing such
Security.
"Lending Office" means, for each Lender and for each Type of Loan, the
office of each Lender specified for such Lender on Annex I or in its applicable
Assignment and Acceptance Agreement, and for Agent, the Lending Office of Agent
in its capacity as a Lender.
"LIBO Rate" means, with respect to each Interest Period, the average rate
of interest per annum (rounded upwards, if necessary, to the next highest 1/16th
of 1%) at which deposits in immediately available funds in Dollars are offered
to Wells Fargo Bank, N.A. (at approximately 9:00 a.m., two Business Days prior
to the first day of such Interest Period) by first class banks in the interbank
Eurodollar market where the Eurodollar operations of Wells Fargo Bank, N.A. are
customarily conducted, for delivery on the first day of such Interest Period,
such deposits being for a period of time equal or comparable to such Interest
Period and in an amount equal to or comparable to the principal amount of the
LIBOR Loan to which such Interest Period relates. Each determination of the
LIBO Rate by Agent shall, in absence of demonstrable error, be conclusive and
binding.
"LIBOR Loan" means any Loan hereunder with respect to which the interest
rate is calculated by reference to the LIBO Rate for a particular Interest
Period.
"Lien" as applied to the property of any Person means: (a) any mortgage,
deed to secure debt, deed of trust, pledge, lien, charge or lease constituting a
Capitalized Lease Obligation, conditional sale or other title retention
agreement, or other security interest,
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<PAGE>
security title or encumbrance of any kind in respect of any property of such
Person, or upon the income or profits therefrom; (b) any arrangement, express or
implied, under which any property of such Person is transferred, sequestered or
otherwise identified for the purpose of subjecting the same to the payment of
Indebtedness or performance of any other obligation in priority to the payment
of the general, unsecured creditors of such Person; and (c) the filing of, or
any agreement to give, any financing statement under the Uniform Commercial Code
or its equivalent in any jurisdiction.
"Loan" means a Revolving Loan or the Term Loan.
"Loan Document" means this Agreement, each of the Notes, each of the
Collateral Documents, the Guaranty, the Guarantor Note, any agreement evidencing
the fees referred to in Section 3.1.(d) and each other document or instrument
executed and delivered by Borrower or Guarantor in connection with this
Agreement or any of the other foregoing documents.
"Majority Lenders" means, as of any date, Lenders whose combined Pro Rata
Shares equal or exceed 66-2/3%.
"Mandatory Interest" means, with respect to a Person, interest which, in
accordance with the terms of the document, instrument or agreement evidencing
the Indebtedness on which such interest accrued, cannot be accrued rather than
paid at the option of such Person without resulting in a default or event of
default in respect of such Indebtedness.
"Mandatory Interest Expense" means, with respect to a Person for the four
complete fiscal quarter period ending as of the date of determination, all
interest expense of such Person in respect of Mandatory Interest for such
period.
"Market Value" means with respect to a Qualifying Security and on the date
of determination thereof (a) if such Security is listed on the New York Stock
Exchange, the American Stock Exchange, or some other principal national
securities exchange in the United States of America, the reported last sale
price of a unit of such 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,
the American Stock Exchange Composite Tape or the principal national securities
exchange in the United States of America on which the security is listed or
admitted to trading, as applicable, or, if such Security is not listed or
admitted to trading on any national securities exchange in the United States of
America, the closing sales price, or if there is no closing sales price, the
average of the closing bid and asked prices, in the over-the-counter market as
reported by the National Association of Securities Dealers Automated Quotation
System, (b) with respect to a Security listed on a principal national securities
exchange in Luxembourg, Amsterdam or other European country, the price of such
Security as reported on such exchange by the most widely recognized reporting
method customarily relied upon by financial institutions in such country and
which method is reasonably acceptable to Agent, or (c) if such Security is not
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listed on any principal national securities exchange or not so reported, the
original cost of such Security (less any write-down as a result of any
revaluation). Any determination of the "Market Value" of a Security pursuant to
this definition shall be based on the assumption that offers of such Security
are exempt from registration under the Securities Act.
"Market Value Net Worth" means, with respect to a Person on a given date,
(a) the sum of (i) the Market Value on and as of such date of all Qualifying
Securities owned by such Person, (ii) the book value of all other assets of such
Person (excluding all Intangible Assets) on and as of such date and (iii) all
cash and cash equivalents of such Person on and as of such date, minus (b) the
Total Liabilities of such Person as of such date.
"Materially Adverse Effect" means a materially adverse effect on (a) the
business, assets, liabilities, financial condition, results of operations or
business prospects of Borrower and its Consolidated Subsidiaries, or Guarantor
and its Consolidated Subsidiaries, in each case taken as a whole, (b) the
ability of Borrower or Guarantor to perform its obligations under any Loan
Document to which it is a party, (c) the validity or enforceability of any of
such Loan Documents, (d) the rights and remedies of Lenders and Agent under any
of such Loan Documents or (e) the timely payment of the principal of or interest
on the Loans or other amounts payable in connection therewith. Except with
respect to representations made or deemed made by Borrower under Article V. or
in any of the other Loan Documents to which it is a party, or by Guarantor in
the Guaranty or in any of the other Loan Documents to which it is a party, all
determinations of materiality shall be made by Agent in its reasonable judgment
unless expressly provided otherwise.
"Net Worth" means, for any Person, all amounts which would, in accordance
with generally accepted accounting principles (using a historical cost basis),
be included under stockholder's equity on the balance sheet of such Person.
"New Investment" shall mean any Person (other than an individual and other
than Security Capital Industrial Trust, Security Capital Atlantic Incorporated,
Security Capital Pacific Trust and Security Capital U.S. Realty) from or in whom
Borrower acquires any Securities after the date hereof consistent with
Borrower's business purposes and objects as stated in Section 5.23.
"Non-ERISA Plan" means any Plan subject to Section 4975 of the Internal
Revenue Code.
"Note" means a promissory note executed by Borrower, payable to the order
of a Lender, in an amount equal to such Lender's Pro Rata Share of the Revolving
Commitment and substantially in the form of Exhibit D.
"Notice of Borrowing" means a notice in the form of Exhibit E to be
delivered to Agent pursuant to Section 2.2. evidencing Borrower's request for a
Borrowing of Revolving Loans.
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"Notice of Continuation" means a notice in the form of Exhibit F to be
delivered to Agent pursuant to Section 2.4. evidencing Borrower's request for
the Continuation of a Borrowing of Revolving Loans.
"Notice of Conversion" means a notice in the form of Exhibit G to be
delivered to Agent pursuant to Section 2.5. evidencing Borrower's request for
the Conversion of a Borrowing of Revolving Loans.
"Obligations" means, individually and collectively: (a) all Loans; (b) any
and all renewals and extensions of any of the foregoing and (c) all other
indebtedness, liabilities, obligations, covenants and duties of Borrower owing
to Agent and/or Lenders of every kind, nature and description, under or in
respect of this Agreement or any of the other Loan Documents, whether direct or
indirect, absolute or contingent, due or not due, contractual or tortious,
liquidated or unliquidated, and whether or not evidenced by any promissory note.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Liens" means (a) Liens granted to Agent to secure the
Obligations, (b) pledges or deposits made to secure payment of worker's
compensation (or to participate in any fund in connection with worker's
compensation insurance), unemployment insurance, pensions or social security
programs, (c) encumbrances consisting of zoning restrictions, easements, or
other restrictions on the use of real property, provided that such items do not
materially impair the use of such property for the purposes intended and none of
which is violated in any material respect by existing or proposed structures or
land use, (d) the following to the extent no Lien has been filed in any
jurisdiction or agreed to: (i) Liens for taxes not yet due and payable; or (ii)
Liens imposed by mandatory provisions of Applicable Law such as for
materialmen's, mechanic's, warehousemen's and other like Liens arising in the
ordinary course of business, securing payment of Indebtedness the payment of
which is not yet due, (e) Liens for taxes, assessments and governmental charges
or assessments that are being contested in good faith by appropriate proceedings
diligently conducted, and in which reserves acceptable to Agent have been
provided, (f) Liens expressly permitted under the terms of the Loan Documents,
(g) with respect to only Guarantor, Purchase Money Liens securing Indebtedness
(including Capitalized Lease Obligations) of Guarantor permitted under the terms
of Section 6.(g)(v) of the Guaranty, and (h) any extension, renewal or
replacement of the foregoing to the extent such Lien as so extended, renewed or
replaced would otherwise be permitted hereunder.
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
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"Plan" means at any time an employee pension benefit plan which is covered
by Title IV of ERISA or subject to the minimum funding standards under Section
412 of the Internal Revenue Code.
"Pro Rata Share" means, with respect to any Lender, the percentage
obtained by dividing (a) the amount of such Lender's Commitment by (b) the
aggregate amount of Commitments of all Lenders, or, if the Commitments shall
have been terminated, the percentage obtained by dividing (i) the aggregate
unpaid principal amount of Loans owing to such Lender by (ii) the aggregate
unpaid principal amount of all Loans.
"Public Subsidiary" means any Subsidiary whose Securities having ordinary
voting power to elect members of the board of directors or other persons
performing similar functions are listed on the New York Stock Exchange, American
Stock Exchange or some other principal national securities exchange or have
price quotations in the over-the-counter market reported by the National
Association of Securities Dealers Automated Quotation System.
"Purchase Money Lien" means, with respect to a Person, a Lien (a) granted
by such Person in assets acquired by such Person and (b) securing only the
Indebtedness (including Capitalized Lease Obligations) incurred by such Person
to acquire such assets.
"Qualifying Security" means any Security (1) the Issuer of which is
Security Capital Pacific Trust, Security Capital Atlantic Incorporated, Security
Capital Industrial Trust or Security Capital U.S. Realty and (2) which Agent
determines in its sole discretion meets all of the following conditions at the
time of determination thereof:
(a) such Security is subject to the Lien of the Borrower Pledge
Agreement, which Lien is valid, enforceable, perfected and of first priority,
subject only to Liens permitted under the Loan Documents or Liens acceptable to
Agent;
(b) all representations and warranties of Borrower in this Agreement, the
Borrower Pledge Agreement and the other Loan Documents relating in any way to
such Security are true in all material respects except to the extent such
representations or warranties specifically relate to an earlier date or such
representations or warranties become untrue by reason of events or conditions
otherwise permitted hereunder and the other Loan Documents;
(c) such Issuer (i) is a REIT; (ii) has filed with its most recently
filed (or has announced its intention to file with its initial) federal income
tax return an election to be a REIT or has made such election for a previous
taxable year, and such election has not been terminated or revoked or (iii) is a
real estate operating company or a real estate investment company;
(d) the ratio of (i) such Issuer's Indebtedness to (ii) its Net Worth
plus the amount of accumulated depreciation of such Issuer, does not exceed 1.0
to 1.0;
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(e) such Issuer's Cash Flow to Interest Ratio for its immediately
preceding four complete fiscal quarters is not less than 2.0 to 1.0;
(f) no event or condition exists which permits any holder or holders of
Indebtedness of such Issuer, any trustee or agent acting on behalf of such
holder or holders or any other Person, to accelerate the maturity of any such
Indebtedness and such Person shall not have waived its right to so accelerate
with respect to such event; and
(g) the ratio of the Indebtedness of the Real Estate Manager of such
Issuer to the Net Worth of such Real Estate Manager does not exceed 0.7 to 1.0
(for purposes of this clause (g): (i) all convertible subordinated debentures of
a Real Estate Manager shall be included in determining its Net Worth and
excluded in determining its Indebtedness, (ii) all Indebtedness owed by such
Real Estate Manager to any of its Affiliates shall be excluded in determining
its Indebtedness and (iii) with respect to Real Estate Managers that are
Affiliates of Borrower, such ratio shall be calculated on a consolidated basis
for the ultimate corporate parent of such Real Estate Managers).
"Real Estate Manager" means with respect to an Issuer of a Qualifying
Security, the Person engaged by such Issuer to advise it with respect to the
acquisition, sale, development, management and operation of real property or
interests therein owned, directly or indirectly, by such Issuer.
"Reduced Rate" has the meaning given that term in Section 3.13.
"Registration Rights Agreements" means (a)(i) that certain Second Amended
and Restated Investor Agreement dated as of July 11, 1994 by and between
Guarantor and Security Capital Pacific Trust, (ii) that certain Second
Supplemental Investment Agreement dated as of December 7, 1993 by and between
Guarantor and Security Capital Pacific Trust, (iii) that certain Third
Supplemental Investment Agreement dated as of December 6, 1994 by and between
Guarantor and Security Capital Pacific Trust, (iv) that certain Second Amended
and Restated Investor Agreement dated as of November 18, 1993 by and between
Guarantor and Security Capital Industrial Trust, (v) that certain Investor
Agreement dated as of October 28, 1993 by and between Guarantor and Security
Capital Atlantic Incorporated and (vi) that certain Investor Agreement dated as
of October 22, 1993 by and between Guarantor and Security Capital Pacific Trust,
successor by merger to Security Capital Pacific Incorporated, a Maryland
corporation and (b) any other agreement pursuant to which Borrower has the right
to demand an Issuer to register under the Securities Act the offering of any
Securities of such Issuer owned by Borrower or has any other rights relating to
any such registration.
"Regulations G, U and X" means Regulations G, U and X of the Board of
Governors of the Federal Reserve System, as in effect from time to time.
"REIT" means a Person qualifying for treatment as a "real estate
investment trust" under the Internal Revenue Code.
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"Related Company" means any of Guarantor, Borrower or any of their
respective Subsidiaries.
"Restricted Payment" means cash payment or other distributions on, or in
respect of, any class of stock of, or other equity interest in, a Person, or
other payments or transfers made in respect of the redemption, repurchase or
acquisition of such stock or equity interest, other than any distribution or
other payment payable solely in capital stock of such Person.
"Revolving Commitment" means an amount equal to $300,000,000, as such
amount may be reduced from time to time in accordance with the terms hereof.
"Revolving Credit Termination Date" means the earlier to occur of (a)
November 15, 1998, or such later date to which such date may be extended in
accordance with Section 2.11. or (b) the date on which the Revolving Loans are
converted into the Term Loan pursuant to Section 2.12.
"Revolving Loan" means a loan made by Lenders to Borrower under Section
2.1.
"Revolving Period" means the period commencing on the Effective Date and
ending on the earlier of (a) the Revolving Credit Termination Date and (b) the
date on which the Revolving Loans are converted into the Term Loan pursuant to
Section 2.12.
"Securities Act" means the Securities Act of 1933, as amended, and all
rules and regulations issued pursuant thereto.
"Security" has the meaning given that term in Article 8 of the UCC and
shall include "Securities" as defined in the Borrower Pledge Agreement and the
Guarantor Pledge Agreement, as the case may be.
"Security Capital Atlantic Incorporated" means Security Capital Atlantic
Incorporated, a Maryland corporation.
"Security Capital Group" means Security Capital Group Incorporated, a
Delaware corporation (successor to Southwest Capital Group Incorporated), which
was merged into Guarantor on January 1, 1995.
"Security Capital Industrial Trust" means Security Capital Industrial
Trust, a Maryland real estate investment trust.
"Security Capital Pacific Trust" means Security Capital Pacific Trust, a
Maryland real estate investment trust, formerly known as Property Trust of
America and into which Security Capital Pacific Incorporated, a Maryland
corporation, was merged in March, 1995.
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"Security Capital U.S. Realty" means Security Capital U.S. Realty, a
societe d'investissement a capital variable formed under the laws of the Grand
Duchy of Luxembourg.
"Shareholder's Equity" means, at any date with respect to a Person, the
Tangible Net Worth of such Person less, to the extent not otherwise deducted in
the determination thereof, the aggregate amount of Contingent Obligations of
such Person, all determined as of such date.
"Subordinated Debenture" means any of Guarantor's 12% Convertible
Subordinated Debentures due June 30, 2014.
"Subordinated Indebtedness" means Indebtedness of Guarantor incurred after
the date hereof of the types described in clauses (a) and (b) of the definition
of the term "Indebtedness" herein, which Indebtedness is evidenced by documents,
instruments or agreements containing (i) subordination terms identical to those
contained in the Subordinated Debentures or other subordination terms acceptable
to the Majority Lenders in their sole discretion and (ii), except as provided in
the next sentence, other terms and conditions which, in the Majority Lenders'
judgment, are not materially different from those of the Subordinated
Debentures. Notwithstanding the immediately preceding clause (ii), Subordinated
Indebtedness may have such interest rate terms as Guarantor may determine in its
sole discretion, so long as any such provisions providing for the mandatory
payment of interest would not require the payment of interest in respect of such
Subordinated Indebtedness and all other Indebtedness of Guarantor permitted
under Section 6.(g)(ii) and (iii) of the Guaranty (assuming Guarantor is not in
default thereof), at a weighted average fixed rate in excess of 6.0%.
"Subscriber" means a Person subscribing for shares of Guarantor's capital
stock or Subordinated Indebtedness of Guarantor issued as permitted under
Section 6.(g)(ii) or (iii) of the Guaranty, in each case pursuant to a
Subscription Agreement.
"Subscription Agreement" means a Subscription Agreement entered into by
Guarantor and a Subscriber similar to the agreement attached as Exhibit H, and
in any event in form and substance reasonably satisfactory to Agent, pursuant to
which a Subscriber agrees to purchase (a) capital stock of Guarantor or (b)
Subordinated Indebtedness of Guarantor issued as permitted under Section
6.(g)(ii) or (iii) of the Guaranty.
"Subsidiary" means any Person of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions, are at the time
directly or indirectly owned by another Person, or by one or more Subsidiaries
of such other Person or by such other Person and one or more Subsidiaries of
such other Person.
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"Tangible Net Worth" means, with respect to a Person, at any date the Net
Worth of such Person less its Intangible Assets, all determined as of such date
in accordance with generally accepted accounting principles.
"Term Loan" has the meaning given that term in Section 2.12.
"Termination Date" means the date four years after the Revolving Credit
Termination Date.
"Total Liabilities" means, as to any Person, at a particular date, all
liabilities which would, in conformity with generally accepted accounting
principles, be properly classified as a liability on the balance sheet of such
Person as at such date, and in any event shall (a) include (without duplication)
(i) all Contingent Obligations of such Person and (ii) liabilities of any
Affiliate of such Person that is not a Consolidated Subsidiary of such Person,
which liabilities such Person has Guaranteed or is otherwise obligated on a
recourse basis and (b) not include (i) any accounts payable owing to a trade
creditor and which is not evidenced by any instrument, (ii) accrued expenses,
(iii) deferred taxes on unrealized gains and (iv) declared but unpaid dividends.
"Traded Security" means a Qualifying Security which Agent determines in
its sole discretion meets all of the following conditions at the time of
determination thereof:
(a) such Qualifying Security (i) is listed on the New York Stock
Exchange, American Stock Exchange or some other principal national securities
exchange in the United States of America; (ii) has price quotations in the over-
the-counter market reported by the National Association of Securities Dealers
Automated Quotation System or (iii) or is listed on the principal national
securities exchange in Luxembourg, Amsterdam or other European country
acceptable to Agent;
(b) such Qualifying Security is not subject to any instrument, document
or agreement which in any way prohibits the sale of such Qualifying Security for
any specified period of time or otherwise (other than any agreement between
Borrower and an underwriter entered into in connection with an offering by such
underwriter of Securities of the Issuer of such Qualifying Security, in which
agreement Borrower agrees not to sell such Qualifying Security for a period
ending no later than 90 days after such offering); and
(c) the offer and sale of such Qualifying Security by Agent when
exercising any of its rights and remedies under the Borrower Pledge Agreement or
otherwise would not be subject to any registration requirements or other
restrictions under the Securities Act or other Applicable Law other than (i)
volume limitations imposed under Rule 144(e) of the Securities Act and (ii)
other restrictions related to the timing of offers and sales consented to by the
Majority Lenders in writing.
"Type" with respect to any Loan, refers to whether such Loan is a LIBOR
Loan or a Base Rate Loan.
"UCC" means the Uniform Commercial Code as in effect in the State of
Georgia.
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"Unfunded Subscription Amount" means, with respect to a Subscription
Agreement and at the time of determination thereof, the aggregate amount of
funds which Guarantor can receive from the Subscriber a party thereto upon
issuance of Guarantor's capital stock or Subordinated Indebtedness to such
Subscriber in accordance with the terms of such Subscription Agreement.
SECTION 1.2. Accounting Terms and Determinations; Time References.
Unless otherwise specified herein, all accounting terms used herein shall
be interpreted, all accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder shall be prepared in
accordance with generally accepted accounting principles as in effect from time
to time, applied on a basis consistent (except for changes concurred in by
Borrower's independent public accountants) with the most recent audited
financial statements of Borrower delivered to Lenders; provided that, if
Borrower notifies Agent that Borrower wishes to amend any covenant in Section
6.7. or 6.12.(a) hereof, or Guarantor wishes to amend any covenant in Section
6.(g), 6.(k)(i) or 6.(n) through (p) of the Guaranty, to eliminate the effect of
any change in generally accepted accounting principles on the operation of such
covenant (or if Agent notifies Borrower or Guarantor that the Majority Lenders
wish to amend any such Section for such purpose), then the compliance by
Borrower or Guarantor, as the case may be, with such covenant shall be
determined on the basis of generally accepted accounting principles in effect
immediately before the relevant change in generally accepted accounting
principles became effective, until either such notice is withdrawn or such
covenant is amended in a manner satisfactory to Borrower or the Guarantor, as
the case may be, and the Majority Lenders. Unless otherwise indicated, all
references to time are references to San Francisco, California time.
SECTION 1.3. Subsidiaries.
Unless explicitly set forth to the contrary, a reference to "Subsidiary"
shall mean a Subsidiary of Borrower and a reference to an "Affiliate" shall mean
a reference to an Affiliate of Borrower.
SECTION 1.4. Interpretation Generally.
References in this Agreement to "Sections", "Articles", "Exhibits" and
"Schedules" are to sections, articles, exhibits and schedules herein and hereto
unless otherwise indicated. References in this Agreement or any other Loan
Document to any document, instrument or agreement (a) shall include all
exhibits, schedules and other attachments thereto, as updated from time to time,
(b) shall include all documents, instruments or agreements issued or executed in
replacement thereof, and (c) shall mean such document, instrument or agreement,
or replacement or predecessor thereto, as amended, modified or supplemented from
time to time in accordance with its terms and in effect at any given time.
Terms not otherwise defined herein and which are defined in the UCC are used
herein with the respective meanings given them in the UCC. Wherever from the
context it appears appropriate, each term stated in either the singular or
plural shall include the
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singular and plural, and pronouns stated in the masculine, feminine or neuter
gender shall include the masculine, the feminine and the neuter.
ARTICLE II. CREDIT FACILITY
SECTION 2.1. Making of Revolving Loans.
Subject to the terms and conditions set forth in this Agreement, each
Lender severally agrees to make Revolving Loans to Borrower during the period
from and including the Effective Date to but excluding the Revolving Credit
Termination Date, in an aggregate principal amount not to exceed such Lender's
Pro Rata Share of the lesser of (a) the Revolving Commitment and (b) the
Borrowing Base. Each borrowing of Revolving Loans hereunder shall be in an
aggregate principal amount of $1,000,000 and integral multiples of $500,000 in
excess of that amount (except that any such Revolving Loan may be in the
aggregate amount of the unused Commitments). Notwithstanding any other
provision of this Agreement or any other Loan Document, no Revolving Loan shall
be made to Borrower if Agent determines that the making of such Revolving Loan
would result in a violation of the margin requirements of Regulation U as
specified in 12 C.F.R. (S) 221.3(a)(1) or Regulation G as specified in 12 C.F.R.
(S) 207.3(b). Within the foregoing limits and subject to the other terms of
this Agreement, Borrower may borrow, repay and reborrow Revolving Loans. Upon
the Effective Date, all Revolving Loans under the Existing Credit Agreement
outstanding on the Effective Date shall be deemed to be Revolving Loans to
Borrower outstanding hereunder being of the same Types and Interest Periods. As
of the Effective Date, such Revolving Loans shall be allocated among the Lenders
in accordance with their Pro Rata Shares based on the amount of the Lenders'
Commitments as set forth on Annex I hereto. Each Lender agrees to make such
payments to the other Lenders and any Person who ceased to be a Lender upon the
Effective Date in such amounts as are necessary to effect such allocation. All
such payments shall be made to Agent for the account of the Person to be paid.
SECTION 2.2. Requests for Revolving Loans.
Not later than 9:00 a.m. at least one Business Day prior to a borrowing of
Base Rate Loans and not later than 10:00 a.m. at least three Business Days prior
to a borrowing of LIBOR Loans, Borrower shall deliver to Agent a Notice of
Borrowing. Each Notice of Borrowing shall specify the principal amount of the
Revolving Loan to be borrowed, the date such Revolving Loan is to be borrowed
(which must be a Business Day), the use of the proceeds of such Revolving Loan,
the Type of the requested Revolving Loan and if such Revolving Loan is to be a
LIBOR Loan, the initial Interest Period for such Revolving Loan. Each Notice of
Borrowing shall be irrevocable once given and binding on Borrower. Prior to
delivering a Notice of Borrowing, Borrower may (without specifying whether a
Revolving Loan will be a Base Rate Loan or a LIBOR Loan) request that Agent
provide Borrower with the most recent LIBO Rate available to Agent. Agent shall
provide such quoted rate to Borrower and to Lenders on the date of such request
or as soon as possible thereafter.
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SECTION 2.3. Funding.
(a) Promptly after receipt of a Notice of Borrowing under Section 2.2.,
Agent shall notify each Lender by telex or telecopy, or other similar form of
transmission of the proposed borrowing. Each Lender shall deposit an amount
equal to its Pro Rata Share of the Revolving Loan requested by Borrower with
Agent at Agent's Lending Office, in immediately available funds not later than
9:00 a.m. on the date of such proposed Revolving Loan. Upon fulfillment of all
applicable conditions set forth herein, Agent shall make available to Borrower
at Agent's Lending Office, not later than 11:00 a.m. on the date of the
requested Revolving Loan, the proceeds of such amounts received by Agent. The
failure of any Lender to deposit the amount described above with Agent shall not
relieve any other Lender of its obligations hereunder to make its Pro Rata Share
of a Revolving Loan.
(b) Unless Agent shall have been notified by any Lender that such Lender
will not make available to Agent such Lender's Pro Rata Share of a proposed
Revolving Loan, Agent may in its discretion assume that such Lender has made
such Pro Rata Share of such Revolving Loan available to Agent in accordance with
this Section and Agent may, if it chooses, in reliance upon such assumption,
make such Pro Rata Share of such Revolving Loan available to Borrower.
SECTION 2.4. Continuation.
So long as no Event of Default shall have occurred and be continuing,
Borrower may on any Business Day, with respect to any LIBOR Loan, elect to
maintain such LIBOR Loan or any portion thereof as a LIBOR Loan by selecting a
new Interest Period for such LIBOR Loan. Each new Interest Period selected
under this Section shall commence on the last day of the immediately preceding
Interest Period. Each selection of a new Interest Period shall be made by
Borrower's giving of a Notice of Continuation not later than 12:00 noon on the
third Business Day prior to the date of any such Continuation by Borrower to
Agent. Promptly after receipt of a Notice of Continuation, Agent shall notify
each Lender by telex or telecopy, or other similar form of transmission of the
proposed Continuation. Such notice by Borrower of a Continuation shall be by
telephone or telecopy, confirmed immediately in writing if by telephone, in the
form of a Notice of Continuation, specifying (a) the date of such Continuation,
(b) the LIBOR Loan and portion thereof subject to such Continuation and (c) the
duration of the selected Interest Period, all of which shall be specified in
such manner as is necessary to comply with all limitations on Loans outstanding
hereunder. Each Notice of Continuation shall be irrevocable by and binding on
Borrower once given. If Borrower shall fail to select in a timely manner a new
Interest Period for any LIBOR Loan in accordance with this Section, such Loan
will automatically, on the last day of the current Interest Period therefore,
Convert into a Base Rate Loan notwithstanding failure of Borrower to comply with
Section 2.5.
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SECTION 2.5. Conversion.
So long as no Event of Default shall have occurred and be continuing,
Borrower may on any Business Day, upon Borrower's giving of a Notice of
Conversion to Agent, Convert the entire amount of all or a portion of a Loan of
one Type into a Loan of another Type. Promptly after receipt of a Notice of
Conversion, Agent shall notify each Lender by telex or telecopy, or other
similar form of transmission of the proposed Conversion. Any Conversion of a
LIBOR Loan into a Base Rate Loan shall be made on, and only on, the last day of
an Interest Period for such LIBOR Loan. Each such Notice of Conversion shall be
given not later than 12:00 noon on the Business Day prior to the date of any
proposed Conversion into Base Rate Loans and on the third Business Day prior to
the date of any proposed Conversion into LIBOR Loans. Subject to the
restrictions specified above, each Notice of Conversion shall be by telephone or
telecopy confirmed immediately in writing if by telephone in the form of a
Notice of Conversion specifying (a) the requested date of such Conversion, (b)
the Type of Loan to be Converted, (c) the portion of such Type of Loan to be
Converted, (d) the Type of Loan such Loan is to be Converted into and (e) if
such Conversion is into a LIBOR Loan, the requested duration of the Interest
Period of such Loan. Each Notice of Conversion shall be irrevocable by and
binding on Borrower once given. Each Conversion from a Base Rate Loan to a
LIBOR Loan shall be in an aggregate amount for the Loans of all Lenders of not
less than $1,000,000 or integral multiples of $500,000 in excess of that amount.
SECTION 2.6. Interest Rate.
(a) All Loans. The unpaid principal of each Base Rate Loan shall bear
interest from the date of the making of such Loan to but not including the date
of repayment thereof at a rate per annum equal to the Base Rate in effect from
day to day. The unpaid principal of each LIBOR Loan shall bear interest from
the date of the making of such Loan to but not including the date of repayment
thereof at a rate per annum equal to the LIBO Rate plus the Applicable Margin.
(b) Default Rate. All past-due principal of, and to the extent permitted
by Applicable Law, interest on, the Loans shall bear interest until paid at the
Base Rate from time to time in effect plus four percent (4%).
SECTION 2.7. Special Provisions for LIBOR Loans.
(a) Inadequacy of LIBOR Pricing. Anything herein to the contrary
notwithstanding, if, on or prior to the determination of any LIBO Rate for any
Interest Period:
(i) Agent reasonably determines, which determination shall be
conclusive, that quotations of interest rates for the relevant deposits
referred to in the definition of LIBO Rate are not being provided in the
relevant amounts or for the relevant maturities for purposes of
determining rates of interest for LIBOR Loans as provided herein; or
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(ii) any Lender reasonably determines, which determination shall be
conclusive, and notifies Agent that the relevant rates of interest referred
to in the definition of LIBO Rate upon the basis of which the rate of
interest for LIBOR Loans for such Interest Period is to be determined are
not likely adequately to cover the cost to such Lender of making or
maintaining LIBOR Loans for such Interest Period;
then Agent shall give Borrower and each Lender prompt notice thereof and, so
long as such condition remains in effect, Lenders shall be under no obligation
to, and shall not, make additional LIBOR Loans, Continue LIBOR Loans or Convert
Base Rate Loans into LIBOR Loans and Borrower shall, on the last day of each
current Interest Period for each outstanding LIBOR Loan, either prepay such Loan
or Convert such Loan into a Base Rate Loan in accordance with Section 2.5.
(b) Number of Interest Periods. Anything herein to the contrary
notwithstanding, there shall not be outstanding at any one time more than ten
LIBOR Loans.
(c) Illegality of LIBOR Loans. If, after the date of this Agreement, the
adoption of any Applicable Law, rule or regulation, or any change therein, or
any change in the interpretation or administration thereof by any Governmental
Authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Lender with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency shall make it unlawful or impossible for any
Lender to make, maintain or fund LIBOR Loans, such Lender shall forthwith give
notice thereof to Agent and Borrower. Before giving any notice pursuant to this
subsection, such Lender shall designate a different LIBOR lending office if such
designation will avoid the need for giving such notice and will not be otherwise
materially disadvantageous to any such Lender (as determined in the reasonable
judgment of such Lender). Upon receipt of such notice, Borrower shall either
(i) repay in full the then outstanding principal amount of any of such Lender's
LIBOR Loans, together with accrued interest thereon, or (ii) Convert such
Lender's LIBOR Loans to Base Rate Loans, on either (A) the last day of the then-
current Interest Period applicable to such LIBOR Loan if such Lender may
lawfully continue to maintain and fund such LIBOR Loan to such day or (B)
immediately if such Lender may not lawfully continue to fund and maintain such
LIBOR Loan to such day.
(d) Consequential Losses. Borrower shall indemnify Agent and each Lender
against any Consequential Loss incurred by Agent and each Lender as a result of
(i) any failure to fulfill, on or before the date specified for such Loan in the
applicable Notice of Borrowing, the conditions to such Loan set forth herein, or
(ii) Borrower's requesting that a Base Rate Loan not be Converted into a LIBOR
Loan on the date specified for such Conversion in a Notice of Conversion, (iii)
Borrower's requesting that a LIBOR Loan not be Continued on the date specified
for such Continuation in a Notice of Continuation or (iv) Borrower's requesting
that a LIBOR Loan not be made on the date specified for such LIBOR Loan in the
Notice of Borrowing. A certificate of Agent and each Lender
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establishing the amount due from Borrower according to the preceding sentence,
together with a description in reasonable detail of the manner in which such
amount has been calculated, shall be conclusive in the absence of demonstrable
error.
(e) Increased Costs for LIBOR Loans. If, after the date hereof, any
Governmental Authority, central bank or other comparable authority, shall at any
time impose, modify or deem applicable any reserve (including, without
limitation, any imposed by the Board of Governors of the Federal Reserve
System), special deposit or similar requirement against assets of, deposits with
or for the account of, or credit extended by, any Lender, or shall impose on any
Lender (or its eurodollar lending office) or the interbank eurodollar market any
other condition affecting its LIBOR Loans, such Lender's Note or its obligation
to make LIBOR Loans; and the result of any of the foregoing is to increase the
cost to such Lender of making or maintaining its LIBOR Loans, or to reduce the
amount of any sum received or receivable by such Lender under this Agreement, or
under such Lender's Note, by an amount reasonably deemed by such Lender to be
material, then, within five days after demand by such Lender, Borrower shall pay
to such Lender such additional amount or amounts as will compensate such Lender
for such increased cost or reduction. Such Lender will (i) notify Agent and
Borrower of any event occurring after the date of this Agreement which will
entitle such Lender to compensation pursuant to this subsection as promptly as
practicable (but in any event within 120 days) after such Lender obtains actual
knowledge of such event, and Borrower shall not be liable for any such increased
costs that accrue between the date such notification is required to be given and
the date it was actually given and (ii) use good faith and reasonable efforts to
designate a different lending office for such Lender's LIBOR Loans if such
designation will avoid the need for, or reduce the amount of, such compensation
and will not, in the reasonable opinion of such Lender, be materially
disadvantageous to such Lender (provided that any such foreign Lender shall have
no obligation to so designate a lending office located in the United States of
America). A certificate of such Lender claiming compensation under this Section
and setting forth in reasonable detail the calculation of the additional amount
or amounts to be paid to it hereunder shall be conclusive in the absence of
demonstrable error. If such Lender demands compensation under this Section,
then Borrower may at any time, upon at least three Business Days' prior notice
to such Lender, either (i) repay in full such Lender's then outstanding LIBOR
Loans, together with accrued interest thereon to the date of prepayment or (ii)
Convert such Lender's LIBOR Loans to Base Rate Loans in accordance with the
provisions of this Agreement; provided, however, that Borrower shall be liable
for any Consequential Loss arising pursuant to such actions.
(f) Effect on Base Rate Loans. If notice has been given pursuant to
Section 2.7.(a) or (c) requiring LIBOR Loans of a Lender to be repaid or
Converted, then unless and until Agent notifies Borrower that the circumstances
giving rise to such repayment no longer apply, all Loans shall be Base Rate
Loans. If Agent notifies Borrower that the circumstances giving rise to such
repayment no longer apply, Borrower may thereafter select Loans from such Lender
to be LIBOR Loans.
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(g) Payments Not at End of Interest Period. If Borrower makes any payment
of principal with respect to any LIBOR Loan of a Lender on any day other than
the last day of an Interest Period applicable to such LIBOR Loan, then Borrower
shall reimburse such Lender on demand the Consequential Loss incurred by such
Lender as a result of the timing of such payment. A certificate of such Lender
setting forth in reasonable detail the basis for the determination of the amount
of Consequential Loss shall be delivered to Borrower by Agent and shall, in the
absence of demonstrable error, be conclusive and binding. Any Conversion of a
LIBOR Loan to a Base Rate Loan on any day other than the last day of the
Interest Period for such LIBOR Loan shall be deemed a payment for purposes of
this subsection.
SECTION 2.8. Capital Adequacy.
If, after the date hereof, any Lender shall have determined that either (a)
the adoption of any law, rule, regulation or guideline of general applicability
regarding capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any Governmental Authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or (b) compliance by such Lender (or any lending office of such Lender)
with any request or directive of general applicability regarding capital
adequacy (whether or not having the force of law) of any such authority, central
bank or comparable agency, has or would have the effect of reducing the rate of
return on such Lender's capital as a consequence of its or Borrower's
obligations hereunder to a level below that which such Lender could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's policies with respect to capital adequacy) by an amount reasonably
deemed by such Lender to be material, then from time to time, within ten days
after demand by such Lender, which demand shall include a calculation and a
reference to the law, rule or regulation, Borrower shall pay to such Lender such
additional amount or amounts as will adequately compensate such Lender for such
reduction. Such Lender will notify Agent and Borrower of any such determination
which will entitle such Lender to compensation pursuant to this subsection as
promptly as practicable (but in any event within 120 days) after such Lender
obtains actual knowledge of the event or condition prompting such Lender to make
such determination, and Borrower shall not be liable for any such amount or
amounts that accrue between the date such notification is required to be given
and the date it was actually given. A certificate of such Lender claiming
compensation under this Section and setting forth the additional amount of
amounts to be paid to it hereunder, together with the description of the manner
in which such amounts have been calculated, shall be conclusive in the absence
of demonstrable error. In determining such amount, such Lender may use any
reasonable averaging and attribution methods.
SECTION 2.9. Repayment of Loans.
(a) Payment of Interest. All accrued and unpaid interest on the unpaid
principal amount of each Loan shall be payable (i) monthly in arrears on the
first day of each month, commencing with the first full calendar month occurring
after the Effective
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Date, (ii) on the Revolving Credit Termination Date, (iii) on the Termination
Date and (iv) on any date on which the principal balance of such Loan is due and
payable in full.
(b) Payment of Principal of Revolving Loans. Subject to Section 2.12., the
aggregate outstanding principal balance of all Revolving Loans shall be due and
payable in full on the Revolving Credit Termination Date.
(c) Payment of Principal of Term Loan. Borrower shall repay the principal
balance of the Term Loan in consecutive quarterly installments due on the last
day of each February, May, August and November following the Revolving Credit
Termination Date until the Term Loan is paid in full. The amount of such
installments shall be as follows: (i) the first four installments shall each be
in the amount of 5.0% of the initial principal balance of the Term Loan (or if
the outstanding principal balance of the Term Loan is less than such amount on
the due date of any such installment, then in the amount of such outstanding
balance) and (ii) if after the payment of such four installments any principal
balance shall remain owing on the Term Loan, each remaining installment shall be
in the amount of 6.6675% of the initial principal balance of the Term Loan (or
if the outstanding principal balance of the Term Loan is less than such amount
on the due date of any such installment, then in the amount of such outstanding
balance). Notwithstanding the foregoing, the entire outstanding principal
balance of the Term Loan shall be due and payable in full on the Termination
Date.
(d) Optional Prepayments. Borrower may, upon at least one Business Day's
prior notice to Agent, prepay any Loan in whole at any time, or from time to
time in part in an amount equal to $500,000 or integral multiples of $100,000 in
excess of that amount. If Borrower shall prepay the principal of any LIBOR Loan
on any date other than the last day of the Interest Period applicable thereto,
Borrower shall pay the amounts, if any, due under Section 2.7.(d).
(e) Mandatory Prepayments. If at any time the aggregate outstanding
principal balance of Loans exceeds the Borrowing Base, then Borrower shall,
within fifteen days of Borrower obtaining actual knowledge of the occurrence of
such excess, notify Agent of what action Borrower intends to take to eliminate
such excess. If such excess is not eliminated within thirty days of Borrower
obtaining actual knowledge of the occurrence thereof (whether by Borrower
delivering to Agent additional Qualifying Securities under the Borrower Pledge
Agreement, by an increase in the market value of the Qualifying Securities, by
Borrower repaying an appropriate amount of Loans, or otherwise), then the entire
outstanding principal balance of all Loans shall be immediately due and payable
in full.
(f) General Provisions as to Payments. Except to the extent otherwise
provided herein, all payments of principal, interest and other amounts to be
made by Borrower under this Agreement, the Notes or any other Loan Document
shall be made in Dollars, in immediately available funds, without setoff,
deduction or counterclaim, to Agent at its Lending Office, not later than 11:00
a.m. on the date on which such payment shall become due (each such payment made
after such time on such due date to be deemed
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to have been made on the next succeeding Business Day) and shall be made in
accordance with the wiring instructions set forth for Agent on Annex I. The
parties agree that if Borrower makes any payment due hereunder after 11:00 a.m.
but before 5:00 p.m. on the date such payment is due, such late payment shall
not constitute a Default under Section 7.1.(a) but shall nevertheless for all
other purposes, including but not limited to, the calculation of interest, be
deemed to have been paid as of the next succeeding Business Day as provided in
the parenthetical phrase of the preceding sentence. Each payment received by
Agent for the account of a Lender under this Agreement or any Note shall be paid
to such Lender, by wire transfer of immediately available funds in accordance
with the wiring instructions set forth for such Lender on the Annex I attached
hereto, for the account of such Lender at the applicable Lending Office of such
Lender. In the event Agent fails to pay such amounts to such Lender within one
Business Day of receipt by Agent, Agent shall pay interest on such amount at a
rate per annum equal to the Federal Funds rate from time to time in effect. If
the due date of any payment under this Agreement or any other Loan Document
would otherwise fall on a day which is not a Business Day such date shall be
extended to the next succeeding Business Day and interest shall be payable for
the period of such extension.
SECTION 2.10. Voluntary Reductions of the Revolving Commitment.
Borrower may terminate or reduce the amount of the Revolving Commitment at
any time and from time to time without penalty or premium upon not less than
three Business Days prior notice to Agent of each such termination or reduction,
which notice shall specify the effective date thereof and the amount of any such
reduction (which in the case of any partial reduction of the Revolving
Commitment shall not be less than $1,000,000 and integral multiples of
$1,000,000 in excess of that amount) and shall be irrevocable once given and
effective only upon receipt by Agent; provided, however, that if Borrower seeks
to reduce the Revolving Commitment below $15,000,000, then the Revolving
Commitment shall be reduced to zero and except as otherwise provided herein, the
provisions of this Agreement shall terminate. The Revolving Commitment, once
reduced pursuant to this Section, may not be increased. Borrower shall pay all
interest and fees on the Revolving Loans accrued to the date of such reduction
or termination of the Revolving Commitment to Agent for the account of Lenders.
SECTION 2.11. Extension of Revolving Credit Termination Date.
(a) Borrower may request Agent and Lenders to extend the current Revolving
Credit Termination Date by successive one-year intervals by executing and
delivering to Agent at least 75 days but no more than 90 days prior to the date
one year prior to the current Revolving Credit Termination Date, a written
request in the form of Exhibit I (an "Extension Request"). Agent shall forward
to each Lender a copy of each Extension Request delivered to Agent promptly upon
receipt thereof. Borrower understands that this Section has been included in
this Agreement for Borrower's convenience in requesting an extension and
acknowledges that none of Lenders nor Agent has promised (either expressly or
impliedly), nor has any obligation or commitment whatsoever, to extend the
Revolving Credit Termination Date at any time. If all Lenders shall have
notified Agent
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on or prior to the date which is 45 days prior to the date one year prior to the
Revolving Credit Termination Date that they accept such Extension Request, the
Revolving Credit Termination Date shall be extended for one year. If any Lender
shall not have notified Agent on or prior to the date which is 45 days prior to
the date one year prior to the Revolving Credit Termination Date that it accepts
such Extension Request, the Revolving Credit Termination Date shall not be
extended. Agent shall promptly notify Borrower whether the Extension Request has
been accepted or rejected as well as which Lender or Lenders rejected Borrower's
Extension Request (each such Lender a "Rejecting Lender").
(b) Notwithstanding the preceding subsection (a), if Borrower receives
notification from Agent that an Extension Request has been rejected (a "Notice
of Rejection"), and provided that the aggregate amount of Commitments of the
Rejecting Lenders does not exceed 20% of the aggregate amount of Commitments
then outstanding, Borrower may elect, with respect to each such Rejecting
Lender, by giving written notice to Agent of any such election within 30 days
after receipt by Borrower of a Notice of Rejection, to either require such
Rejecting Lender to assign its respective Commitment to another financial
institution as contemplated in the immediately following clause (i) or to pay in
full the amount of Revolving Loans, interest and fees owing to such Rejecting
Lender and terminate such Rejecting Lender's Commitment as contemplated in the
immediately following clause (ii). If Borrower has made a timely election as
permitted by the preceding sentence, then Borrower shall take either of the
following actions as specified in such election: (i) demand that such Rejecting
Lender, and upon such demand such Rejecting Lender shall promptly, assign its
respective Commitment to another financial institution subject to and in
accordance with the provisions of Section 9.8.(c) for a purchase price equal to
such Rejecting Lender's Pro Rata Share of the aggregate principal balance of
Revolving Loans then outstanding plus any accrued but unpaid interest thereon
and accrued but unpaid fees owing to such Rejecting Lender, any such assignment
to be completed within 45 days after receipt by Borrower of a Notice of
Rejection or (ii) within 45 days after receipt by Borrower of a Notice of
Rejection, pay to such Rejecting Lender such Rejecting Lender's Pro Rata Share
of the aggregate principal balance of Revolving Loans then outstanding plus any
accrued but unpaid interest thereon and accrued but unpaid fees owing to such
Rejecting Lender, whereupon such Rejecting Lender's Commitment shall terminate,
such Rejecting Lender shall no longer be a party hereto or have any rights or
obligations hereunder or under any of the other Loan Documents and the Revolving
Commitment shall immediately and permanently be reduced by an amount equal to
the amount of such Rejecting Lender's respective Commitment. If all Rejecting
Lenders have either assigned their Commitments to other financial institutions
as contemplated by the preceding clause (i) or have been paid the amounts
specified in the preceding clause (ii), then the Borrower's Extension Request
which was initially rejected shall be deemed to have been granted and
accordingly the Revolving Credit Termination Date shall be extended by one year,
otherwise the Revolving Credit Termination Date shall not be extended. If the
aggregate amount of Commitments of the Rejecting Lenders exceeds 20% of the
aggregate amount of Commitments then outstanding, the Revolving Credit
Termination Date shall not be extended.
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SECTION 2.12. Term Loan Conversion.
Subject to the terms and conditions of this Agreement, if any Extension
Request of Borrower shall be denied, Borrower may then elect to convert on the
date one year prior to the current Revolving Credit Termination Date the
aggregate principal amount of Revolving Loans then outstanding into a term loan
owing to Lenders (the "Term Loan") provided (a) Borrower has given Agent not
less than fifteen-days' prior notice of Borrower's intention to so convert the
Revolving Loans and (b) the conditions set forth in Section 4.3. have been
satisfied as of the date one year prior to the current Revolving Credit
Termination Date. Upon the effectiveness of the conversion of the outstanding
principal balance of Revolving Loans into the Term Loan as contemplated by this
Section, Borrower shall have no right to borrow, and no Lender shall have any
obligation to make, any Revolving Loans.
SECTION 2.13. Notes.
The obligation of Borrower to repay the Loans shall, in addition to this
Agreement, be evidenced by the Notes.
ARTICLE III. GENERAL LOAN PROVISIONS
SECTION 3.1. Fees.
(a) During the period commencing January 1, 1995 to but excluding
September 30, 1996, Borrower agrees to pay Agent for the account of Lenders an
unused facility fee equal to one-eighth of one percent (0.125%) per annum of the
average daily amount by which the Revolving Commitment exceeds the aggregate
outstanding principal balance of Revolving Loans. During the period commencing
October 1, 1996 to but excluding the Revolving Credit Termination Date, Borrower
agrees to pay Agent for the account of Lenders an unused facility fee equal to
the portion of the average daily amount by which the Revolving Commitment
exceeds the aggregate outstanding principal balance of Revolving Loans set forth
below multiplied by the corresponding per annum rate applicable to that portion.
<TABLE>
<CAPTION>
<S> <C>
Portion of Amount by Which Revolving
Commitment Exceeds Revolving Loans Unused Fee
- ----------------------------------------------------------
$0 to and including $100,000,000 0.125%
- ----------------------------------------------------------
Greater than $100,000,000 and less 0.1875
than or equal to $200,000,000
- ----------------------------------------------------------
Greater than $200,000,000 0.25%
- ----------------------------------------------------------
</TABLE>
Such fee shall be payable quarterly in arrears on the first day of each January,
April, July and October during the term of this Agreement and on the Revolving
Credit Termination
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Date. Borrower acknowledges that the commitment fees payable hereunder are bona
fide commitment fees and are intended as reasonable compensation to Lenders for
committing to make funds available to Borrower as described herein and for no
other purposes.
(b) If, pursuant to Section 2.11., Lenders grant an extension of the
Revolving Credit Termination Date, Borrower agrees to pay to Agent for the
account of Lenders an extension fee equal to the following percentage of the
Revolving Commitment at such time: (i) three-sixteenths of one percent (0.1875%)
for an extension of the Revolving Credit Termination Date of August 19, 1997 to
November 15, 1998 as effected by the amendment and restatement of the Existing
Credit Agreement and (ii) three-twentieths of one percent (0.15%) for extensions
of any later Revolving Credit Termination Date. Such fee shall be payable on
the date on which Lenders grant such extension.
(c) If, pursuant to Section 2.12., the outstanding balance of Revolving
Loans is converted into the Term Loan, Borrower agrees to pay to Agent for the
account of Lenders a conversion fee equal to one-quarter of one percent (0.25%)
per annum of the principal balance of the Term Loan outstanding on each date
such fee is payable. Such fee shall be payable on the first, second and third
anniversary dates of such conversion and shall be paid within 5 Business Days of
such anniversary date.
(d) Borrower agrees to pay to Agent such fees for services rendered by
Agent as shall be separately agreed upon between Borrower and Agent.
SECTION 3.2. Computation of Interest and Fees.
Interests on the Loans and all fees shall be computed on the basis of a
year of 360 days and paid for the actual number of days elapsed (including the
first day but excluding the last day of a period).
SECTION 3.3. Pro Rata Treatment.
Unless set forth to the contrary herein, (a) each borrowing of a Revolving
Loan, (b) each payment by Borrower with respect to any Loan, (c) each other
payment to be made by Borrower hereunder or under any Loan Document and (d) any
amounts received with respect to the sale, disposition, foreclosure or other
transfer of any Collateral, shall be made by, or credited to the account of,
Lenders in accordance with their respective Pro Rata Shares. Each payment of
interest on the Loans made by Borrower shall be made for the account of Lenders
pro rata in accordance with the amounts of interest due and payable to the
respective Lenders. The fees referred to in Section 3.1.(d) shall be for the
account of only Agent.
SECTION 3.4. Sharing of Payments, Etc.
Borrower agrees that, in addition to (and without limitation of) any right
of set-off, bankers' lien or counterclaim a Lender may otherwise have, each
Lender shall be entitled, at its option, to offset balances held by it for the
account of Borrower at any of such Lender's offices, in Dollars or in any other
currency, against any principal of, or interest
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on, any of such Lender's Loans hereunder (or other Obligations owing to such
Lender hereunder) which is not paid when due after the expiration of any
applicable grace periods (regardless of whether such balances are then due to
Borrower), in which case such Lender shall promptly notify Borrower, all other
Lenders and Agent thereof; provided, however, such Lender's failure to give such
notice shall not affect the validity of such offset. If a Lender shall obtain
payment of any principal of, or interest on, any Loan under this Agreement, or
shall obtain payment on any other Obligation owing by Borrower through the
exercise of any right of set-off, banker's lien or counterclaim or similar right
or otherwise or through voluntary prepayments directly to a Lender or other
payments made by Borrower to a Lender not in accordance with the terms of this
Agreement and such payment, pursuant to the immediately preceding Section,
should be distributed to Lenders in accordance with their Pro Rata Shares, such
Lender shall promptly purchase from the other Lenders participations in (or, if
and to the extent specified by such Lender, direct interests in) the Loans made
by the other Lenders or other Obligations owed to such other Lenders in such
amounts, and make such other adjustments from time to time as shall be
equitable, to the end that all Lenders shall share the benefit of such payment
(net of any expenses which may be incurred by such Lender in obtaining or
preserving such benefit) in accordance with their respective Pro Rata Shares. To
such end, all Lenders shall make appropriate adjustments among themselves (by
the resale of participations sold or otherwise) if such payment is rescinded or
must otherwise be restored. Borrower agrees that any Lender so purchasing a
participation (or direct interest) in the Loans or other Obligations owed to
such other Lenders made by other Lenders may exercise all rights of set-off,
bankers' lien, counterclaim or similar rights with respect to such participation
as fully as if such Lender were a direct holder of Loans in the amount of such
participation. Nothing contained herein shall require any Lender to exercise any
such right or shall affect the right of any Lender to exercise, and retain the
benefits of exercising, any such right with respect to any other indebtedness or
obligation of Borrower.
SECTION 3.5. Defaulting Lenders.
If for any reason any Lender (a "Defaulting Lender") shall fail or refuse
to perform its obligations under this Agreement or any other Loan Document to
which it is a party within the time period specified for performance of such
obligation or, if no time period is specified, if such failure or refusal
continues for a period of ten Business Days after notice from Agent, then, in
addition to the rights and remedies that may be available to Agent or Borrower
under this Agreement or Applicable Law, such Defaulting Lender's right to
participate in the administration of the Loans, this Agreement and the other
Loan Documents, including without limitation, any right to vote in respect of,
to consent to or to direct any action or inaction of Agent or to be taken into
account in the calculation of Majority Lenders, shall be suspended during the
pendency of such failure or refusal. If for any reason a Lender fails to make
timely payment to Agent of any amount required to be paid to Agent hereunder
(without giving effect to any notice or cure periods), in addition to other
rights and remedies which Agent or Borrower may have under the immediately
preceding provisions or otherwise, Agent shall be entitled (i) to collect
interest from such Defaulting Lender on such delinquent payment for the period
from the date on which the payment was due until the date on which the payment
is made at the Federal Funds Rate,
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(ii) to withhold or setoff and to apply in satisfaction of the defaulted payment
and any related interest, any amounts otherwise payable to such Lender under
this Agreement or any other Loan Document and (iii) to bring an action or suit
against such Lender in a court of competent jurisdiction to recover the
defaulted amount and any related interest. Any amounts received by Agent in
respect of a Defaulting Lender's Pro Rata Share of the Loans shall not be paid
to such Defaulting Lender and shall be held by Agent and either applied against
the purchase price of such Pro Rata Share of the Loans under Section 3.6. or
paid to such Defaulting Lender upon the Defaulting Lender's curing of its
default.
SECTION 3.6. Purchase of Defaulting Lender's Pro Rata Share.
(a) Any Lender who is not a Defaulting Lender shall have the right, but
not the obligation, in its sole discretion, to acquire all of a Defaulting
Lender's Pro Rata Share of the Loans. If more than one Lender exercises such
right, each such Lender shall have the right to acquire such proportion of such
Defaulting Lender's Pro Rata Share of the Loans as they may mutually agree. Upon
any such purchase of the Pro Rata Share of the Loans of a Defaulting Lender, the
Defaulting Lender's interest in the Loans and its rights hereunder (but not its
liability in respect thereof or under the Loan Documents or this Agreement to
the extent the same relate to the period prior to the effective date of the
purchase) shall terminate on the date of purchase, and the Defaulting Lender
shall promptly execute all documents reasonably requested to surrender and
transfer such interest to the purchaser thereof, including an appropriate
Assignment and Acceptance Agreement and, notwithstanding Section 9.8.(c), shall
pay to Agent an assignment fee in the amount of $6,000.
(b) The purchase price for the Pro Rata Share of the Loans of a Defaulting
Lender shall be equal to the amount of the principal balance of the Loans
outstanding and owed by Borrower to the Defaulting Lender. Prior to payment of
such purchase price to Defaulting Lender, Agent shall apply against such
purchase price any amounts payable in respect of such Pro Rata Share of the
Loans as contemplated by the last sentence of Section 3.5. The Defaulting
Lender shall be entitled to receive amounts owed to it by Borrower under the
Loan Documents which accrued prior to the date of the default by the Defaulting
Lender, to the extent the same are received by Agent from or on behalf of
Borrower. There shall be no recourse against any Lender or Agent for the
payment of such sums except to the extent of the receipt of payments from any
other party or in respect of the Loans.
SECTION 3.7. Usury.
In no event shall the amount of interest due or payable on the Loans exceed
the maximum rate of interest allowed by Applicable Law and, in the event any
such payment is paid by Borrower or received by any Lender, then such excess sum
shall be credited as a payment of principal. It is the express intent of the
parties hereto that Borrower not pay and Lenders not receive, directly or
indirectly, in any manner whatsoever, interest in excess of that which may be
lawfully paid by Borrower under Applicable Law.
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SECTION 3.8. Agreement Regarding Interest and Charges.
THE PARTIES HERETO HEREBY AGREE AND STIPULATE THAT THE ONLY CHARGE IMPOSED
UPON BORROWER FOR THE USE OF MONEY IN CONNECTION WITH THIS AGREEMENT IS AND
SHALL BE THE INTEREST DESCRIBED IN SECTION 2.6. THE PARTIES HERETO FURTHER
AGREE AND STIPULATE THAT ALL OTHER CHARGES IMPOSED BY LENDERS AND AGENT ON
BORROWER IN CONNECTION WITH THIS AGREEMENT, INCLUDING ALL AGENCY FEES, FACILITY
FEES, UNUSED FACILITY FEES, EXTENSION FEES, UNDERWRITING FEES, DEFAULT CHARGES,
LATE CHARGES, ATTORNEYS' FEES AND REIMBURSEMENT FOR COSTS AND EXPENSES PAID BY
AGENT OR ANY LENDER TO THIRD PARTIES OR FOR DAMAGES INCURRED BY AGENT OR ANY
LENDER, ARE CHARGES MADE TO COMPENSATE AGENT OR ANY SUCH LENDER FOR UNDERWRITING
OR ADMINISTRATIVE SERVICES AND COSTS OR LOSSES PERFORMED OR INCURRED, AND TO BE
PERFORMED OR INCURRED, BY AGENT AND LENDERS IN CONNECTION WITH THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS AND SHALL UNDER NO CIRCUMSTANCES BE DEEMED TO BE
CHARGES FOR THE USE OF MONEY PURSUANT TO OFFICIAL CODE OF GEORGIA ANNOTATED
SECTION 7-4-2 OR 7-4-18. ALL CHARGES OTHER THAN CHARGES FOR THE USE OF MONEY
SHALL BE FULLY EARNED AND NONREFUNDABLE WHEN DUE.
SECTION 3.9. Statements of Account.
Agent will account to Borrower monthly with a statement of Loans, charges
and payments made pursuant to this Agreement and the other Loan Documents, and
such account rendered by Agent shall be deemed final, binding and conclusive
upon Borrower absent demonstrable error. The failure of Agent or any Lender to
maintain or deliver such a statement of accounts shall not relieve or discharge
Borrower from its obligations hereunder.
SECTION 3.10. Agent's Reliance.
Neither Agent nor any Lender shall incur any liability to Borrower for
acting upon any telephonic notice permitted under this Agreement which Agent or
such Lender believes reasonably and in good faith to have been given by an
individual authorized to deliver a Notice of Borrowing, Notice of Conversion,
Notice of Continuation or Extension Request on behalf of Borrower.
SECTION 3.11. Liens on Collateral.
Pursuant to the terms of the Collateral Documents to which it is a party,
Borrower has granted to Agent, for the benefit of Lenders a valid, enforceable,
perfected, first-priority and (except for Permitted Liens) only security
interest and Lien in and to the Collateral in which Borrower has rights as
security for the Obligations. Pursuant to the
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terms of the Collateral Documents to which it is a party, Guarantor has granted
to Agent, for the benefit of Lenders a valid, enforceable, perfected, first-
priority and (except for Permitted Liens) only security interest and Lien in and
to the Collateral in which it has rights as security for the Obligations (as
defined in the Guaranty).
SECTION 3.12. Option to Replace Lenders.
If pursuant to Section 2.1., Agent shall determine that the making of a
Revolving Loan requested by Borrower will result in a violation by a Lender (the
"Affected Lender") subject to Regulation G of the margin requirements of
Regulation G but not those of Regulation U, then, so long as there does not then
exist any Default or Event of Default, Borrower may either (a) demand that the
Affected Lender, and upon such demand the Affected Lender shall promptly, assign
its Commitment to another financial institution subject to and in accordance
with the provisions of Section 9.8.(c) for a purchase price equal to the
Affected Lender's Pro Rata Share of the aggregate principal balance of Revolving
Loans then outstanding plus any accrued but unpaid interest thereon and accrued
but unpaid fees owing to the Affected Lender, or (b) pay to the Affected Lender
the Affected Lender's Pro Rata Share of the aggregate principal balance of
Revolving Loans then outstanding plus any accrued but unpaid interest thereon
and accrued but unpaid fees owing to the Affected Lender, whereupon the Affected
Lender shall no longer be a party hereto or have any rights or obligations
hereunder or under any of the other Loan Documents and the Revolving Commitment
shall immediately and permanently be reduced by an amount equal to the amount of
the Affected Lender's Commitment.
SECTION 3.13. Foreign Lenders.
On or before the Effective Date, each Foreign Lender shall deliver to Agent
and Borrower (i) two valid, duly completed copies of IRS Form 1001 or 4224 or
successor applicable form, as the case may be, and any other required form,
certifying in each case that such Foreign Lender is entitled to receive payments
under this Agreement and the Note payable to it without deduction or withholding
of any United States federal income taxes or with such withholding imposed at a
reduced rate (the "Reduced Rate"), and (ii) if requested by Agent or Borrower, a
valid, duly completed IRS Form W-8 or W-9 or successor applicable form, as the
case may be, to establish an exemption from United States backup withholding
tax. Each such Foreign Lender shall also deliver to Agent and Borrower two
further copies of such Form 1001 or 4224 and W-8 or W-9, or successor applicable
forms, or other manner of required certification, as the case may be, on or
before the date that any such form previously delivered expires or becomes
obsolete or otherwise is required to be resubmitted as a condition to obtaining
an exemption from a required withholding of United States federal income tax or
entitlement to having such withholding imposed at the Reduced Rate or after the
occurrence of any event requiring a change in the most recent form previously
delivered by such Foreign Lender to Borrower and Agent, and such extensions or
renewals thereof as may reasonably be requested by Borrower and Agent, (i) in
the case of a Form 1001 or 4224, certifying that such Foreign Lender is entitled
to receive payments under this Agreement and the Note payable to it without
deduction or withholding of any United States federal income taxes, unless in
any
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such case any change in a tax treaty to which the United States is a party,
or any change in any Applicable Law of the United States of America or official
interpretation thereof has occurred after the Effective Date and prior to the
date on which any such delivery would otherwise be required that renders all
such forms inapplicable or that would prevent such Foreign Lender from duly
completing and delivering any such form with respect to it, and such Foreign
Lender advises Borrower and Agent that it is not capable of receiving payments
without any deduction or withholding at the Reduced Rate, or (ii) in the case of
a Form W-8 or W-9, establishing an exemption from United States backup
withholding tax.
ARTICLE IV. CONDITIONS
SECTION 4.1. Effectiveness.
The effectiveness of this Agreement and the obligation of Lenders to make
any Loans to Borrower in accordance with the terms hereof are subject to the
condition precedent that Borrower deliver to Agent each of the following, each
of which shall be in form and substance satisfactory to Agent:
(a) counterparts of this Agreement executed by each of the parties hereto;
(b) Notes executed by Borrower, payable to each Lender and complying with
the terms of Section 2.13.;
(c) the Borrower Pledge Agreement executed by Borrower;
(d) the Guaranty executed by Guarantor;
(e) UCC amendment statements executed by Guarantor and Borrower with
respect to existing financing statements to reflect the amendment and
restatement of the Existing Credit Agreement;
(f) the opinion of Mayer, Brown and Platt, counsel to Borrower and
Guarantor, and addressed to Agent and Lenders in substantially the form of
Exhibit J;
(g) an opinion of King & Spalding, local Georgia counsel to Borrower and
Guarantor, and addressed to Agent and Lenders in substantially the form of
Exhibit K;
(h) the articles of incorporation of Borrower certified as of a recent
date by the Secretary of State of the State of Nevada;
(i) a Certificate of Good Standing issued as of a recent date by the
Secretary of State of the State of Nevada and certificates of qualification to
transact business or other comparable certificates issued by each Secretary of
State (and any state department of taxation, as applicable) of each state in
which Borrower is required to be so qualified;
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(j) a certificate of incumbency signed by the Secretary or Assistant
Secretary of Borrower with respect to each of the officers of Borrower
authorized to execute and deliver the Loan Documents to which Borrower is a
party;
(k) certified copies (certified by the Secretary or Assistant Secretary of
Borrower) of the by-laws of Borrower and of all corporate or other necessary
action taken by Borrower to authorize the execution, delivery and performance of
the Loan Documents to which it is a party;
(l) the articles of incorporation of Guarantor certified as of a recent
date by the Secretary of State of the State of Maryland;
(m) a Certificate of Good Standing issued as of a recent date by the
Secretary of State of the State of Maryland and certificates of qualification to
transact business or other comparable certificates issued by each Secretary of
State (and any state department of taxation, as applicable) of each state in
which Guarantor is required to be so qualified;
(n) a certificate of incumbency signed by the Secretary or Assistant
Secretary of Guarantor with respect to each of the officers of Guarantor
authorized to execute and deliver the Loan Documents to which Guarantor is a
party;
(o) certified copies (certified by the Secretary or Assistant Secretary of
Guarantor) of the by-laws of Guarantor and of all corporate or other necessary
action taken by Guarantor to authorize the execution, delivery and performance
of the Loan Documents to which it is a party;
(p) a Form FR U-1 and a Form FR G-3 executed by Borrower with respect to
the Collateral in which it has rights;
(q) such other documents and instruments as Agent or any Lender may
reasonably request.
SECTION 4.2. Revolving Loans.
The obligation of Lenders to make a Revolving Loan is subject to the
condition precedent that the following conditions be satisfied in the judgment
of Agent:
(a) timely receipt by Agent of a Notice of Borrowing;
(b) the proposed use of proceeds of such Revolving Loan set forth in the
Notice of Borrowing is consistent with the provisions of Section 6.9.;
(c) immediately before and after the making of such Revolving Loan, no
Default (including without limitation the existence of the condition described
in Section 2.9.(e)) or Event of Default shall have occurred and be continuing;
and
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(d) the representations and warranties of Borrower and Guarantor contained
in the Loan Documents to which either is a party shall be true in all material
respects on and as of the date of such Revolving Loan except to the extent such
representations or warranties specifically relate to an earlier date or such
representations or warranties become untrue by reason of events or conditions
otherwise permitted hereunder and the other Loan Documents.
The delivery of each Notice of Borrowing and the making of each Loan shall
constitute a certification by Borrower to Agent and Lenders that the statements
in the immediately preceding clauses (b) through (d) are true.
SECTION 4.3. Conditions to Conversion to Term Loan.
The right of Borrower to convert Revolving Loans into the Term Loan under
Section 2.12. is subject to the condition precedent that the following
conditions be satisfied in the judgment of Agent:
(a) timely receipt by Agent of the notice required under such Section;
(b) immediately before and after such conversion, no Event of Default
shall have occurred and be continuing; and
(c) the representations and warranties of Borrower and Guarantor contained
in the Loan Documents to which either is a party shall be true in all material
respects on and as of the date of such conversion except to the extent such
representations or warranties specifically relate to an earlier date or such
representations or warranties become untrue by reason of events or conditions
otherwise permitted hereunder and the other Loan Documents.
The delivery of the notice required under such Section shall constitute a
certification by Borrower to Agent and Lenders that the statements in the
immediately preceding clauses (b) and (c) are true.
SECTION 4.4. Conditions as Covenants.
If Lenders make the initial Revolving Loan prior to the satisfaction of all
conditions precedent set forth in Section 4.1., Borrower shall nevertheless
cause such condition or conditions to be satisfied within five Business Days
after the date of the making of such initial Revolving Loan.
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ARTICLE V. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Agent and each Lender as follows:
SECTION 5.1. Existence and Power.
Borrower is a corporation, duly organized, validly existing and in good
standing under the laws of the State of Nevada, and has all requisite power and
authority and all governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted and is duly qualified and is
in good standing as a foreign corporation, and authorized to do business, in
each jurisdiction in which the character of its properties or the nature of its
business requires such qualification or authorization except where the failure
to be so qualified or authorized would not have a Materially Adverse Effect on
Borrower.
SECTION 5.2. Ownership Structure.
Schedule 5.2. correctly sets forth the corporate structure and ownership
interests of Borrower and all of its Consolidated Subsidiaries including the
correct legal name of Borrower and each such Subsidiary, and Borrower's relative
equity interest in each such Subsidiary.
SECTION 5.3. Authorization of Agreement, Notes, Loan Documents and
Borrowings.
Borrower has the right and power, and has taken all necessary action to
authorize it, to borrow hereunder and to execute, deliver and perform this
Agreement, the Notes and the other Loan Documents to which it is a party in
accordance with their respective terms and to consummate the transactions
contemplated hereby. This Agreement, the Notes and each of the other Loan
Documents to which Borrower is a party have been duly executed and delivered by
the duly authorized officers of Borrower and each is a legal, valid and binding
obligation of Borrower enforceable against Borrower in accordance with its
respective terms, except as the same may be limited by bankruptcy, insolvency,
and other similar laws affecting the rights of creditors generally and the
availability of equitable remedies for the enforcement of certain obligations
(other than the payment of principal) contained herein or therein may be limited
by equitable principles generally.
SECTION 5.4. Compliance of Agreement, Notes, Loan Documents and Borrowing
with Laws, etc.
The execution, delivery and performance of this Agreement, the Notes and
the other Loan Documents to which Borrower is a party in accordance with their
respective terms and the borrowing of Loans hereunder do not and will not, by
the passage of time, the giving of notice or otherwise (a) require any
Governmental Approval or violate any Applicable Law relating to Borrower the
failure to possess or to comply with which would have a Materially Adverse
Effect on Borrower; (b) conflict with, result in a breach of or constitute a
default under the articles of incorporation or the bylaws of Borrower, or any
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indenture, agreement or other instrument to which Borrower is a party or by
which it or any of its properties may be bound and the violation of which would
have a Materially Adverse Effect on Borrower; or (c) result in or require the
creation or imposition of any Lien upon or with respect to any property now
owned or hereafter acquired by Borrower other than Permitted Liens.
SECTION 5.5. Compliance with Law; Governmental Approvals.
Borrower is in compliance with each Governmental Approval applicable to it
and in compliance with all other Applicable Law relating to Borrower, except for
noncompliances which, and Governmental Approvals the failure to possess which,
would not, singly or in the aggregate, cause a Default or Event of Default or
have a Materially Adverse Effect on Borrower and in respect of which (if
Borrower has actual knowledge of such Applicable Law or Governmental Approval)
adequate reserves have been established on the books of Borrower.
SECTION 5.6. Indebtedness and Guarantees.
The Borrower has no Indebtedness or Guarantees other than the Indebtedness
hereunder and under the other Loan Documents to which the Borrower is a party.
SECTION 5.7. Transactions with Affiliates.
Borrower is not a party to any transaction with any Affiliate which is in
violation of Section 6.12.(b).
SECTION 5.8. Absence of Defaults.
Borrower is not in default under its articles of incorporation or its
bylaws, and no event has occurred, which has not been remedied, cured or waived
(a) which constitutes a Default or an Event of Default; or (b) which
constitutes, or which with the passage of time, the giving of notice or
otherwise, would constitute, a default or event of default by Borrower under any
material agreement (other than this Agreement) or judgment, decree or order to
which Borrower is a party or by which Borrower or any of its properties may be
bound.
SECTION 5.9. Financial Information.
The consolidated balance sheet of Borrower as at December 31, 1995 and the
related consolidated statements of earnings, stockholders' equity and cash flows
for the fiscal year then ending, reported on by Arthur Andersen & Co., and the
unaudited consolidated balance sheet of Borrower as at March 31, 1996 and the
related unaudited consolidated statements of earnings, stockholders' equity and
cash flows for the fiscal quarter then ending, copies of all of which have been
delivered to Agent and Lenders, fairly present, in conformity with generally
accepted accounting principles, the financial position of Borrower as of such
date and its results of operations and cash flows for such fiscal year and
period. Since December 31, 1995 and with reference to such date, there
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has been no material adverse change in the financial position or results of
operations of Borrower and its Consolidated Subsidiaries taken as a whole.
SECTION 5.10. Litigation.
There is no action, suit or proceeding pending against, or to the knowledge
of Borrower threatened against or affecting, any Related Company before any
court or arbitrator or any governmental body, agency or official (a) which would
reasonably be expected to materially adversely affect the business, properties,
financial position, results of operations or prospects of Borrower or (b) which
in any manner draws into question the validity of any Loan Document.
SECTION 5.11. ERISA.
Borrower does not maintain, and has not at any time maintained, any Plan
subject to the provisions of ERISA and is not, and has not at any time been, a
member of any ERISA Group with any Person that has at any time maintained any
such Plan.
SECTION 5.12. Environmental Matters.
In the ordinary course of their business, the Related Companies conduct an
ongoing review of the effect of Environmental Laws on their business, operations
and properties, in the course of which they identify and evaluate associated
liabilities and costs (including, without limitation, any capital or operating
expenditures required for clean-up or closure of properties presently or
previously owned, any capital or operating expenditures required to achieve or
maintain compliance with environmental protection standards imposed by law or as
a condition of any license, permit or contract, any related constraints on
operating activities, including any periodic or permanent shutdown of any
facility or reduction in the level of or change in the nature of operations
conducted thereat, any costs or liabilities in connection with off-site disposal
of wastes or Hazardous Substances, and any actual or potential liabilities to
third parties, including employees, and any related costs and expenses). On the
basis of this review, Borrower has reasonably concluded that such associated
liabilities and costs, including the costs of compliance with Environmental
Laws, are unlikely to have a material adverse effect on the business, financial
condition, results of operations or prospects of Borrower and its Consolidated
Subsidiaries, considered as a whole.
SECTION 5.13. Taxes.
As of the date hereof, no United States Federal income tax returns of the
"affiliated group" (as defined in the Internal Revenue Code) of which Borrower
is a member have been examined and closed. The members of such affiliated group
have filed all United States Federal income tax returns and all other material
tax returns which are required to be filed by them and have paid all taxes due
pursuant to such returns or pursuant to any assessment received by or any of
them except for taxes being contested in good faith by appropriate proceedings
and for which appropriate reserves have been established. The
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charges, accruals and reserves on the books of Borrower in respect of taxes or
other governmental charges are, in the opinion of Borrower, adequate.
SECTION 5.14. Other Related Companies.
Each of the corporate Related Companies other than Borrower is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation, and has all corporate powers and all
material Governmental Approvals required to carry on its business as now
conducted.
SECTION 5.15. Not an Investment Company.
Borrower is not an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
SECTION 5.16. Full Disclosure.
All written information furnished by or on behalf of Borrower or Guarantor
to Agent and Lenders for purposes of or in connection with this Agreement and
the other Loan Documents or any transaction contemplated hereby is, and all such
information hereafter furnished by or on behalf of Borrower or Guarantor to
Agent and Lenders will be true and accurate in all material respects on the date
as of which such information is stated or certified and does not, and will not,
fail to state any material facts necessary to make the statements contained
therein not misleading. Borrower has disclosed to Agent in writing any and all
facts known to Borrower which materially and adversely affect or may affect (to
the extent Borrower can now reasonably foresee), the business, operations or
financial condition of Borrower and its Consolidated Subsidiaries, taken as a
whole, or the ability of Borrower to perform its obligations under the Loan
Documents.
SECTION 5.17. Insurance.
Schedule 5.17. sets forth a true and correct description of the insurance
coverage maintained by or on behalf of Borrower currently in effect.
SECTION 5.18. Not Plan Assets.
The assets of Borrower do not and will not constitute plan assets, within
the meaning of ERISA, the Internal Revenue Code and the respective regulations
promulgated thereunder, of any ERISA Plan or Non-ERISA Plan. The execution,
delivery and performance of this Agreement, and the borrowing and repayment of
amounts thereunder, do not and will not constitute "prohibited transactions"
under ERISA or the Internal Revenue Code.
SECTION 5.19. Sole Shareholder.
Guarantor owns all of the issued and outstanding capital stock of Borrower.
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SECTION 5.20. Liens.
The liens and security interests granted to Agent pursuant to the
Collateral Documents are valid and enforceable first-priority Liens subject only
to Permitted Liens.
SECTION 5.21. Pledged Shares.
Schedules 5.21.(A), (B), (C) and (D) are true, correct and complete
descriptions of the transactions pursuant to which Borrower (or Guarantor prior
to the Contribution) acquired the Pledged Shares of Security Capital Industrial
Trust, Security Capital Atlantic Incorporated, Security Capital Pacific Trust
and Security Capital U.S. Realty, respectively, including the date of
acquisition, the number of Pledged Shares so acquired, the identity of the
Person from whom acquired, the per share acquisition price (if applicable) and
when the full acquisition price was paid or given (if applicable). As of the
date hereof, none of the Pledged Shares issued by Security Capital Pacific Trust
are "restricted securities" as such term is defined in Rule 144 of the
Securities Act. As of the date hereof, 19,012,884 of the Pledged Shares issued
by Security Capital Industrial Trust are such "restricted securities", all of
which (other than 10,004 shares acquired from certain employees) have been held
by Borrower for more than two years for purposes of Rule 144 of the Securities
Act, and the remaining 20,339,601 of such Pledged Shares are not such
"restricted securities". For the purposes of this Section, the term Pledged
Shares shall have the meaning given to such term in the Pledge Agreement.
SECTION 5.22. Assets.
As of the date hereof, Borrower has no assets other than (a) the Pledged
Collateral (as defined in the Borrower Pledge Agreement) and the registration
rights associated with such Pledged Collateral, (b) New Investments, (c) cash,
cash equivalents, bank accounts, office furniture, equipment and supplies,
leases for office space and other assets used by Borrower in the operation of
its business and (d) the Guarantor Note. As of the date hereof, the aggregate
value of the assets described in the immediately preceding clause (c) (excluding
bank accounts) does not exceed $1,000,000.
SECTION 5.23. Business Purposes and Objects.
The purposes and objects for which Borrower is organized are (a) to hold,
buy and sell interests in and organize, capitalize, promote and control publicly
and privately held real estate investment trusts and corporations electing to be
taxed as real estate investment trusts and other entities engaged in the
ownership, acquisition, development, sale, leasing and operation of real
property and related assets (or companies or other entities which directly or
indirectly own such entities); (b) to hold, buy and sell interests in and
organize, capitalize and control corporations or other entities providing
services to real estate investment trusts, corporations or other entities,
including, without limitation, general management, property management,
development, acquisitions, due diligence, research, capital markets, accounting
and legal services and such other services as such real estate investment
trusts, corporations or other entities may require from time to time (or
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companies or other entities which directly or indirectly own such entities); and
(c) all other purposes and objects necessary, appropriate, convenient, conducive
or advisable to the purposes and objects listed in clauses (a) and (b).
SECTION 5.24. Separateness Representations.
(a) Consolidation of the business operations of Borrower and Guarantor,
when taken together with the elimination of the financial benefits of the
transactions, would not result in any significant cost savings or in
significantly greater efficiency of such combined business operations.
(b) Borrower has not concealed and will not conceal from any interested
party any transfers made in connection with the Contribution. Borrower did not
enter into the transactions contemplated by the Existing Credit Agreement and
the Assignment and Assumption Agreement with the intent of hindering, delaying
or defrauding its creditors.
(c) Borrower's management has made a diligent analysis of the business and
operations of Borrower, and is reasonably confident that Borrower is and will
be: (i) adequately capitalized to conduct its business and affairs as a going
concern, considering the size and nature of its business and intended purposes;
(ii) solvent; and (iii) able to pay its debts as they come due. As a result of
the foregoing, Borrower's management believes that Borrower will be able to
conduct its business as a stand alone entity, independent of financial
assistance of any Person. Borrower's management does not anticipate any need
for Guarantor to loan money or contribute capital to Borrower, although it is
possible that Guarantor may take either of these actions in the future.
SECTION 5.25. Solvency.
(a) The fair value and the fair salable value of Borrower's assets
(excluding any Indebtedness due from any Affiliate of Borrower) are each in
excess of the fair valuation of Borrower's total liabilities (including all
contingent liabilities); and (b) Borrower is able to pay its debts or other
obligations in the ordinary course as they mature and (c) Borrower has capital
not unreasonably small to carry on its business and all business in which it
proposes to be engaged.
ARTICLE VI. COVENANTS
Borrower agrees that, so long as Lenders have any Commitments hereunder or
any Obligation remains unpaid:
SECTION 6.1. Information.
Borrower will deliver to Agent:
(a) as soon as available and in any event within ninety days after the end
of each respective fiscal year of Borrower and any of its Subsidiaries the
financial statements of which are audited, a balance sheet of such Person as of
the end of such fiscal year and
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the related statements of funds from operations or earnings, stockholders'
equity and cash flows for such fiscal year, setting forth in each case in
comparative form the figures for the previous fiscal year, and in the case of
each such Subsidiary, reported on (other than the statement of funds from
operations) in a manner acceptable to Agent by independent public accountants of
nationally recognized standing;
(b) as soon as available and in any event within forty-five days after the
end of each of the first three fiscal quarters of each respective fiscal year of
Borrower and any of its Subsidiaries the financial statements of which are
audited, a balance sheet of such Person as of the end of such quarter and the
related statements of funds from operations or earnings, stockholders' equity
and cash flows for such quarter and for the portion of such Person's fiscal year
ended at the end of such quarter, setting forth in comparative form the figures
for the corresponding quarter and the corresponding portion of such Person's
previous fiscal year, all certified (subject to normal year-end adjustments) as
to fairness of presentation, generally accepted accounting principles (subject
to absence of full footnote disclosures and other than the statement of funds
from operations) and consistency by the President, Managing Director, Treasurer
or controller of such Person (which officer shall be authorized to so certify
such statements);
(c) simultaneously with the delivery of each set of financial statements
referred to in the immediately preceding clauses (a) and (b), a certificate of
the President, Managing Director, Treasurer or controller of Borrower (which
officer shall be authorized to execute such certificate) (i) setting forth in
reasonable detail the calculations required to establish whether Borrower was in
compliance with the requirements of Sections 6.7. and 6.12. on the date of such
financial statements, (ii) stating whether any Default or Event of Default
exists on the date of such certificate and, if any Default or Event of Default
then exists, setting forth the details thereof and the action which Borrower is
taking or proposes to take with respect thereto, (iii) setting forth a schedule
of all Contingent Obligations of Borrower as of the date of such financial
statements, and (iv) setting forth a schedule, in such form as may be reasonably
satisfactory to Agent, of information with respect to assets and liabilities of
Consolidated Subsidiaries of Borrower;
(d) as soon as available and in any event within forty-five days after the
end of each fiscal quarter, or promptly upon the request of Agent, a report
certified by the President, Managing Director, Treasurer or controller of
Borrower (which officer shall be authorized to certify such report), setting
forth in reasonable detail (i) all Qualifying Securities and the current Market
Value thereof, (ii) all Traded Securities and the current Market Value thereof,
and (iii) a calculation of the Borrowing Base;
(e) simultaneously with the delivery of each set of financial statements
referred to in the immediately preceding clause (a), a statement of the firm of
independent public accountants which reported on such statements (i) whether
anything has come to their attention to cause them to believe that any Default
or Event of Default existed on the date of such statements and (ii) confirming
the calculations set forth in the Compliance Certificate delivered
simultaneously therewith pursuant to the immediately preceding clause (c);
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(f) promptly upon receipt thereof, copies of all reports submitted to
Borrower or its Board of Directors by Borrower's independent public accountants,
including without limitation, any management report;
(g) within five days after any executive officer of Borrower obtains
knowledge of any Default or Event of Default, a certificate of the President,
Managing Director, Treasurer, controller or Secretary of Borrower setting forth
the details thereof and the action which Borrower is taking or proposes to take
with respect thereto;
(h) promptly upon the mailing thereof to the shareholders of Borrower
generally, copies of all financial statements, reports, offering memoranda and
proxy statements so mailed;
(i) promptly upon the filing thereof, copies of all registration statements
(other than the exhibits thereto and any registration statements on Form S-8 or
its equivalent), reports on Forms 10-K, 10-Q and 8-K (or their equivalents) and
all other periodic reports which Borrower or any of its Affiliates which it
directly or indirectly controls shall file with the Securities and Exchange
Commission (or any governmental agency substituted therefor) or any national
securities exchange;
(j) promptly upon the release thereof, copies of all press releases of
Borrower and any of its Affiliates which it directly or indirectly controls;
(k) promptly upon obtaining knowledge thereof, a description in reasonable
detail of any action, suit or proceeding commenced or threatened against any of
the Related Companies which is reasonably likely to have a Materially Adversely
Effect on Borrower;
(l) promptly upon the occurrence thereof, any material change in the senior
management of Borrower;
(m) promptly upon the occurrence thereof, any amendment to the bylaws of
Borrower;
(n) promptly upon the filing thereof, the annual report of Borrower filed
with the Secretary of State of the State of Nevada;
(o) promptly upon Agent's request, (i) amendments or other supplements to
any Form FR U-1 or Form FR G-3 delivered under this Agreement, (ii) new Forms FR
U-1 or Forms FR G-3, and (iii) such information regarding the Pledged Shares (as
defined in the Borrower Pledge Agreement) as Agent may request; and
(p) from time to time such additional information regarding the financial
position or business of Borrower and its Subsidiaries as Agent or any Lender may
reasonably request.
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SECTION 6.2. Payment of Obligations.
Borrower will pay and discharge, and will cause each Subsidiary (other than
any Public Subsidiary) to pay and discharge, at or before maturity, all their
respective material obligations and liabilities, including, without limitation,
tax liabilities, except where the same may be contested in good faith by
appropriate proceedings unless the contest thereof would have a Materially
Adverse Effect on Borrower, and will maintain, and will cause each Subsidiary
(other than any Public Subsidiary) to maintain, in accordance with generally
accepted accounting principles, appropriate reserves for the accrual of any of
the same.
SECTION 6.3. Maintenance of Property; Insurance.
(a) Borrower will keep, and will cause each Subsidiary (other than any
Public Subsidiary) to keep, all property useful and necessary in its business in
good working order and condition, ordinary wear and tear and insured casualty
losses excepted.
(b) Borrower will maintain, and will cause each Subsidiary (other than any
Public Subsidiary) to maintain, (i) physical damage insurance on all real and
personal property on an all risks basis (including the perils of flood and
earthquake if located in designated flood and earthquake zones), covering the
repair and replacement cost of all such property and consequential loss coverage
for business interruption and extra expense (provided that the amount of such
insurance with respect to earthquakes need not exceed $15,000,000 for property
located in California), (ii) public liability insurance (including
products/completed operations liability coverage) in an amount not less than
$5,000,000.00 in primary coverage and $25,000,000.00 in umbrella coverage and
(iii) such other insurance coverage in such amounts and with respect to such
risks as is consistent with insurance maintained by businesses of comparable
type and size in the industry. All such insurance shall be provided by insurers
having an A.M. Best policyholders rating of not less than A-IX (with respect to
liability) and A-XI (with respect to property damage) or such other insurers as
Agent may approve in writing. Borrower will deliver to Agent (i) upon request
of Agent from time to time full information as to the insurance carried, (ii)
within five (5) days of receipt of notice from any insurer a copy of any notice
of cancellation or material change in coverage from that existing on the date of
this Agreement and (iii) forthwith, notice of any cancellation or nonrenewal of
coverage by Borrower.
(c) Except as otherwise permitted under Section 6.8., Borrower will, and
will cause each Subsidiary to, qualify and remain qualified and authorized to do
business in each jurisdiction in which the character of its properties or the
nature of its business requires such qualification or authorization and where
the failure to be so qualified or authorized would have a Materially Adverse
Effect on Borrower.
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SECTION 6.4. Conduct of Business and Maintenance of Existence.
Except as otherwise permitted under Section 6.8., Borrower will continue,
and will cause each Subsidiary to continue, to engage in business of the same
general type as now conducted by Borrower and its Subsidiaries, and will
preserve, renew and keep in full force and effect, and will cause each
Subsidiary to preserve, renew and keep in full force and effect their respective
existence and their respective rights, privileges and franchises necessary or
desirable in the normal conduct of business; provided that nothing in this
Section shall prohibit the dissolution of a Subsidiary if (a) the Borrower's
Board of Directors has determined that such dissolution is in the best interest
of Borrower, (b) such dissolution will not be materially disadvantageous to
Lenders and (c) such dissolution will not have a Materially Adverse Effect.
SECTION 6.5. Compliance with Laws.
Borrower will comply, and cause each Subsidiary to comply, with all
Applicable Laws, including without limitation, all Environmental Laws and ERISA
and the rules and regulations thereunder, except where compliance therewith is
contested in good faith by appropriate proceedings or the failure to so comply
would not have a Materially Adverse Effect.
SECTION 6.6. Inspection of Property, Books and Records.
Borrower will keep, and will cause each Subsidiary to keep, proper books of
record and account in which full, true and correct entries shall be made of all
dealings and transactions in relation to its business and activities; and will
permit, and will cause each Subsidiary to permit, representatives of Agent to
visit and inspect any of their respective properties, to examine and make
abstracts from any of their respective books and records and to discuss their
respective affairs, finances and accounts with their respective officers,
employees and independent public accountants in Borrower's presence prior to an
Event of Default, all at such reasonable times during business hours and as
often as may reasonably be desired and with reasonable notice so long as no
Event of Default shall have occurred and be continuing.
SECTION 6.7. Accounts Payable; Indebtedness.
Borrower will not incur, assume or suffer to exist (a) any accounts payable
in excess of $10,000,000 in the aggregate at any time outstanding and (b) any
Indebtedness other than:
(i) Indebtedness under this Agreement; and
(ii) Indebtedness represented by declared but unpaid dividends.
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SECTION 6.8. Consolidations, Mergers and Sales of Assets.
Neither Borrower nor any of its Subsidiaries (other than any Public
Subsidiary) may (a) consolidate or merge with or into any other Person or (b)
sell, lease or otherwise transfer, directly or indirectly, and whether by one or
a series of related transactions, a substantial portion of any of its assets to
any other Person, except that a Subsidiary may merge or consolidate with another
Person or sell, lease or otherwise transfer a substantial portion of its assets
to another Person so long as (i) Borrower shall have given Agent at least thirty
days prior notice thereof, (ii) after giving effect thereto, no Default or Event
of Default shall have occurred and be continuing, and (iii) in the case of a
consolidation or merger, the Person surviving such consolidation or merger will
be a Subsidiary after giving effect thereto.
SECTION 6.9. Use of Proceeds.
Borrower will only use the proceeds of the Loans made under this Agreement
(a) to finance (i) the purchase by Borrower of Securities issued by Security
Capital Pacific Trust, Security Capital Industrial Trust, Security Capital
Atlantic Incorporated, Security Capital U.S. Realty and New Investments; (ii)
the acquisition of real property by Borrower and (iii) loans from Borrower to
such affiliates, none of the Securities of which are traded on any national
securities exchange, and (b) for general corporate purposes, including without
limitation, the payment of dividends to Guarantor and the making of loans to
Guarantor evidenced by the Guarantor Note, in each case to the extent otherwise
permitted hereunder, and for no other purposes. Borrower will not use any
proceeds of the Loans for the purpose of purchasing or carrying any "margin
stock" within the meaning of Regulations G, U and X if such use would result in
a violation of any of Regulations G, U and X.
SECTION 6.10. ERISA.
Borrower will not at any time maintain any Plan subject to the provisions
of ERISA and will not at any time be a member of any ERISA Group with any Person
that has at any time maintained any such Plan.
SECTION 6.11. Negative Pledge.
Borrower will not create, assume or suffer to exist any Lien on any of the
Collateral in which it has rights or any of its other assets, now owned or
hereafter acquired, except for Permitted Liens.
SECTION 6.12. Restricted Payments; and Agreements with Affiliates.
(a) (i) If no Event of Default shall have occurred and be continuing,
Borrower shall not directly or indirectly declare or make, or incur any
liability to make, any Restricted Payments during any four fiscal quarter period
(or if Borrower has only existed for a shorter period, then such shorter period)
in an aggregate amount in excess of 100% of Borrower's Cash Flow Available for
Distribution for such four fiscal quarters (or such
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shorter period), and (ii) if any Event of Default shall have occurred and be
continuing, Borrower shall not directly or indirectly declare or make, or incur
any liability to make, any Restricted Payments.
(b) Borrower shall not, and shall not permit any of its Subsidiaries that
are not Public Subsidiaries to, enter into any transaction requiring such Person
to pay any amounts to or otherwise transfer property to, or pay any management
or other fees to, any Affiliate other than on terms and conditions substantially
as favorable to Borrower or such Subsidiary as would be obtainable at the time
in a comparable arm's-length transaction with a Person not an Affiliate.
SECTION 6.13. ERISA Exemptions.
Borrower shall not permit any of its assets to become or be deemed to be
"plan assets" within the meaning of ERISA, the Internal Revenue Code and the
respective regulations promulgated thereunder, of any ERISA Plan or any Non-
ERISA Plan.
SECTION 6.14. Separateness Covenant.
(a) Borrower will maintain Borrower's separate existence and identity and
will take reasonable steps to make it apparent to third parties that Borrower is
an entity with assets (in particular the Pledged Shares (as defined in the
Borrower Pledge Agreement)) and liabilities distinct from those of Guarantor.
(b) Not in limitation of the generality of the foregoing, Borrower agrees
as follows:
(i) Borrower will not inadvertently commingle its assets in any
material respects with those of any other Person and shall take all
reasonable steps to maintain its assets in a manner that facilitates their
identification and segregation from those of Guarantor;
(ii) Borrower shall take all reasonable steps to prevent any of
Borrower's funds from at any time being pooled with any funds of Guarantor;
(iii) Borrower will conduct its business in its own name and from an
office separate from that of Guarantor or any other Affiliate of Borrower;
(iv) Borrower will maintain separate corporate records and books of
account from those of any other Person;
(v) Borrower will maintain separate financial statements from those
of any other Person; provided, however, financial information about
Borrower may be contained in consolidated financial statements issued by
Guarantor;
(vi) Borrower will pay its own liabilities, including the salaries
of its own employees, consultants and agents, from its own funds and bank
accounts;
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(vii) Borrower will compensate Guarantor at market rates for any
services that Guarantor actually renders to Borrower; and
(viii) Borrower will observe the formalities of a corporation in all
material respects.
(c) Not in limitation of the generality of the foregoing, Borrower further
agrees as follows:
(i) Borrower will not intentionally commingle its assets in any
material respects with those of any other Person; and
(ii) Borrower shall not maintain joint bank accounts or other
depository accounts to which Guarantor has access.
SECTION 6.15. Independent Director.
As of the date hereof, Borrower's Independent Director (as defined in
Borrower's articles of incorporation) is James R. Wilcox. Borrower shall pay
such Independent Director a director's fee not greater than comparable fees
received by independent directors of entities similar to Borrower engaging in
comparable activities with similar risks. Borrower will not permit such
Independent Director to be a trustee in bankruptcy for Guarantor.
SECTION 6.16. Guarantor Note.
Borrower will not amend, supplement, restate or otherwise modify any of the
terms of the Guarantor Note without the prior written consent of the Majority
Lenders.
SECTION 6.17. Compliance with and Amendment of Charter or Bylaws.
Borrower will (a) comply with the terms of its articles of incorporation
and bylaws and (b) not amend, supplement, restate or otherwise modify any of the
terms of its articles of incorporation.
SECTION 6.18. Additional Assets.
If after the date hereof, the aggregate value of the assets (excluding
cash, cash equivalents and bank accounts) described in clause (c) of Section
5.22. shall exceed the amount set forth in such clause, (x) Borrower shall give
Agent prompt notice thereof and (y) within ten days of Agent's request, Borrower
shall execute and deliver to Agent a security agreement generally in the form of
the Guarantor Security Agreement pursuant to which Borrower grants to Agent for
the benefit of Lenders, a security interest in substantially all of Borrower's
assets (excluding New Investments) that are not already Collateral, together
with such other documents, instruments and agreements as Agent may reasonably
request to perfect such security interest.
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ARTICLE VII. DEFAULTS
SECTION 7.1. Events of Default.
If one or more of the following events shall have occurred and be
continuing:
(a) Borrower shall fail to pay within one Business Day of the due date
thereof any principal of any Obligation, or shall fail to pay within three
Business Days of the due date thereof any interest, fees or other Obligation;
(b) Borrower shall fail to observe or perform any covenant or agreement
contained in Section 6.1.(g), Section 6.7., Section 6.8., Sections 6.10. through
6.13. inclusive, Section 6.14.(c), or Sections 6.15. through 6.17., inclusive;
(c) Borrower shall fail to observe or perform any covenant or agreement
contained in this Agreement (other than those covered by the immediately
preceding clause (a) or (b)) for a period of thirty days after written notice
thereof has been given to Borrower by Agent;
(d) An Event of Default under and as defined in any Loan Document shall
occur and be continuing or Borrower or Guarantor shall fail to observe or
perform any covenant or agreement contained in any of the Loan Documents to
which it is a party (other than those expressly covered by any other clause of
this Section 7.1.) and such failure shall continue beyond any applicable period
of grace;
(e) any representation, warranty, certification or statement made or
deemed made (i) by or on behalf of Borrower in this Agreement or in any
certificate, financial statement or other Loan Document to which it is a party
delivered pursuant to this Agreement or any other Loan Document, or (ii) by or
on behalf of Guarantor in the Guaranty, the Guarantor Pledge Agreement or in any
certificate, financial statement or other Loan Document to which it is a party
delivered pursuant to this Agreement or any other Loan Document, shall prove to
have been incorrect or misleading in any material respect when made or deemed
made;
(f) Borrower or Guarantor shall fail to make any payment in respect of any
of its Indebtedness (other than the Obligations) in an aggregate principal
amount in excess of $10,000,000 when due and such failure shall continue beyond
any applicable grace period;
(g) the maturity of any Indebtedness of Borrower or Guarantor in an
aggregate principal amount in excess of $10,000,000 in the case of each such
Person, shall have been (i) accelerated in accordance with the provisions of any
indenture, contract or instrument providing for the creation of or concerning
such Indebtedness or (ii) required to be prepaid in full prior to the stated
maturity thereof;
(h) Borrower, Guarantor or any Issuer of a Qualifying Security shall
commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under any
bankruptcy, insolvency or other
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similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing;
(i) an involuntary case or other proceeding shall be commenced against
Borrower, Guarantor or any Issuer of a Qualifying Security seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property and such
involuntary case or other proceeding shall remain undismissed and unstayed for a
period of sixty days; or an order for relief shall be entered against any such
Person under the federal bankruptcy laws as now or hereafter in effect;
(j) a judgment or order for the payment of money in excess of $10,000,000
shall be rendered against Borrower or Guarantor and such judgment or order shall
continue unsatisfied and unstayed for a period of thirty days;
(k) during any period of twelve consecutive calendar months, individuals
who were directors of Borrower or Guarantor on the first day of such period
shall cease to constitute a majority of the board of directors of Borrower or
Guarantor, as applicable, provided, however, that the directors of Borrower or
Guarantor, as applicable; may include new directors that (i) are an officer,
director or employee of a Related Company or (ii) are required in order (as a
practical matter) for the composition of the board of directors of Borrower or
Guarantor, as applicable, to comply with any provision of the articles of
incorporation or bylaws of Borrower or Guarantor, as applicable, regarding
independent directors;
(l) if a change in the management of Borrower or Guarantor has occurred
there shall have occurred without the consent of Agent within 10 days of such
change any adverse change deemed material by Agent in the identity of persons
constituting management of Borrower or Guarantor, as applicable;
(m) the assets of Borrower at any time constitute assets, within the
meaning of ERISA, the Internal Revenue Code and the respective regulations
promulgated thereunder, of any ERISA Plan or Non-ERISA Plan;
(n) the Lien of Agent in any of the Collateral shall, for any reason not
otherwise permitted under the Loan Documents, cease to be a valid, enforceable,
perfected and first-priority Lien (subject to Permitted Liens);
(o) Guarantor shall, or shall attempt to, disavow, revoke or terminate the
Guaranty;
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(p) Guarantor shall fail to observe or perform any covenant or agreement
contained in Section 6.(a)(vii), Section 6.(h) through Section 6.(j), Section
6.(l), Section 6.(q) or Section 6.(r)(iii) of the Guaranty;
(q) Guarantor shall fail to observe or perform any covenant or agreement
contained in Section 6.(g), Section 6.(k), or Section 6.(m) through Section
6.(p) of the Guaranty for a period of fifteen days after written notice thereof
has been given to Guarantor by Agent;
(r) Guarantor shall fail to observe or perform any covenant or agreement
contained in the Guaranty (other than those covered by the immediately preceding
clauses (p) and (q)) for a period of thirty days after written notice thereof
has been given to Guarantor by Agent; or
(s) Guarantor shall cease to own all of the issued and outstanding capital
stock of Borrower.
SECTION 7.2. Remedies.
Upon the occurrence of an Event of Default, and in every such event, Agent
shall, upon the direction of the Majority Lenders, (i) by notice to Borrower
terminate the Commitments, which shall thereupon terminate, and (ii) by notice
to Borrower declare the Loans and all other Obligations to be, and the Loans and
all other Obligations shall thereupon become, immediately due and payable
without presentment, demand, protest or notice of intention to accelerate, all
of which are hereby waived by Borrower; provided, however, that in the case of
any of the Events of Default specified in clause (h) or (i) above, without any
notice to Borrower or any other act by Agent, the Commitments shall thereupon
immediately and automatically terminate and the Loans and all other Obligations
shall become immediately due and payable without presentment, demand, protest,
notice of intention to accelerate or notice of acceleration, or other notice of
any kind, all of which are hereby waived by Borrower.
ARTICLE VIII. THE AGENT
SECTION 8.1. Appointment and Authorization.
Each Lender irrevocably appoints and authorizes Agent to take such action
as agent on its behalf and to exercise such powers under the Loan Documents as
are delegated to Agent by the terms thereof, together with all such powers as
are reasonably incidental thereto. Borrower shall be entitled to rely
conclusively upon a written notice or written response from Agent as being made
pursuant to the requisite concurrence or consent of Lenders necessary to take
such action without investigation or otherwise contacting Lenders hereunder.
The power of attorney set forth hereinabove shall be irrevocable and coupled
with an interest. The relationship between Agent and Lenders shall be that of
principal and agent only and nothing herein shall be construed to deem Agent a
trustee for any Lender nor to impose on Agent duties or obligations other than
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those expressly provided for herein. Not in limitation of the foregoing, each
Lender agrees Agent has no fiduciary obligations to such Lender under this
Agreement, any other Loan Document or otherwise. At the request of a Lender,
Agent will forward to each Lender copies or, where appropriate, originals of the
documents delivered to Agent pursuant to Section 4.1. The Agent will also
furnish to any Lender, upon the request of such Lender, a copy of any
certificate or notice furnished to Agent by Borrower pursuant to this Agreement
or any other Loan Document not already delivered to such Lender pursuant to the
terms of this Agreement or any such other Loan Document. As to any matters not
expressly provided for by the Loan Documents (including, without limitation,
enforcement or collection of the Notes), Agent shall not be required to exercise
any discretion or take any action, but shall be required to act or to refrain
from acting (and shall be fully protected in so acting or refraining from
acting) upon the instructions of the Majority Lenders, and such instructions
shall be binding upon all Lenders and all holders of Notes; provided, however,
that Agent shall not be required to take any action which exposes Agent to
personal liability or which is contrary to this Agreement or any other Loan
Document or Applicable Law. Not in limitation of the foregoing, Agent shall not
exercise any right or remedy it or Lenders may have under any Loan Document upon
the occurrence of a Default or an Event of Default unless the Majority Lenders
have so directed Agent to exercise such right or remedy. Agent shall not be
deemed to have knowledge or notice of the occurrence of a Default or Event of
Default unless Agent has actual knowledge of such Default or Event of Default.
In the event that Agent has actual knowledge of the occurrence of a Default or
Event of Default, Agent shall give prompt notice thereof to Lenders.
SECTION 8.2. Agent and Affiliates.
Wells Fargo Realty Advisors Funding, Incorporated, as a Lender, shall have
the same rights and powers under this Agreement and any other Loan Document as
any other Lender and may exercise the same as though it were not Agent; and the
term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include
Wells Fargo Realty Advisors Funding, Incorporated in each case in its individual
capacity. Wells Fargo Realty Advisors Funding, Incorporated and its affiliates
and the other Lenders and their respective affiliates may each accept deposits
from, maintain deposits or credit balances for, invest in, lend money to, act as
trustee under indentures of, and generally engage in any kind of business with
Borrower, any Related Company and any Affiliate of Borrower and any Related
Company as if Wells Fargo Realty Advisors Funding, Incorporated or such Lender
were any other bank and without any duty to account therefor to the other
Lenders.
SECTION 8.3. Collateral Matters.
(a) Each Lender authorizes and directs Agent to enter into the Loan
Documents for the benefit of Lenders. Each Lender hereby agrees that, except as
otherwise set forth herein, any action taken by the Majority Lenders in
accordance with the provisions of this Agreement or the Loan Documents, and the
exercise by the Majority Lenders of the powers set forth herein or therein,
together with such other powers as are reasonably incidental thereto, shall be
authorized and binding upon all of Lenders. Agent
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is hereby authorized on behalf of all of Lenders, without the necessity of any
notice to or further consent from any Lender, from time to time prior to an
Event of Default, to take any action with respect to any Collateral or Loan
Documents which may be necessary to perfect and maintain perfected the security
interest in and liens upon the Collateral granted pursuant to the Loan
Documents.
(b) Lenders hereby authorize Agent, at its option and in its discretion,
to release any Lien granted to or held by Agent upon any Collateral upon
termination of the Commitments and payment and satisfaction of all of the
Obligations at any time arising under or in respect of this Agreement or the
Loan Documents or the transactions contemplated hereby or thereby.
(c) Upon any sale and transfer of Collateral which is permitted pursuant
to the terms of this Agreement, and upon at least five (5) Business Days' prior
written request by Borrower, Agent shall (and is hereby irrevocably authorized
by Lenders to) execute such documents as may be necessary to evidence the
release of the Liens granted to Agent for the benefit of Lenders herein or
pursuant hereto upon the Collateral that was sold or transferred; provided,
however, that (i) Agent shall not be required to execute any such document on
terms which, in Agent's opinion, would expose Agent to liability or create any
obligation or entail any consequence other than the release of such Liens
without recourse or warranty and (ii) such release shall not in any manner
discharge, affect or impair the Obligations or any Liens upon (or obligations of
Borrower or any Subsidiary in respect of) all interests retained by Borrower or
any Subsidiary, including (without limitation) the proceeds of the sale, all of
which shall continue to constitute part of the Collateral. In the event of any
sale or transfer of Collateral, or any foreclosure with respect to any of the
Collateral, Agent shall be authorized to deduct all of the expenses reasonably
incurred by Agent from the proceeds of any such sale, transfer or foreclosure.
(d) Except as expressly provided for herein, including without limitation,
in the ninth sentence of Section 8.1., or in any of the other Loan Documents,
Agent shall have no obligation whatsoever to Lenders or to any other Person to
assure that the Collateral exists or is owned by Borrower or any Subsidiary or
is cared for, protected or insured or that the Liens granted to Agent herein or
pursuant hereto have been properly or sufficiently or lawfully created,
perfected, protected or enforced or are entitled to any particular priority, or
to exercise or to continue exercising at all or in any manner or under any duty
of care, disclosure or fidelity any of the rights, authorities and powers
granted or available to Agent in this Section or in any of the Loan Documents,
it being understood and agreed that in respect of the Collateral, or any act,
omission or event related thereto, Agent may act in any manner it may deem
appropriate, in its sole discretion, given Agent's own interest in the
Collateral as one of Lenders and that Agent shall have no duty or liability
whatsoever to Lenders, except for its gross negligence or willful misconduct.
SECTION 8.4. Approvals of Lenders.
--------------------
All communications from Agent to any Lender requesting such Lender's
determination, consent, approval or disapproval (a) shall be given in the form
of a written
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notice to such Lender, (b) shall be accompanied by a description of
the matter or thing as to which such determination, approval, consent or
disapproval is requested, or shall advise such Lender where such matter or thing
may be inspected, or shall otherwise describe the matter or issue to be
resolved, (c) shall include, if reasonably requested by such Lender and to the
extent not previously provided to such Lender, written materials and a summary
of all oral information provided to Agent by Borrower or Guarantor in respect of
the matter or issue to be resolved, and (d) shall include Agent's recommended
course of action or determination in respect thereof. Each Lender shall reply
promptly, but in any event (x) within ten Business Days (or such lesser period
as may be required under the Loan Documents for Agent to respond) for those
matters relating to foreclosure on, disposition of or the exercise of any
similar remedy with respect to any Collateral and (y) within fifteen Business
Days (or such lesser period as may be required under the Loan Documents for
Agent to respond) for any other matter. Unless a Lender shall give written
notice to Agent that it objects to the recommendation or determination of Agent
(together with a written explanation of the reasons behind such objection)
within the applicable time period for reply, such Lender shall be deemed to have
conclusively approved of or consented to such recommendation or determination.
SECTION 8.5. Consultation with Experts.
-------------------------
Agent may consult with legal counsel (who may be counsel for Borrower or
Guarantor), independent public accountants and other experts selected by it and
shall not be liable for any action taken or omitted to be taken by it in good
faith in accordance with the advice of such counsel, accountants or experts.
SECTION 8.6. Liability of Agent.
------------------
Neither Agent nor any of its affiliates nor any of their respective
directors, officers, agents or employees shall be liable for any action taken or
not taken by Agent in connection with any of the Loan Documents in the absence
of its own gross negligence or willful misconduct. Neither Agent nor any of its
affiliates nor any of their respective directors, officers, agents or employees
shall be responsible for or have any duty to ascertain, inquire into or verify
(a) any statement, warranty or representation made in connection with any of the
Loan Documents, or any borrowing hereunder, (b) the performance or observance of
any of the covenants or agreements of Borrower or Guarantor, (c) the
satisfaction of any condition specified in Article IV., or (d) the validity,
effectiveness or genuineness of any of the Loan Documents or any other
instrument or writing furnished in connection herewith or therewith. Agent
shall not incur any liability by acting in reliance upon any notice, consent,
certificate, statement, or other writing (which may be a bank wire, telex or
similar writing) believed by it to be genuine or to be signed by the proper
party or parties.
SECTION 8.7. Indemnification of Agent.
------------------------
Lenders agree to indemnify Agent (to the extent not reimbursed by Borrower
and without limiting the obligation of Borrower to do so) in accordance with
Lenders'
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respective Pro Rata Shares, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may at any time
be imposed on, incurred by, or asserted against Agent in any way relating to or
arising out of the Loan Documents or any action taken or omitted by Agent under
the Loan Documents; provided, however, that no Lender shall be liable for any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements (i) to the extent arising
from Agent's gross negligence or willful misconduct or (ii) if Agent fails to
follow the written direction of the Majority Lenders unless such failure is
pursuant to Agent's good faith reliance on the advice of counsel of which
Lenders have received notice. Without limiting the generality of the foregoing,
each Lender agrees to reimburse Agent promptly upon demand for its ratable share
of any out-of-pocket expenses (including counsel fees) incurred by Agent in
connection with the preparation, execution, administration, or enforcement of,
or legal advice with respect to the rights or responsibilities of the parties
under, the Loan Documents, to the extent that Agent is not reimbursed for such
expenses by Borrower. The agreements in this Section shall survive the payment
of the Loans and all other amounts payable hereunder or under the other Loan
Documents and the termination of this Agreement.
SECTION 8.8. Credit Decision.
---------------
Each Lender expressly acknowledges that neither Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or other affiliates
has made any representations or warranties to such Lender and that no act by
Agent hereinafter taken, including any review of the affairs of Borrower or
Guarantor, shall be deemed to constitute any representation or warranty by Agent
to any Lender. Each Lender acknowledges that it has, independently and without
reliance upon Agent, any other Lender or counsel to Agent, and based on the
financial statements of Borrower or Guarantor and its affiliates, its review of
the Loan Documents, the legal opinions required to be delivered to it hereunder,
the advice of its own counsel and such other documents and information as it has
deemed appropriate, made its own credit and legal analysis and decision to enter
into this Agreement and the transaction contemplated hereby. Each Lender also
acknowledges that it will, independently and without reliance upon Agent, any
other Lender or counsel to Agent, and based on such review, advice, documents
and information as it shall deem appropriate at the time, continue to make its
own decisions in taking or not taking action under the Loan Documents. Except
for notices, reports and other documents expressly required to be furnished to
Lenders by Agent hereunder, Agent shall have no duty or responsibility to
provide any Lender with any credit or other information concerning the business,
operations, property, financial and other condition or creditworthiness of
Borrower, Guarantor, any other Related Company or any other Affiliate thereof
which may come into possession of Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or other affiliates.
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SECTION 8.9. Successor Agent.
---------------
Agent may resign at any time by giving 30 days' prior written notice
thereof, to Lenders and Borrower. Agent may be removed as Agent under the Loan
Documents for good cause upon 30 days' prior written notice to Agent by the
Majority Lenders. Upon any such resignation or removal, the Majority Lenders
shall have the right to appoint a successor Agent. If no successor Agent shall
have been so appointed by the Majority Lenders, and shall have accepted such
appointment, within 30 days after the current Agent's giving of notice of
resignation or the Majority Lenders' removal of the current Agent, then the
current Agent may, on behalf of Lenders, appoint a successor Agent, which shall
be a Lender, if any Lender shall be willing to serve. Any successor Agent must
be a bank whose debt obligations (or whose parent's debt obligations) are rated
not less than investment grade or its equivalent by Moody's Investors Service,
Inc. or not less than investment grade or its equivalent by Standard & Poor's
Corporation and which has total assets in excess of $10,000,000,000. Upon the
acceptance of its appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the rights
and duties of the current Agent, and the current Agent shall be discharged from
its duties and obligations hereunder. The current Agent shall at the expense of
Borrower transfer all Collateral then held by it to such successor Agent and
execute and deliver to such successor Agent such instruments of transfer as may
be reasonably necessary to accomplish such succession. After any current
Agent's resignation hereunder as Agent, the provisions of this Article shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent.
SECTION 8.10. Approvals and Other Actions by Majority Lenders.
-----------------------------------------------
Each of the following shall require the approval of, or may be taken at the
request of, the Majority Lenders:
(a) Approval of the terms of Subordinated Indebtedness to be issued by
Guarantor under Section 6.(g)(iii) of the Guaranty, as provided in the
definition of the term "Subordinated Indebtedness";
(b) Approval of restrictions on the trading of Traded Securities, as
provided in the definition of the term "Traded Securities";
(c) Approval of certain payments by Guarantor under Section 6.(k)(i) of
the Guaranty after the occurrence of an Event of Default under Section 7.1.(a);
(d) Termination of the Commitments and acceleration of the Obligations
upon the occurrence of an Event of Default as provided in Section 7.2.;
(e) Removing Agent for good cause and approving of its replacement as
provided in Section 8.9.;
(f) Consenting to any amendment, supplement, restatement or other
modification to any of the terms of the Guarantor Note; and
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(g) Except as specifically provided otherwise in Section 9.7., any consent
or approval regarding, any waiver of the performance or observance by Borrower
of and the waiver of the continuance of any Default or Event of Default in
respect of, any term of this Agreement or any other Loan Document.
ARTICLE IX. MISCELLANEOUS
SECTION 9.1. Notices.
-------
All notices, requests and other communications to any party under the Loan
Documents shall be in writing (including bank wire, facsimile transmission or
similar writing) and shall be given to such party as follows:
If to Borrower:
SC Realty Incorporated
3753 Howard Hughes Parkway, Suite 200
Las Vegas, Nevada 89109
Attention: Ariel Amir
Telecopier: (702) 892-3951
Telephone: (702) 892-3723
with a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attention: J. Paul Forrester
Telecopier: (312) 701-7711
Telephone: (312) 701-7366
If to a Lender or Agent:
To such Lender's or Agent's Lending Office
or as to each party at such other address as such party shall designate in a
written notice to the other parties. Each such notice, request or other
communication shall be effective (a) if given by mail, 72 hours after such
communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or (b) if given by any other means (including facsimile),
when delivered at the applicable address provided for in this Section; provided
that notices to Agent under Article II., and any notice of a change of address
for notices, shall not be effective until received. In addition to the Agent's
Lending Office, Borrower shall send copies of the information described in
Section 6.1. to the following address of Agent:
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Wells Fargo Realty Advisors Funding, Incorporated
Real Estate Group
Koll Center
2030 Main Street, Suite 800
Irvine, California 92714
Attention: Ms. Debra Autry
SECTION 9.2. No Waivers.
----------
No failure or delay by Agent or any Lender in exercising any right, power
or privilege under any Loan Document shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies provided in the Loan Documents shall be cumulative and not exclusive of
any rights or remedies provided by law.
SECTION 9.3. Expenses.
---------
Borrower will pay on demand all present and future reasonable expenses of:
(a) Agent in connection with the negotiation, preparation, execution,
delivery and administration (including reasonable out-of-pocket costs and
expenses incurred in connection with the assignment of Commitments pursuant to
Section 9.8.) of this Agreement, the Notes and each of the other Loan Documents,
whenever the same shall be executed and delivered, including appraisers' fees,
search fees, recording fees and the reasonable fees and disbursements of: (i)
Alston & Bird, counsel for Agent, and (ii) each local counsel retained by Agent;
(b) Agent in connection with the negotiation, preparation, execution and
delivery of any waiver, amendment or consent by Agent or any Lender relating to
this Agreement, the Notes or any of the other Loan Documents or sales of
participations in any Lender's Commitment, including the reasonable fees and
disbursements of counsel to Agent;
(c) Agent and each of Lenders in connection with any restructuring,
refinancing or "workout" of the transactions contemplated by this Agreement, the
Notes and the other Loan Documents, including the reasonable fees and
disbursements of counsel to Agent actually incurred;
(d) Agent and each of Lenders, after the occurrence of a Default or Event
of Default, in connection with the collection or enforcement of the obligations
of Borrower or Guarantor under this Agreement, the Notes or any other Loan
Document, including the reasonable fees and disbursements of counsel to Agent or
to any Lender actually incurred if such collection or enforcement is done by or
through an attorney;
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(e) Subject to any limitation contained in Section 9.5., Agent and each of
Lenders in connection with prosecuting or defending any claim in any way arising
out of, related to, or connected with this Agreement, the Notes or any of the
other Loan Documents, including the reasonable fees and disbursements of counsel
to Agent or any Lender actually incurred and of experts and other consultants
retained by Agent or any Lender in connection therewith;
(f) Agent and each of Lenders, after the occurrence of a Default or Event
of Default, in connection with the exercise by Agent or any Lender of any right
or remedy granted to it under this Agreement, the Notes or any of the other Loan
Documents including the reasonable fees and disbursements of counsel to Agent or
any Lender actually incurred;
(g) Agent in connection with costs and expenses incurred by Agent in
gaining possession of, maintaining, appraising, selling, preparing for sale and
advertising to sell the Collateral, whether or not a sale is consummated; and
(h) Agent and each of Lenders, to the extent not already covered by any of
the preceding subsections, in connection with any bankruptcy or other proceeding
of the type described in Sections 7.1.(h) or (i), and the reasonable fees and
disbursements of counsel to Agent and any Lender actually incurred in connection
with the representation of Agent or such Lender in any matter relating to or
arising out of any such proceeding, including without limitation (i) any motion
for relief from any stay or similar order, (ii) the negotiation, preparation,
execution and delivery of any document relating to Agent or such Lender and
(iii) the negotiation and preparation of any plan of reorganization of Borrower
or Guarantor, whether proposed by Borrower or Guarantor, Lenders or any other
Person, and whether such fees and expenses are incurred prior to, during or
after the commencement of such proceeding or the confirmation or conclusion of
any such proceeding.
SECTION 9.4. Stamp, Intangible and Recording Taxes.
-------------------------------------
Borrower will pay any and all stamp, intangible, registration, recordation
and similar taxes, fees or charges and shall indemnify Agent and each Lender
against any and all liabilities with respect to or resulting from any delay in
the payment or omission to pay any such taxes, fees or charges, which may be
payable or determined to be payable in connection with the execution, delivery,
recording, performance or enforcement of this Agreement, the Notes and any of
the other Loan Documents or the perfection of any rights or Liens thereunder.
SECTION 9.5. Indemnification.
---------------
Borrower shall and hereby agrees to indemnify, defend and hold harmless
Agent and each of Lenders and their respective directors, officers, agents and
employees from and against (a) any and all losses, claims, damages, liabilities,
deficiencies, judgments or expenses incurred by any of them (except to the
extent that it results from their own gross
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negligence or willful misconduct) arising out of or by reason of any litigation,
investigations, claims or proceedings which arise out of or are in any way
related to: (i) this Agreement or the transactions contemplated thereby; (ii)
the making of Loans; (iii) any actual or proposed use by Borrower of the
proceeds of the Loans; (iv) the Contribution or (v) Agent's or Lenders' entering
into this Agreement, the other Loan Documents or any other agreements and
documents relating hereto, including, without limitation, amounts paid in
settlement, court costs and the reasonable fees and disbursements of counsel
incurred in connection with any such litigation, investigation, claim or
proceeding or any advice rendered in connection with any of the foregoing and
(b) any such losses, claims, damages, liabilities, deficiencies, judgments or
expenses incurred in connection with any remedial or other similar action taken
by Borrower, Agent or any of Lenders in connection with the required compliance
by Borrower or any of the Subsidiaries, or any of their respective properties,
with any federal, state or local Environmental Laws or other material
environmental rules, regulations, orders, directions, ordinances, criteria or
guidelines. If and to the extent that the obligations of Borrower hereunder are
unenforceable for any reason, Borrower hereby agrees to make the maximum
contribution to the payment and satisfaction of such obligations which is
permissible under Applicable Law. Borrower's obligations hereunder shall survive
any termination of this Agreement and the other Loan Documents and the payment
in full of the Obligations, and are in addition to, and not in substitution of,
any other of its other obligations set forth in this Agreement and the other
Loan Documents.
SECTION 9.6. Setoff.
------
In addition to any rights now or hereafter granted under Applicable Law and
not by way of limitation of any such rights, each Lender is hereby authorized by
Borrower, at any time or from time to time, without notice to Borrower or to any
other Person, any such notice being hereby expressly waived, to set-off and to
appropriate and to apply any and all deposits (general or special, including,
but not limited to, indebtedness evidenced by certificates of deposit, whether
matured or unmatured) and any other indebtedness at any time held or owing by
such Lender or any Affiliate of such Lender, to or for the credit or the account
of Borrower against and on account of any of the Obligations then due and owing
after the expiration of any applicable grace periods. Borrower agrees, to the
fullest extent it may effectively do so under Applicable Law, that any holder of
a participation in a Note, whether or not acquired pursuant to the foregoing
arrangements, may exercise rights of setoff or counterclaim and other rights
with respect to such participation as fully as if such holder of a participation
were a direct creditor of Borrower in the amount of such participation.
SECTION 9.7. Amendments.
----------
Any consent or approval required or permitted by this Agreement or in any
other Loan Document (other than any agreement evidencing the fees referred to in
Section 3.1.(d)) to be given by Lenders may be given, and the performance or
observance by Borrower or Guarantor of any terms of any such Loan Document or
the continuance of any Default or Event of Default may be waived (either
generally or in a particular instance
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and either retroactively or prospectively) with, but only with, the written
consent of the Majority Lenders. Any provision of this Agreement or of any other
Loan Document (other than any agreement evidencing the fees referred to in
Section 3.1.(d)) may be amended or otherwise modified with, but only with, the
written consent of Borrower or Guarantor, as applicable, and the Majority
Lenders. Any provision of any agreement evidencing the fees referred to in
Section 3.1.(d) may be amended or otherwise modified only in writing by Agent
and Borrower, and the performance or observance by Borrower of any terms of any
such agreement may be waived only with the written consent of Agent.
Notwithstanding the foregoing, none of the following may be amended or otherwise
modified, nor may compliance by Borrower or Guarantor, as applicable thereunder
or with respect thereto be waived, without the written consent of all Lenders
and Borrower or Guarantor, as applicable:
(a) the principal amount of any Loan (including forgiveness of any amount
of principal);
(b) the rates of interest on the Loans and the amount of any interest
payable on the Loans (including the forgiveness of any accrued but
unpaid interest);
(c) the dates on which any principal or interest payable by Borrower
under any Loan Document is due;
(d) the provisions of (i) the first sentence of Section 2.1., Section
6.7., Section 6.13., and this Section and (ii) Section 6.(l) of the
Guaranty;
(e) the Revolving Credit Termination Date;
(f) the Termination Date;
(g) the definition of Borrowing Base, Commitment, Majority Lenders (or
any minimum requirement necessary for Lenders or Majority Lenders to
take action hereunder), Market Value, Pro Rata Share, Qualifying
Securities, Revolving Commitment and Traded Securities; and
(h) the amount and payment date of any fees.
Further, no amendment, waiver or consent unless in writing and signed by Agent,
in addition to Lenders required hereinabove to take such action, shall affect
the rights or duties of Agent under this Agreement or any of the other Loan
Documents. Further, no Collateral shall be released or disposed of by the Agent
unless all of the Lenders so direct the Agent in writing or unless released or
disposed of as permitted by, and in accordance with, Section 8.3.(b) or (c).
Further, the Guarantor shall not be released from the Guaranty, nor shall the
Guaranty be terminated (except as expressly permitted by the terms thereof),
unless all of the Lenders consent thereto in writing. No waiver shall extend to
or affect any obligation not expressly waived or impair any right consequent
thereon. No course of dealing or delay or omission on the part of any Lender or
Agent in exercising any right shall operate as a waiver thereof or otherwise be
prejudicial thereto.
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No notice to or demand upon Borrower shall entitle Borrower to other or further
notice or demand in similar or other circumstances. Borrower and Lenders hereby
authorize Agent to modify this Agreement by unilaterally amending or
supplementing Annex I from time to time in the manner requested by Borrower,
Agent or any Lender in order to reflect any assignments or transfers of the
Commitments as provided for hereunder; provided, however, that Agent shall
promptly deliver a copy of any such modification to Borrower and each Lender.
SECTION 9.8. Successors and Assigns.
----------------------
(a) The provisions of this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns,
except that Borrower may not assign or otherwise transfer any of its rights
under this Agreement without the prior written consent of all Lenders.
(b) Any Lender may at any time grant to one or more banks or other
financial institutions which are not affiliates of, or otherwise related in any
way to, Borrower or Guarantor (each a "Participant") participating interests in
its Commitment or the Obligations owing to such Lender; provided, however, (i)
no Lender may grant a participating interest in its Commitment, or if the
Commitments have been terminated, the aggregate outstanding principal balance of
Notes held by it, in an amount less than $10,000,000 and (ii) after giving
effect to any such participation by Agent in its capacity as a Lender, the
amount of its Commitment, or if the Commitments have been terminated, the
aggregate outstanding principal balance of Notes held by it, in which it has not
granted any participating interests must be at least $10,000,000. Except as
otherwise provided in Section 9.6., no Participant shall have any rights or
benefits under this Agreement or any other Loan Document. In the event of any
such grant by a Lender of a participating interest to a Participant, such Lender
shall remain responsible for the performance of its obligations hereunder, and
Borrower and Agent shall continue to deal solely and directly with such Lender
in connection with such Lender's rights and obligations under this Agreement.
Any agreement pursuant to which any Lender may grant such a participating
interest shall provide that such Lender shall retain the sole right and
responsibility to enforce the obligations of Borrower hereunder including,
without limitation, the right to approve any amendment, modification or waiver
of any provision of this Agreement; provided, however, such Lender may agree
with the Participant that it will not, without the consent of the Participant,
agree to (i) increase, or except as contemplated by Section 2.11., extend the
term or extend the time or waive any requirement for the reduction or
termination of, such Lender's Commitment, (ii) extend the date fixed for the
payment of principal of or interest on the Loans or portions thereof owing to
such Lender, (iii) reduce the amount of any such payment of principal, (iv)
reduce the rate at which interest is payable thereon or (v) any release of all
or substantially all of the Collateral. An assignment or other transfer which
is not permitted by subsection (c) or (d) below shall be given effect for
purposes of this Agreement only to the extent of a participating interest
granted in accordance with this subsection (b).
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(c) Any Lender may with the prior written consent of Agent and Borrower
(which consent, in each case, shall not be unreasonably withheld) at any time
assign to one or more banks or other financial institutions which are not
affiliates of, or otherwise related in any way to, Borrower or Guarantor (each
an "Assignee") all or a portion of its rights and obligations under this
Agreement and the Notes; provided, however, (i) no such consent by Borrower or
Agent shall be required in the case of any assignment to another Lender or any
affiliate of such Lender or another Lender; (ii) any partial assignment shall be
in an amount at least equal to $10,000,000 and after giving effect to such
assignment the assigning Lender retains a Commitment, or if the Commitments have
been terminated, holds Notes having an aggregate outstanding principal balance,
of at least $10,000,000; (iii) each such assignment shall be effected by means
of an Assignment and Acceptance Agreement. Upon execution and delivery of such
instrument and payment by such Assignee to such transferor Lender of an amount
equal to the purchase price agreed between such transferor Lender and such
Assignee, such Assignee shall be deemed to be a Lender party to this Agreement
and shall have all the rights and obligations of a Lender with a Commitment as
set forth in such Assignment and Acceptance Agreement, and the transferor Lender
shall be released from its obligations hereunder to a corresponding extent, and
no further consent or action by any party shall be required. Upon the
consummation of any assignment pursuant to this subsection (c), the transferor
Lender, Agent and Borrower shall make appropriate arrangements so that new Notes
are issued to the Assignee and such transferor Lender, as appropriate. In
connection with any such assignment, the transferor Lender shall pay to Agent an
administrative fee for processing such assignment in the amount of $3,000.
(d) In addition to the assignments and participations permitted under the
foregoing provisions of this Section, any Lender may assign and pledge all or
any portion of its Loans and its Notes to any Federal Reserve Bank as collateral
security pursuant to Regulation A and any Operating Circular issued by such
Federal Reserve Bank, and such Loans and Notes shall be fully transferable as
provided therein. No such assignment shall release the assigning Lender from
its obligations hereunder.
(e) A Lender may furnish any information concerning Guarantor, Borrower or
any of its Subsidiaries in the possession of such Lender from time to time to
Assignees and Participants (including prospective Assignees and Participants).
(f) Anything in this Section to the contrary notwithstanding, no Lender
may assign or participate any interest in any Loan held by it hereunder to
Guarantor, Borrower or any of their respective affiliates or Subsidiaries.
SECTION 9.9. Governing Law.
-------------
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF GEORGIA.
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SECTION 9.10. Litigation.
----------
(a) EACH PARTY HERETO ACKNOWLEDGES THAT ANY DISPUTE OR CONTROVERSY BETWEEN
OR AMONG BORROWER, AGENT OR ANY OF LENDERS WOULD BE BASED ON DIFFICULT AND
COMPLEX ISSUES OF LAW AND FACT AND THAT A TRIAL BY JURY COULD RESULT IN
SIGNIFICANT DELAY AND EXPENSE. ACCORDINGLY, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, EACH OF LENDERS, AGENT AND BORROWER HEREBY WAIVES TRIAL BY JURY
IN ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT OR TRIBUNAL IN
WHICH AN ACTION MAY BE COMMENCED BY OR AGAINST BORROWER ARISING OUT OF THIS
AGREEMENT, THE NOTES OR ANY OTHER LOAN DOCUMENT OR IN CONNECTION WITH THE
COLLATERAL OR ANY LIEN OR BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER
BETWEEN OR AMONG BORROWER, AGENT OR ANY OF LENDERS OF ANY KIND OR NATURE.
(b) BORROWER, AGENT AND EACH LENDER EACH HEREBY AGREES THAT THE FEDERAL
DISTRICT COURT OF THE NORTHERN DISTRICT OF GEORGIA OR, AT THE OPTION OF AGENT,
ANY STATE COURT LOCATED IN FULTON COUNTY, GEORGIA SHALL HAVE NON-EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN OR AMONG
BORROWER, AGENT OR ANY OF LENDERS, PERTAINING DIRECTLY OR INDIRECTLY TO THIS
AGREEMENT, THE NOTES OR ANY OTHER LOAN DOCUMENT OR TO ANY MATTER ARISING
HEREFROM OR THEREFROM OR THE COLLATERAL. BORROWER EXPRESSLY SUBMITS AND
CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED
IN SUCH COURTS. THE CHOICE OF FORUM SET FORTH IN THIS SECTION SHALL NOT BE
DEEMED TO PRECLUDE THE BRINGING OF ANY ACTION BY AGENT OR ANY LENDER OR THE
ENFORCEMENT BY AGENT OR ANY LENDER OF ANY JUDGMENT OBTAINED IN SUCH FORUM IN ANY
OTHER APPROPRIATE JURISDICTION. FURTHER, BORROWER IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH
A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.
(c) THE FOREGOING WAIVERS HAVE BEEN MADE WITH THE ADVICE OF COUNSEL AND
WITH A FULL UNDERSTANDING OF THE LEGAL CONSEQUENCES THEREOF, AND SHALL SURVIVE
THE PAYMENT OF THE LOANS AND ALL OTHER AMOUNTS PAYABLE HEREUNDER OR UNDER THE
OTHER LOAN DOCUMENTS AND THE TERMINATION OF THIS AGREEMENT.
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SECTION 9.11. Counterparts; Integration.
-------------------------
This Agreement may be signed in any number of counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument. This Agreement, together with the other
Loan Documents, constitutes the entire agreement and understanding among the
parties hereto and supersedes any and all prior agreements and understandings,
oral or written, relating to the subject matter hereof.
SECTION 9.12. Notice of Final Agreement.
-------------------------
THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
SECTION 9.13. Invalid Provisions.
------------------
Any provision of this Agreement or any other Loan Document held by a court
of competent jurisdiction to be illegal, invalid or unenforceable shall not
invalidate the remaining provisions of such Loan Document which shall remain in
full force and effect and the effect thereof shall be confined to the provision
held invalid or illegal.
SECTION 9.14. NO NOVATION; EFFECT OF AMENDMENT AND RESTATEMENT.
------------------------------------------------
THE PARTIES HERETO HAVE ENTERED INTO THIS AGREEMENT SOLELY TO AMEND AND
RESTATE THE TERMS OF THE EXISTING CREDIT AGREEMENT. THE PARTIES DO NOT INTEND
THIS AGREEMENT NOR THE TRANSACTIONS CONTEMPLATED HEREBY TO BE, AND THIS
AGREEMENT AND THE TRANSACTION CONTEMPLATED HEREBY SHALL NOT BE CONSTRUED TO BE,
A NOVATION OF ANY OF THE OBLIGATIONS OWING BY BORROWER UNDER OR IN CONNECTION
WITH ANY OF THE EXISTING CREDIT AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS (AS
DEFINED IN THE EXISTING CREDIT AGREEMENT). FURTHER, THE PARTIES DO NOT INTEND
THIS AGREEMENT NOR THE TRANSACTIONS CONTEMPLATED HEREBY TO AFFECT THE PERFECTION
OR PRIORITY OF ANY LIEN OF AGENT IN ANY OF THE COLLATERAL IN ANY WAY WHATSOEVER.
THE AMENDMENT AND RESTATEMENT OF THE EXISTING CREDIT AGREEMENT EFFECTED BY THIS
AGREEMENT SHALL BE DEEMED TO HAVE PROSPECTIVE APPLICATION ONLY UNLESS OTHERWISE
SPECIFICALLY STATED HEREIN. BORROWER CONFIRMS THAT (A) THE COLLATERAL
ASSIGNMENT OF REGISTRATION RIGHTS REMAINS IN FULL FORCE AND EFFECT AND (B)
REFERENCES THEREIN TO THE "CREDIT AGREEMENT" ARE REFERENCES TO THIS AGREEMENT.
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IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Credit Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
BORROWER:
SC REALTY INCORPORATED
By: /s/ Arial Amir
----------------------------------
Name: Arial Amir
-----------------------------
Title: Secretary
----------------------------
AGENT:
WELLS FARGO REALTY ADVISORS
FUNDING, INCORPORATED, as Agent
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
By: /s/ Priscilla A. Forbes
----------------------------------
Name: Priscilla A. Forbes
-----------------------------
Title: Assistant Secretary
----------------------------
LENDERS:
WELLS FARGO REALTY ADVISORS
FUNDING, INCORPORATED, in its individual
capacity
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
By: /s/ Priscilla A. Forbes
----------------------------------
Name: Priscilla A. Forbes
-----------------------------
Title: Assistant Secretary
----------------------------
[Signatures Continued on Next Page]
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[Signature Page to Amended and Restated Credit Agreement dated as of
August 19, 1996 with SC Realty Incorporated]
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By: /s/ Brian M. Kouns
--------------------------------
Name: Brian M. Kouns
--------------------------
Title: Vice President
--------------------------
NATIONSBANK OF TEXAS, N.A.
By: /s/ Michael Ernst
--------------------------------
Name: Michael Ernst
--------------------------
Title: SVP
--------------------------
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Daniel J. Sullivan
--------------------------------
Name: Daniel J. Sullivan
--------------------------
Title: VP
--------------------------
BANK ONE, ARIZONA, NA
By: /s/ Deborah L. Bliss
--------------------------------
Name: Deborah L. Bliss
--------------------------
Title: Vice President
--------------------------
[Signatures Continued on Next Page]
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[Signature Page to Amended and Restated Credit Agreement dated as of
August 19, 1996 with SC Realty Incorporated]
GUARANTY FEDERAL BANK, F.S.B.
By: /s/ Phyllis Milstead
--------------------------------
Name: Phyllis Milstead
--------------------------
Title: Vice President
--------------------------
FLEET NATIONAL BANK
By: /s/ Allison M. Gauthier
--------------------------------
Name: Allison M. Gauthier
--------------------------
Title: Asst. Vice President
--------------------------
DRESDNER BANK AG NEW YORK BRANCH
AND GRAND CAYMAN BRANCH
By: /s/ Johannes Boeckmann
--------------------------------
Name: Johannes Boeckmann
--------------------------
Title: Vice President
--------------------------
By: /s/ Nicholas Kalogeropoulos
--------------------------------
Name: Nicholas Kalogeropoulos
--------------------------
Title: Asst. Treasurer
--------------------------
[Signatures Continued on Next Page]
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<PAGE>
[Signature Page to Amended and Restated Credit Agreement dated as of
August 19, 1996 with SC Realty Incorporated]
BANK OF MONTREAL, CHICAGO BRANCH
By: /s/ ?????????????????????????
--------------------------------
Name: ??????????????????????
--------------------------
Title: Director
--------------------------
KREDIETBANK N.V., GRAND CAYMAN
BRANCH
By: /s/ Robert Snauffer
--------------------------------
Name: Robert Snauffer
--------------------------
Title: Vice President
--------------------------
By: /s/ S. K. Barkley
--------------------------------
Name: S. K. Barkley
--------------------------
Title: VP
--------------------------
COMMERZBANK AKTIENGESELLSCHAFT,
LOS ANGELES BRANCH
By: Christian Jagenberg
--------------------------------
Name: Christian Jagenberg
--------------------------
Title: SVP and Manager
--------------------------
By: /s/ Steven F. Larsen
--------------------------------
Name: Steven F. Larsen
--------------------------
Title: Vice President
--------------------------
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Exhibit 10.24
BORROWER AMENDED AND RESTATED PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT dated as of August 19, 1996 by and between SC REALTY
INCORPORATED (the "Pledgor") and WELLS FARGO REALTY ADVISORS FUNDING,
INCORPORATED, as Agent (the "Pledgee").
WHEREAS, pursuant to that certain Amended and Restated Credit Agreement
dated as of February 17, 1995, as amended prior to the date hereof (the
"Existing Credit Agreement") by and among the Pledgor, the financial
institutions party thereto and their assignees under Section 9.8 thereof (the
"Lenders"), and the Pledgee, the Lenders extended certain financial
accommodations to the Pledgor;
WHEREAS, as security for its obligations owing to the Lenders and the
Pledgee under the Existing Credit Agreement, the Pledgor entered into that
certain Borrower Amended and Restated Pledge Agreement dated as of February 17,
1995 (the "Existing Pledge Agreement") by and between the Pledgor and the
Pledgee;
WHEREAS, the Pledgor, the Pledgee and the Lenders are to amend and restate
the terms of the Existing Credit Agreement pursuant to the terms of that certain
Amended and Restated Credit Agreement dated as of the date hereof (as the same
may be amended, supplemented, restated or otherwise modified from time to time
in accordance with its terms, the "Credit Agreement"), by and among the Pledgor,
the Lenders and the Pledgee;
WHEREAS, the Pledgor, the Pledgee and the Lenders desire to amend and
restate the terms of the Existing Pledge Agreement pursuant to the terms hereof;
and
WHEREAS, it is a condition precedent to the effectiveness of the Credit
Agreement and the extension of financial accommodations under the Credit
Agreement, that the Pledgor execute and deliver this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements herein contained
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
Section 1. Pledge. The Pledgor hereby pledges, hypothecates, assigns,
transfers, sets over and delivers unto the Pledgee for the benefit of the
Lenders, and grants to the Pledgee for the benefit of the Lenders a security
interest in, all of the Pledgor's right, title and interest in, to and under the
following (collectively, the "Pledged Collateral"): (a) all of the capital
stock, shares (as defined in Md. Corps & Ass'ns Code Ann. (S)8-101(c)),
beneficial interest in real estate investment trusts or other trusts, equity
interests and other securities (collectively, "Securities") of each Issuer as
set forth in Schedule 1 attached hereto (collectively, the "Pledged Shares");
(b) such additional Securities of such Issuers as may from time to time be
issued to the Pledgor or otherwise acquired by the Pledgor; (c) any additional
Securities of any Issuer as may hereafter at any time be delivered to the
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Pledgee by or on behalf of the Pledgor; (d) any cash or additional Securities
or other property at any time and from time to time receivable or otherwise
distributable in respect of, in exchange for, or in substitution of, any of the
property referred to in clauses (a), (b), and (c) above; and (e) any and all of
the proceeds of any of the foregoing, together with and all other rights,
titles, interests, powers, privileges and preferences pertaining to said
property.
Section 2. Obligations Secured. This Agreement is made, and the security
interest created hereby is granted to the Pledgee for the benefit of the
Lenders, to secure the prompt performance and payment in full of the following
(collectively, the "Secured Obligations"): (a) all Revolving Loans and the Term
Loan; (b) all obligations of the Pledgor under the Credit Agreement, the Notes,
this Agreement and the other Loan Documents; (c) any reasonable costs or
expenses incurred by the Pledgee or Pledgee's counsel in connection with the
realization of the security for which this Agreement provides, including,
without limitation, any reasonable costs or expenses of any proceedings to which
this Agreement may give rise and (d) all other Obligations.
Section 3. Representations and Warranties. The Pledgor hereby represents
and warrants to the Pledgee and the Lenders as follows:
(a) Title and Liens. The Pledgor is the legal and beneficial owner of the
Pledged Collateral and none of the Pledged Collateral is subject to any Lien
other than Permitted Liens. No financing statement under the Uniform Commercial
Code of any jurisdiction which names the Pledgor as debtor or covers any of the
Pledged Collateral, or any other notice filed in the public records indicating
the existence of a Lien thereon, has been filed and is still effective in any
state or other jurisdiction, other than Uniform Commercial Code financing
statements filed in favor of the Pledgee, and the Pledgor has not signed any
such financing statement or notice or any security agreement authorizing the
filing of any such financing statement or notice, other than Uniform Commercial
Code financing statements filed in favor of the Pledgee.
(b) Name; Chief Executive Office. The correct corporate name of the Pledgor
is set forth in the first paragraph of this Agreement. The chief executive
office and principal place of business of the Pledgor, and the Pledgor's books
and records relating to the Pledged Collateral, are located at 3753 Howard
Hughes Parkway, Suite 200, Las Vegas, Clark County, Nevada 89109. The Pledgor
has no other offices or places of business.
(c) Securities Duly Issued. All of the Securities pledged hereunder are and
shall be duly authorized, issued and outstanding and are and shall be fully paid
and non-assessable.
Section 4. Covenants. The Pledgor hereby unconditionally covenants and
agrees as follows:
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(a) No Liens; No Sale of Pledged Collateral. The Pledgor will not create,
assume, incur or permit or suffer to exist or to be created, assumed or
incurred, any Lien on any of the Pledged Collateral (or any interest therein),
other than Permitted Liens, and will not, without the prior written consent of
the Pledgee, sell, lease, assign, transfer or otherwise dispose of all or any
portion of the Pledged Collateral (or any interest therein).
(b) Change of Locations, Name, Etc. Without giving the Pledgor at least
thirty-day's prior written notice, the Pledgor will not (i) change the Pledgor's
chief executive office, principal place of business, or the location of its
books and records relating to the Pledged Collateral or (ii) change its name,
identity or structure.
Section 5. Additional Shares. The Pledgor agrees that, until this
Agreement has terminated in accordance with its terms, any additional Securities
of an Issuer at any time issued to the Pledgor or otherwise acquired by the
Pledgor shall be delivered or otherwise transferred to the Pledgee as soon as
practicable, but in any event within ten (10) Business Days of receipt as
additional Pledged Collateral and shall be subject to the Lien of, and the terms
and conditions of, this Agreement.
Section 6. Voting Rights; Dividends, etc.
(a) So long as no Event of Default shall have occurred and be continuing:
(i) the Pledgor shall be entitled to exercise any and all voting
and/or consensual rights and powers accruing to an owner of the Pledged
Collateral or any part thereof for any purpose not inconsistent with the
terms and conditions of this Agreement or any agreement giving rise to any
of the Secured Obligations; provided, however, that the Pledgor shall not
exercise, or refrain from exercising, any such right or power if any such
action would have a materially adverse effect on the value of such Pledged
Collateral; and
(ii) the Pledgor shall be entitled to retain and use any and all cash
dividends paid on the Pledged Collateral, but any and all stock and/or
liquidating dividends, other distributions in property, return of capital
or other distributions made on or in respect of Pledged Securities, whether
resulting from a subdivision, combination or reclassification of
outstanding Securities of an Issuer which are pledged hereunder or received
in exchange for Pledged Collateral or any part thereof or as a result of
any merger, consolidation, acquisition or other exchange of assets or on
the liquidation, whether voluntary or involuntary, of an Issuer, or
otherwise, shall be and become part of the Pledged Collateral pledged
hereunder and, if received by the Pledgor, shall forthwith be delivered to
the Pledgee to be held as collateral subject to the terms and conditions of
this Agreement.
The Pledgee shall execute and deliver to the Pledgor, or cause to be executed
and delivered to the Pledgor, as appropriate, all such proxies, powers of
attorney, dividend orders and other instruments as the Pledgor may reasonably
request for the purpose of
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enabling the Pledgor to exercise the voting and/or consensual rights and powers
which Pledgor is entitled to exercise pursuant to clause (i) above and/or to
receive the dividends which Pledgor is authorized to retain pursuant to clause
(ii) above.
(b) Upon the occurrence and during the continuance of an Event of Default
hereunder, all rights of the Pledgor to exercise the voting and/or consensual
rights and powers which Pledgor is entitled to exercise pursuant to subsection
(a)(i) above and/or to receive the dividends and other amounts which Pledgor is
authorized to receive and retain pursuant to subsection (a)(ii) above shall
cease, and all such rights thereupon shall become immediately vested in the
Pledgee, which shall have, to the extent permitted by Applicable Law, the sole
and exclusive right and authority to exercise such voting and/or consensual
rights and powers which the Pledgor shall otherwise be entitled to exercise
pursuant to subsection (a)(i) above and/or to receive and retain the dividends
and other amounts which the Pledgor shall otherwise be authorized to retain
pursuant to subsection (a)(ii) above. Any and all money and other property paid
over to or received by the Pledgee pursuant to the provisions of this subsection
(b) shall be retained by the Pledgee as additional collateral hereunder and
shall be applied in accordance with the provisions of Section 9 hereof. If the
Pledgor shall receive any dividends or other property which it is not entitled
to receive under this Section, the Pledgor shall hold the same in trust for the
Pledgee, without commingling the same with other funds or property of or held by
the Pledgor, and shall promptly deliver the same to the Pledgee immediately upon
receipt by the Pledgor in the identical form received, together with any
necessary endorsements.
Section 7. Event of Default Defined. For purposes of this Agreement,
"Event of Default" shall mean the occurrence and continuance of one or more of
the following events:
(a) Pledgor shall fail to observe or perform any covenant or agreement
contained in Section 4(a), Section 5, or Section 6(b) hereof;
(b) Pledgor shall fail to observe or perform any covenant or agreement
contained in this Agreement (other than those covered by the immediately
preceding clause (a)) for a period of thirty days after written notice thereof
has been given to Pledgor by Pledgee; and
(c) an Event of Default under and as defined in the Credit Agreement shall
occur and be continuing.
Section 8. Remedies upon Default.
(a) In addition to any right or remedy that the Pledgee may have under the
Credit Agreement, the other Loan Documents or otherwise under Applicable Law, if
an Event of Default shall have occurred, the Pledgee may exercise any and all
the rights and remedies of a secured party under the Uniform Commercial Code as
in effect in any applicable jurisdiction (the "Code") and may otherwise sell,
assign, transfer, endorse and
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deliver the whole or, from time to time, any part of the Pledged Collateral at a
public or private sale or on any securities exchange, for cash, upon credit or
for other property, for immediate or future delivery, and for such price or
prices and on such terms as the Pledgee in its discretion shall deem
appropriate. The Pledgee shall be authorized at any sale (if it deems it
advisable to do so) to restrict the prospective bidders or purchasers to Persons
who will represent and agree that they are purchasing the Pledged Collateral for
their own account in compliance with the Securities Act and upon consummation of
any such sale the Pledgee shall have the right to assign, transfer, endorse and
deliver to the purchaser or purchasers thereof the Pledged Collateral so sold.
Each purchaser at any sale of Collateral shall take and hold the property sold
absolutely free from any claim or right on the part of the Pledgor, and the
Pledgor hereby waives (to the extent permitted by Applicable Law) all rights of
redemption, stay and/or appraisal which the Pledgor now has or may at any time
in the future have under any Applicable Law now existing or hereafter enacted.
The Pledgor agrees that, to the extent notice of sale shall be required by
Applicable Law, at least ten days' prior written notice to the Pledgor of the
time and place of any public sale or the time after which any private sale is to
be made shall constitute reasonable notification, but notice given in any other
reasonable manner or at any other reasonable time shall constitute reasonable
notification. Such notice, in case of public sale, shall state the time and
place for such sale, and, in the case of sale on a securities exchange, shall
state the exchange at which such sale is to be made and the day on which the
Pledged Collateral, or portion thereof, will first be offered for sale at such
exchange. Any such public sale shall be held at such time or times within
ordinary business hours and at such place or places as the Pledgee may fix and
shall state in the notice or publication (if any) of such sale. At any such
sale, the Pledged Collateral, or portion thereof to be sold, may be sold in one
lot as an entirety or in separate parcels, as the Pledgee may determine in its
sole and absolute discretion. The Pledgee shall not be obligated to make any
sale of the Pledged Collateral if it shall determine not to do so regardless of
the fact that notice of sale of the Pledged Collateral may have been given. The
Pledgee may, without notice or publication, adjourn any public or private sale
or cause the same to be adjourned from time to time by announcement at the time
and place fixed for sale, and such sale may, without further notice, be made at
the time and place to which the same was so adjourned. In case the sale of all
or any part of the Pledged Collateral is made on credit or for future delivery,
the Pledged Collateral so sold may be retained by the Pledgee until the sale
price is paid by the purchaser or purchasers thereof, but the Pledgee shall not
incur any liability to the Pledgor in case any such purchaser or purchasers
shall fail to take up and pay for the Pledged Collateral so sold and, in case of
any such failure, such Pledged Collateral may be sold again upon like notice. At
any public sale made pursuant to this Agreement, each of the Pledgee and the
Lenders, to the extent permitted by Applicable Law, may bid for or purchase,
free from any right of redemption, stay and/or appraisal on the part of the
Pledgor (all said rights being also hereby waived and released to the extent
permitted by Applicable Law), any part of or all the Pledged Collateral offered
for sale and may make payment on account thereof by using any claim then due and
payable to the Pledgee or the Lenders from the Pledgor as a credit against the
purchase price, and the Pledgee and the Lenders may, upon compliance with the
terms of sale and to the extent permitted by Applicable Law, hold, retain and
dispose of such property without further accountability
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<PAGE>
to the Pledgor therefor. For purposes hereof, a written agreement to purchase
all or any part of the Pledged Collateral shall be treated as a sale thereof;
the Pledgee shall be free to carry out such sale pursuant to such agreement and
the Pledgor shall not be entitled to the return of any Pledged Collateral
subject thereto, notwithstanding the fact that after the Pledgee shall have
entered into such an agreement all Events of Default may have been remedied or
the Secured Obligations may have been paid in full as herein provided.
(b) In addition to exercising the power of sale herein conferred upon it,
the Pledgee shall also have the option to proceed by suit or suits at law or in
equity to foreclose this Agreement and sell the Pledged Collateral or any
portion thereof pursuant to judgment or decree of a court or courts having
competent jurisdiction.
(c) Notwithstanding anything contained herein to the contrary, in
exercising its rights and remedies hereunder, the Pledgee will only dispose of
so much of the Pledged Collateral as the Pledgee reasonably determines will be
necessary to pay in full the Secured Obligations.
(d) The rights and remedies of the Pledgee under this Agreement are
cumulative and not exclusive of any rights or remedies which it would otherwise
have.
Section 9. Application of Proceeds of Sale and Cash. The proceeds of any
sale of the whole or any part of the Pledged Collateral, together with any other
moneys held by the Pledgee under the provisions of this Agreement, shall be
applied by the Pledgee in the following order:
(a) First: to the payment of all costs and expenses incurred in connection
with such sale or other realization, including reasonable attorneys' fees
incurred if the Pledgee endeavored to collect the Secured Obligations by or
through an attorney at law;
(b) Second: to the payment of the interest due upon any of the Secured
Obligations, in any order which the Lenders may elect;
(c) Third: to the payment of the principal due upon any of the Secured
Obligations in any order which the Lenders may elect; and
(d) Fourth: the balance (if any) of such proceeds shall be paid to the
Pledgor or to whomsoever may be legally entitled thereto.
The Pledgor shall remain liable and will pay, on demand, any deficiency
remaining in respect of the Secured Obligations.
Section 10. Pledgee Appointed Attorney-in-Fact. The Pledgor hereby
constitutes and appoints the Pledgee the attorney-in-fact of the Pledgor with
full power of substitution either in the Pledgee's name or in the name of the
Pledgor to do any of the following: (a) to perform any obligation of the Pledgor
hereunder in the Pledgor's name or otherwise;
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<PAGE>
(b) to ask for, demand, sue for, collect, receive, receipt and give acquittance
for any and all moneys due or to become due under and by virtue of any Pledged
Collateral; (c) to prepare, execute, file, record or deliver notices,
assignments, financing statements, continuation statements or like papers to
perfect, preserve or release the Pledgee's security interest in the Pledged
Collateral or any of the documents, instruments, certificates and agreements
described in Section 11(b) hereof; (d) to prepare, execute, file, record or
deliver applications for registration or like papers to perfect, preserve or
release the Pledgee's security interest in the Pledged Collateral or any of the
documents, instruments, certificates and agreements described in Section 11(b)
hereof; (e) to verify facts concerning the Pledged Collateral in its own name or
a fictitious name; (f) to endorse checks, drafts, orders and other instruments
for the payment of money payable to the Pledgor, representing any interest or
dividend or other distribution payable in respect of the Pledged Collateral or
any part thereof or on account thereof and to give full discharge for the same;
(g) to exercise all rights, powers and remedies which the Pledgor would have,
but for this Agreement, under the Pledged Collateral; and (h) to carry out the
provisions of this Agreement and to take any action and execute any instrument
which the Pledgee may deem necessary or advisable to accomplish the purposes
hereof, and to do all acts and things and execute all documents in the name of
the Pledgor or otherwise, deemed by the Pledgee as necessary, proper and
convenient in connection with the preservation, perfection or enforcement of its
rights hereunder; provided, however, the Pledgee may exercise the power of
attorney granted herein to take the actions specified in the immediately
preceding clauses (a), (b), (d), (e), (f), (g) and (h) only upon the occurrence
and during the continuance of an Event of Default. Nothing herein contained
shall be construed as requiring or obligating the Pledgee to make any commitment
or to make any inquiry as to the nature or sufficiency of any payment received
by it, or to present or file any claim or notice, or to take any action with
respect to the Pledged Collateral or any part thereof or the moneys due or to
become due in respect thereof or any property covered thereby, and no action
taken by the Pledgee or omitted to be taken with respect to the Pledged
Collateral or any part thereof shall give rise to any defense, counterclaim or
offset in favor of the Pledgor or to any claim or action against the Pledgee.
The power of attorney granted herein is irrevocable and coupled with an
interest.
Section 11. Further Assurances. The Pledgor shall, at its sole cost and
expense, take all action that may be necessary or desirable in the Pledgee's
reasonable opinion, or that the Pledgee may reasonably request, so as at all
times to maintain the validity, perfection, enforceability and priority of the
Pledgee's security interest in the Pledged Collateral, or to enable the Pledgee
to exercise or enforce its rights hereunder, including without limitation (a)
delivering to the Pledgee, endorsed or accompanied by such instruments of
assignment as the Pledgee may specify, any and all chattel paper, instruments,
letters of credit and all other advices of guaranty and documents evidencing or
forming a part of the Pledged Collateral and (b) executing and delivering
financing statements, pledges, designations, notices and assignments, in each
case in form and substance satisfactory to the Pledgee, relating to the
creation, validity, perfection, priority or continuation of the security
interest granted hereunder. The Pledgor agrees to take,
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and authorizes the Pledgee to take on the Pledgor's behalf, any or all of the
following actions with respect to any Pledged Collateral as the Pledgee shall
deem reasonably necessary to perfect the security interest and pledge created
hereby or to enable the Pledgee to enforce its rights and remedies hereunder:
(i) to register in the name of the Pledgee any Pledged Collateral in
certificated or uncertificated form; (ii) to endorse in the name of the Pledgee
any Pledged Collateral issued in certificated form; and (iii) by book entry or
otherwise, identify as belonging to the Pledgee a quantity of securities that
constitutes all or part of the Pledged Collateral registered in the name of the
Pledgee. Notwithstanding the foregoing the Pledgor agrees that Pledged
Collateral which is not in certificated form or is otherwise in book-entry form
shall be held for the account of the Pledgee. The Pledgor hereby authorizes the
Pledgee to execute and file in all necessary and appropriate jurisdictions (as
determined by the Pledgee) one or more financing or continuation statements (or
any other document or instrument referred to in the immediately preceding clause
(b)) in the name of the Pledgor and to sign the Pledgor's name thereto. The
Pledgor authorizes the Pledgee to file any such financing statement, document or
instrument without the signature of the Pledgor to the extent permitted by
Applicable Law. Any property comprising part of the Pledged Collateral required
to be delivered to the Pledgee pursuant to this Pledge Agreement shall be
accompanied by proper instruments of assignment duly executed by the Pledgor and
by such other instruments or documents as the Pledgee or its counsel may
reasonably request. In the event any Pledged Collateral in certificated form
becomes eligible for book-entry treatment, the Pledgor will use its best efforts
to effectuate such book-entry treatment with respect to such Pledged Collateral.
Section 12. Securities Act. In view of the position of the Pledgor in
relation to the Pledged Collateral, or because of other current or future
circumstances, a question may arise under the Securities Act or any similar
Applicable Law hereafter enacted analogous in purpose or effect (such Act and
any such similar Applicable Law as from time to time in effect being called the
"Federal Securities Laws") with respect to any disposition of the Pledged
Collateral permitted hereunder. The Pledgor understands that compliance with
the Federal Securities Laws might very strictly limit the course of conduct of
the Pledgee if the Pledgee were to attempt to dispose of all or any part of the
Pledged Collateral in accordance with the terms hereof, and might also limit the
extent to which or the manner in which any subsequent transferee of any Pledged
Collateral could dispose of the same. Similarly, there may be other legal
restrictions or limitations affecting the Pledgee in any attempt to dispose of
all or part of the Pledged Collateral in accordance with the terms hereof under
applicable Blue Sky or other state securities laws or similar Applicable Law
analogous in purpose or effect. The Pledgor recognizes that in light of the
foregoing restrictions and limitations the Pledgee may, with respect to any sale
of the Pledged Collateral, limit the purchasers to those who will agree, among
other things, to acquire such Pledged Collateral for their own account, for
investment, and not with a view to the distribution or resale thereof. The
Pledgor acknowledges and agrees that in light of the foregoing restrictions and
limitations, the Pledgee, in its sole and absolute discretion, may, in
accordance with Applicable Law, (a) proceed to make such a sale whether or not a
registration statement for the purpose of registering such Pledged Collateral or
part
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thereof shall have been filed under the Federal Securities Laws and (b)
approach and negotiate with a single potential purchaser to effect such sale.
The Pledgor acknowledges and agrees that any such sale might result in prices
and other terms less favorable to the seller than if such sale were a public
sale without such restrictions. In the event of any such sale, the Pledgee
shall incur no responsibility or liability for selling all or any part of the
Pledged Collateral in accordance with the terms hereof at a price that the
Pledgee, in its sole and absolute discretion, may in good faith deem reasonable
under the circumstances, notwithstanding the possibility that a substantially
higher price might have been realized if the sale were deferred until after
registration as aforesaid or if more than a single purchaser were approached.
The provisions of this Section will apply notwithstanding the existence of
public or private market upon which the quotations or sales prices may exceed
substantially the price at which the Pledgee sells.
Section 13. Registration. The Pledgor agrees that, upon the occurrence
and during the continuance of an Event of Default, if for any reason the Pledgee
desires to sell any of the Pledged Collateral at a public sale, it will, at any
time and from time to time, upon the written request of the Pledgee, use its
best efforts to take, or to cause the Issuer of such Pledged Collateral to take,
such action, if any, and prepare, distribute and/or file such documents, if any,
as are required or advisable in the reasonable opinion of counsel for the
Pledgee to permit the public sale of such Pledged Collateral. The Pledgor
further agrees to indemnify, defend and hold harmless the Pledgee and the
Lenders, any underwriter and their respective officers, directors, affiliates
and controlling persons from and against all loss, liability, expenses, costs,
fees and disbursements of counsel incurred (including, without limitation,
reasonable costs of legal counsel incurred by the Pledgee), and claims
(including the costs of investigation) that they may incur insofar as such loss,
liability, expense or claim arises out of or is based upon any alleged untrue
statement of a material fact contained in any prospectus (or any amendment or
supplement thereto) or in any notification or offering circular, or arises out
of or is based upon any alleged omission to state a material fact required to be
stated therein or necessary to make the statements in any thereof not
misleading, except insofar as the same may have been caused by any untrue
statement or omission based upon information furnished in writing to the Pledgor
or the Issuer of such Pledged Collateral by the Pledgee, any Lender or the
underwriter expressly for use therein. The Pledgor further agrees to use its
best efforts to qualify, file or register, or cause the Issuer of such Pledged
Collateral to qualify, file or register, any of the Pledged Collateral under the
Blue Sky or other securities laws of such states as may be reasonably requested
by the Pledgee and keep effective, or cause to be kept effective, all such
qualifications, filings or registrations. The Pledgor will bear all costs and
expenses of carrying out its obligations under this Section. The Pledgor
acknowledges that there is no adequate remedy at law for its failure to comply
with the provisions of this Section and that such failure would not be adequate
compensable in damages, and therefore agrees that its agreements contained in
this Section may be specifically enforced.
Section 14. Indemnification. The Pledgor agrees to indemnify and hold the
Pledgee, each Lender and any corporation controlling, controlled by, or under
common control with, the Pledgee or any Lender and any officer, attorney,
director, shareholder,
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agent or employee of the Pledgee, any Lender or any such corporation (each an
"Indemnified Person"), harmless from and against any claim, loss, damage,
action, cause of action, liability, cost and expense or suit of any kind or
nature whatsoever (collectively, "Losses"), brought against or incurred by an
Indemnified Person, in any manner arising out of or, directly or indirectly,
related to or connected with this Agreement, including without limitation, the
exercise by the Pledgee of any of its rights and remedies under this Agreement
or any other action taken by the Pledgee pursuant to the terms of this
Agreement; provided, however, the Pledgor shall not be liable to an Indemnified
Person for any Losses to the extent that such Losses result from the gross
negligence or willful misconduct of such Indemnified Person. The Pledgor's
obligations under this section shall survive the termination of this Agreement
and the payment in full of the Secured Obligations.
Section 15. Continuing Security Interest. This Agreement shall create a
continuing security interest in the Pledged Collateral and shall remain in full
force and effect until indefeasible payment in full of the Secured Obligations.
The Pledgor and the Pledgee hereby agree that the security interest created by
this Agreement in the Pledged Collateral shall not terminate and shall continue
and remain in full force and effect notwithstanding the transfer to the Pledgor
or any person designated by it of all or any portion of the Pledged Collateral.
Section 16. NO NOVATION. THE PARTIES HERETO HAVE ENTERED INTO THIS
AGREEMENT SOLELY TO AMEND AND RESTATE THE TERMS OF THE EXISTING PLEDGE
AGREEMENT. THE PARTIES DO NOT INTEND THIS AGREEMENT, NOR THE TRANSACTIONS
CONTEMPLATED HEREBY, TO BE, AND THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
HEREBY SHALL NOT BE CONSTRUED TO BE, A NOVATION OR WAIVER OF ANY OF THE
OBLIGATIONS OWING BY THE PLEDGOR UNDER OR IN CONNECTION WITH THE EXISTING PLEDGE
AGREEMENT. FURTHER, NONE OF THE PLEDGOR, THE PLEDGEE NOR ANY LENDER INTENDS IN
ANY WAY TO AFFECT THE PERFECTION OR PRIORITY OF THE PLEDGEE'S LIEN IN THE
PLEDGED COLLATERAL CREATED PURSUANT TO THE EXISTING PLEDGE AGREEMENT.
Section 17. No Waiver. Neither the failure on the part of the Pledgee to
exercise, nor the delay on its part in exercising any right, power or remedy
hereunder, nor any course of dealing between the Pledgee and the Pledgor shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power, or remedy hereunder preclude any other or the further
exercise thereof or the exercise of any other right, power or remedy.
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Section 18. Notices. All notices and communications required or permitted
hereunder shall be given in accordance with the applicable provisions of the
Credit Agreement.
SECTION 19. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA.
Section 20. Amendments. No amendment or waiver of any provision of this
Agreement nor consent to any departure by the Pledgor herefrom shall in any
event be effective unless the same shall be in writing and signed by the parties
hereto, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
Section 21. Binding Agreement; Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that the Pledgor shall not be permitted to assign
this Agreement or any interest herein or in the Pledged Collateral, or any part
thereof, or any cash or property held by the Pledgee as collateral under this
Agreement.
Section 22. Termination. Upon indefeasible payment in full of all of the
Secured Obligations, this Agreement shall terminate. Upon termination of this
Agreement in accordance with its terms the Pledgee agrees to take such actions
as the Pledgor may reasonably request, and at the sole cost and expense of the
Pledgor, (a) to return the Pledged Collateral to the Pledgor, and (b) to
evidence the termination of this Agreement, including, without limitation, the
filing of any releases or any termination statements under the Uniform
Commercial Code.
Section 23. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under Applicable Law, but if any provision of this Agreement shall be prohibited
by or invalid under Applicable Law, such provisions shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provisions or the remaining provisions of this Agreement.
Section 24. Headings. Section headings used herein are for convenience
only and are not to affect the construction of or be taken into consideration in
interpreting this Agreement.
Section 25. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of which shall
constitute but one agreement.
Section 26. Definitions. Terms not otherwise defined herein are used
herein with the respective meanings given them in the Credit Agreement.
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IN WITNESS WHEREOF, the Pledgor has executed and delivered this Amended and
Restated Pledge Agreement as of this the date first written above.
SC REALTY INCORPORATED
By: /s/ ???
------------------------------
Title: Secretary
-----------------------
Agreed to, accepted and acknowledged
as of the date first written above.
WELLS FARGO REALTY ADVISORS
FUNDING, INCORPORATED, as Agent
By:
------------------------------
Title:
-------------------------
By:/s/ Priscilla A. Forbes
------------------------------
Title: Assistant Secretary
------------------------
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<PAGE>
Exhibit 10.25
AMENDED AND RESTATED GUARANTY
THIS AMENDED AND RESTATED GUARANTY dated as of August 19, 1996 executed and
delivered by SECURITY CAPITAL GROUP INCORPORATED, a Maryland corporation,
formerly known as Security Capital Realty Incorporated (the "Guarantor"), in
favor of (a) WELLS FARGO REALTY ADVISORS FUNDING, INCORPORATED, in its capacity
as Agent (the "Agent") for the Lenders under that certain Credit Agreement dated
as of the date hereof by and among SC Realty Incorporated (the "Borrower"), the
financial institutions party thereto and their assignees under Section 9.8
thereof (the "Lenders") and the Agent (as the same may be amended, restated,
supplemented or otherwise modified from time to time in accordance with its
terms, the "Credit Agreement") and (b) the Lenders.
WHEREAS, the Lenders made available to the Borrower certain financial
accommodations on the terms and conditions contained in that certain Amended and
Restated Credit Agreement dated as of February 17, 1995, as amended prior to the
date hereof (the "Existing Credit Agreement") by and among the Guarantor, the
Lenders and the Agent;
WHEREAS, the Borrower, the Agent and the Lenders are to amend and restate
the terms of the Existing Credit Agreement pursuant to the Credit Agreement;
WHEREAS, the Guarantor owns all of the issued and outstanding capital stock
of the Borrower;
WHEREAS, the Guarantor will continue to benefit, as the sole shareholder of
the Borrower, from the making of such financial accommodations to the Borrower
under the Credit Agreement; and
WHEREAS, it is a condition precedent to the effectiveness of the Credit
Agreement and the extension of such financial accommodations under the Credit
Agreement, that the Guarantor execute and deliver this Guaranty.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the Guarantor, the Guarantor
agrees as follows:
Section 1. Guaranty. The Guarantor hereby absolutely and unconditionally
guaranties the due and punctual payment and performance of all of the following
(collectively referred to as the "Obligations"): (a) all indebtedness and
obligations owing by the Borrower to the Lenders and the Agent under or in
connection with the Credit Agreement and any other Loan Document, including
without limitation, the repayment of all principal of the Revolving Loans and
the Term Loan made by the Lenders to the Borrower under the Credit Agreement and
the payment of all interest, fees, charges,
<PAGE>
reasonable attorneys fees and other amounts payable to any Lender or the Agent
thereunder or in connection therewith; (b) any and all extensions, renewals,
modifications, amendments or substitutions of the foregoing; and (c) all
expenses, including, without limitation, reasonable attorneys' fees and
disbursements, that are incurred by the Lenders and the Agent in the enforcement
of any of the foregoing or any obligation of the Guarantor hereunder.
Section 2. Guaranty of Payment and Not of Collection. This Guaranty is a
guaranty of payment, and not of collection, and a debt of the Guarantor for its
own account. Accordingly, the Lenders and the Agent shall not be obligated or
required before enforcing this Guaranty against the Guarantor: (a) to pursue
any right or remedy the Lenders or the Agent may have against the Borrower or
any other guarantor of the Obligations or commence any suit or other proceeding
against the Borrower or any other guarantor of the Obligations in any court or
other tribunal; (b) to make any claim in a liquidation or bankruptcy of the
Borrower or any other guarantor of the Obligations; or (c) to make demand of the
Borrower or any other guarantor of the Obligations or to enforce or seek to
enforce or realize upon any collateral security held by the Lenders or the Agent
which may secure any of the Obligations. In this connection, the Guarantor
hereby waives the right of the Guarantor to require any holder of the
Obligations to take action against the Borrower as provided in Official Code of
Georgia Annotated (S)10-7-24.
Section 3. Guaranty Absolute. The Guarantor guarantees that the
Obligations will be paid strictly in accordance with the terms of the documents
evidencing the same, regardless of any Applicable Law now or hereafter in effect
in any jurisdiction affecting any of such terms or the rights of the Agent or
the Lenders with respect thereto. The liability of the Guarantor under this
Guaranty shall be absolute and unconditional in accordance with its terms and
shall remain in full force and effect without regard to, and shall not be
released, suspended, discharged, terminated or otherwise affected by, any
circumstance or occurrence whatsoever, including without limitation, the
following (whether or not the Guarantor consents thereto or has notice thereof):
(a) (i) any change in the amount, interest rate or due date or other term
of any of the Obligations, (ii) any change in the time, place or manner of
payment of all or any portion of the Obligations, (iii) any amendment or waiver
of, or consent to the departure from or other indulgence with respect to, the
Credit Agreement, any other Loan Document, or any other document or instrument
evidencing or relating to any Obligations, or (iv) any waiver, renewal,
extension, addition, or supplement to, or deletion from, or any other action or
inaction under or in respect of, the Credit Agreement, any of the other Loan
Documents, or any other documents, instruments or agreements relating to the
Obligations or any other instrument or agreement referred to therein or
evidencing any Obligations or any assignment or transfer of any of the
foregoing;
(b) any lack of validity or enforceability of the Credit Agreement, any of
the other Loan Documents, or any other document, instrument or agreement
referred to
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<PAGE>
therein or evidencing any Obligations or any assignment or transfer of any of
the foregoing;
(c) any furnishing to the Agent or the Lenders of any additional security
for the Obligations, or any sale, exchange, release or surrender of, or
realization on, any collateral security for the Obligations;
(d) any settlement or compromise of any of the Obligations, any security
therefor, or any liability of any other party with respect to the Obligations,
or any subordination of the payment of the Obligations to the payment of any
other liability of the Borrower;
(e) any bankruptcy, insolvency, reorganization, composition, adjustment,
dissolution, liquidation or other like proceeding relating to the Guarantor, the
Borrower or any other Person, or any action taken with respect to this Guaranty
by any trustee or receiver, or by any court, in any such proceeding;
(f) any nonperfection of any security interest or other Lien on any of the
Collateral;
(g) any application of sums paid by the Borrower or any other Person with
respect to the liabilities of the Borrower to the Agent or the Lenders,
regardless of what liabilities of the Borrower remain unpaid;
(h) any defect, limitation or insufficiency in the borrowing powers of the
Borrower or in the exercise thereof; or
(i) any other circumstance which might otherwise constitute a defense
available to, or a discharge of, the Guarantor hereunder.
Section 4. Action with Respect to Obligations. The Lenders and the Agent
may, at any time and from time to time, without the consent of, or notice to,
the Guarantor, and without discharging the Guarantor from its obligations
hereunder: (a) amend, modify, alter or supplement the terms of any of the
Obligations, including, but not limited to, extending or shortening the time of
payment of any of the Obligations or the interest rate that may accrue on any of
the Obligations; (b) amend, modify, alter or supplement the Credit Agreement or
any other Loan Document; (c) sell, exchange, release or otherwise deal with all,
or any part, of any Collateral; (d) release any Person liable in any manner for
the payment or collection of the Obligations; (e) exercise, or refrain from
exercising, any rights against the Borrower or any other Person (including,
without limitation, any other guarantor of the Obligations); and (f) apply any
sum, by whomsoever paid or however realized, to the Obligations in such order as
the Lenders shall elect.
Section 5. Representations and Warranties. The Guarantor represents and
warrants to the Agent and each Lender as follows:
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(a) Existence and Power. The Guarantor is a corporation, duly organized,
validly existing and in good standing under the laws of the State of Maryland,
and has all requisite power and authority and all governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted and is duly qualified and is in good standing as a foreign
corporation, and authorized to do business, in each jurisdiction in which the
character of its properties or the nature of its business requires such
qualification or authorization except where the failure to be so qualified or
authorized would not have a Materially Adverse Effect on the Guarantor.
(b) Ownership Structure. The Guarantor owns all of the issued and
outstanding Securities of the Borrower, all of which Securities have been
validly issued and are fully paid and nonassessable.
(c) Authorization of Guaranty and Other Loan Documents. The Guarantor has
the right and power, and has taken all necessary action to authorize it, to
execute, deliver and perform this Guaranty and the other Loan Documents to which
it is a party in accordance with their respective terms and to consummate the
transactions contemplated hereby. This Guaranty and each of the other Loan
Documents to which the Guarantor is a party have been duly executed and
delivered by the duly authorized officers of the Guarantor and each is a legal,
valid and binding obligation of the Guarantor enforceable against the Guarantor
in accordance with its respective terms, except as the same may be limited by
bankruptcy, insolvency, and other similar laws affecting the rights of creditors
generally and the availability of equitable remedies for the enforcement of
certain obligations (other than the payment of principal) contained herein or
therein may be limited by equitable principles generally.
(d) Compliance of Guaranty and Other Loan Documents with Laws, etc. The
execution, delivery and performance of this Guaranty and the other Loan
Documents to which the Guarantor is a party in accordance with their respective
terms do not and will not, by the passage of time, the giving of notice or
otherwise (i) require any Governmental Approval or violate any Applicable Law
relating to the Guarantor the failure to possess or to comply with which would
have a Materially Adverse Effect on the Guarantor; (ii) conflict with, result in
a breach of or constitute a default under (A) the certificate of incorporation
or the bylaws of the Guarantor, (B) any of the Subordinated Debentures or (C)
any indenture, agreement or other instrument to which the Guarantor is a party
or by which it or any of its properties may be bound and the violation of which
would have a Materially Adverse Effect on the Guarantor; or (iii) result in or
require the creation or imposition of any Lien upon or with respect to any
property now owned or hereafter acquired by the Guarantor other than Permitted
Liens.
(e) Compliance with Law; Governmental Approvals. The Guarantor is in
compliance with each Governmental Approval applicable to it and in compliance
with all other Applicable Law relating to the Guarantor, except for
noncompliances which, and Governmental Approvals the failure to possess which,
would not, singly or in the
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aggregate, cause a Default or Event of Default or have a Materially Adverse
Effect on the Guarantor and in respect of which (if the Guarantor has actual
knowledge of such Applicable Law or Governmental Approval) adequate reserves
have been established on the books of the Guarantor.
(f) Indebtedness and Guarantees. Schedule 5.(f) is a complete and correct
listing of all Indebtedness and Guarantees of the Guarantor as of the date
hereof. The Guarantor has performed and is in compliance with all of the terms
of all Indebtedness of the Guarantor (including all Guarantees of any
Indebtedness) having an aggregate principal amount in excess of $5,000,000, and
all instruments and agreements relating thereto, and no default or event of
default, or event or condition which with the giving of notice, the lapse of
time or otherwise, would constitute such a default or event of default, exists
with respect to any such Indebtedness.
(g) Transactions with Affiliates. The Guarantor is not a party to any
transaction with any Affiliate which is in violation of Section 6.(k)(ii).
(h) Absence of Defaults. The Guarantor is not in default under its
articles of incorporation or its bylaws, and no event has occurred, which has
not been remedied, cured or waived (i) which constitutes a Default or an Event
of Default; or (ii) which constitutes, or which with the passage of time, the
giving of notice or otherwise, would constitute, a default or event of default
by the Guarantor under any material agreement (other than this Guaranty) or
judgment, decree or order to which the Guarantor is a party or by which the
Guarantor or any of its properties may be bound.
(i) Financial Information. The consolidated balance sheet of the
Guarantor as of December 31, 1995 and the related consolidated statements of
earnings, stockholders' equity and cash flows for the fiscal year then ended,
reported on by Arthur Andersen & Co., and the unaudited consolidated balance
sheet of the Guarantor as of March 31, 1996 and the related unaudited
consolidated statements of earnings, stockholders' equity and cash flows for the
fiscal quarter then ended, copies of all of which have been delivered to the
Agent and the Lenders, fairly present, in conformity with generally accepted
accounting principles, the financial position of the Guarantor as of such dates
and its results of operations and cash flows for such fiscal year and period.
Since December 31, 1995 and with reference to such date, there has been no
material adverse change in the business, properties, financial position, results
of operations or prospects of the Guarantor and the Consolidated Subsidiaries
taken as a whole.
(j) Litigation. There is no action, suit or proceeding pending against,
or to the knowledge of the Guarantor threatened against or affecting, any
Related Company before any court or arbitrator or any governmental body, agency
or official (i) which would reasonably be expected to materially adversely
affect the business, properties, financial position, results of operations or
prospects of the Guarantor or (ii) which in any manner draws into question the
validity of any Loan Document.
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<PAGE>
(k) ERISA. The Guarantor does not maintain, and has not at any time
maintained, any Plan subject to the provisions of ERISA and is not, and has not
at any time been, a member of any ERISA Group with any Person that has at any
time maintained any such Plan.
(l) Environmental Matters. In the ordinary course of their business, the
Related Companies conduct an ongoing review of the effect of Environmental Laws
on their business, operations and properties, in the course of which they
identify and evaluate associated liabilities and costs (including, without
limitation, any capital or operating expenditures required for clean-up or
closure of properties presently or previously owned, any capital or operating
expenditures required to achieve or maintain compliance with environmental
protection standards imposed by law or as a condition of any license, permit or
contract, any related constraints on operating activities, including any
periodic or permanent shutdown of any facility or reduction in the level of or
change in the nature of operations conducted thereat, any costs or liabilities
in connection with off-site disposal of wastes or Hazardous Substances, and any
actual or potential liabilities to third parties, including employees, and any
related costs and expenses). On the basis of this review, the Guarantor has
reasonably concluded that such associated liabilities and costs, including the
costs of compliance with Environmental Laws, are unlikely to have a material
adverse effect on the business, financial condition, results of operations or
prospects of the Guarantor and its Consolidated Subsidiaries, considered as a
whole.
(m) Taxes. As of the date hereof, no United States Federal income tax
returns of the "affiliated group" (as defined in the Internal Revenue Code) of
which the Guarantor is a member have been examined and closed. The members of
such affiliated group have filed all United States Federal income tax returns
and all other material tax returns which are required to be filed by them and
have paid all taxes due pursuant to such returns or pursuant to any assessment
received by or any of them except for taxes being contested in good faith by
appropriate proceedings and for which appropriate reserves have been
established. The charges, accruals and reserves on the books of the Guarantor in
respect of taxes or other governmental charges are, in the opinion of the
Guarantor, adequate.
(n) Other Related Companies. Each of the corporate Related Companies
other than the Guarantor is a corporation duly incorporated, validly existing
and in good standing under the laws of its jurisdiction of incorporation, and
has all corporate powers and all material Governmental Approvals required to
carry on its business as now conducted.
(o) Not an Investment Company. The Guarantor is not an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(p) Full Disclosure. All written information furnished by or on behalf of
the Guarantor to the Agent and the Lenders for purposes of or in connection with
the Existing Credit Agreement and the other Loan Documents (as defined in the
Existing Credit Agreement) or any transaction contemplated thereby was, this
Guaranty and the other
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Loan Documents or any transaction contemplated hereby is, and all such
information hereafter furnished by or on behalf of the Guarantor to the Agent
and the Lenders will be, true and accurate in all material respects on the date
as of which such information is or was stated or certified and did not, does
not, and will not, fail to state any material facts necessary to make the
statements contained therein not misleading. The Guarantor has disclosed to the
Agent and the Lenders in writing any and all facts known to the Guarantor which
materially and adversely affect or may affect (to the extent the Guarantor can
now reasonably foresee), the business, operations or financial condition of the
Guarantor and its Consolidated Subsidiaries, taken as a whole, or the ability of
the Guarantor to perform its obligations under this Guaranty or any of the other
Loan Documents to which it is a party.
(q) Not Plan Assets. The assets of the Guarantor do not and will not
constitute "plan assets" within the meaning of ERISA, the Internal Revenue Code
and the respective regulations promulgated thereunder, of any ERISA Plan or Non-
ERISA Plan. The execution, delivery and performance of this Guaranty and the
other Loan Documents to which the Guarantor is a party do not and will not
constitute "prohibited transactions" under ERISA or the Internal Revenue Code.
(r) Liens. The liens and security interests granted to the Agent by the
Guarantor pursuant to the Collateral Documents to which the Guarantor is a party
are valid and enforceable first-priority Liens subject only to Permitted Liens.
(s) Subscription Agreements. Each Subscription Agreement to which the
Guarantor is, or may hereafter be, a party is and will be the legal, valid and
binding obligation of the Guarantor and the Subscriber a party thereto
enforceable against each in accordance with its terms except as the same may be
limited by bankruptcy, insolvency, reorganization, moratorium or other laws
affecting generally the enforcement of creditors' rights and by general
principles of equity (regardless of whether considered in a proceeding in equity
or in law). All Securities issued by the Guarantor pursuant to a Subscription
Agreement were issued in material compliance with the Securities Act.
(t) Separateness from Borrower.
(i) Consolidation of the business operations of the Borrower and
the Guarantor, when taken together with the elimination of the financial
benefits of the transactions contemplated by the Loan Documents, would not
result in any significant cost savings or in significantly greater
efficiency of such combined business operations.
(ii) The consideration received by the Guarantor in exchange for
acquisition of the capital stock of Borrower provided fair consideration
and reasonably equivalent value to the Guarantor.
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(iii) The Guarantor has not concealed and will not conceal from any
interested party any transfers contemplated in connection with the
Contribution. The Guarantor is not entering into the transaction
contemplated by the Credit Agreement and the Assignment and Assumption
Agreement with the intent of hindering, delaying or defrauding creditors.
(iv) The Guarantor's management has made a diligent analysis of the
business and operations of the Borrower, and is reasonably confident that
the Borrower is and will be: (A) be adequately capitalized to conduct its
business and affairs as a going concern, considering the size and nature of
its business and intended purposes; (B) solvent; and (C) able to pay its
debts as they come due. As a result of the foregoing, the Guarantor's
management believes that the Borrower will be able to survive as a stand
alone entity, independent of financial assistance of any Person. The
Guarantor's management does not anticipate any need for the Guarantor to
loan money or contribute capital to the Borrower, although it is possible
that the Guarantor may take either of these actions in the future.
(v) The Guarantor's management has made a diligent analysis of its
own business and operations and is reasonably confident that the Guarantor
is and will be: (i) adequately capitalized to conduct its business and
affairs as a going concern, considering the size and nature of its business
and intended purposes; (ii) solvent; and (iii) able to pay its debts as
they come due. Guarantor's management believes the Guarantor will be able,
vis-a-vis the Borrower, to survive as a stand alone entity.
(u) Real Estate Managers. Security Capital Investment Incorporated owns
all of the issued and outstanding capital stock of Security Capital Pacific
Incorporated, Security Capital (Atlantic) Incorporated and Security Capital
Industrial Incorporated (collectively, the "REIT Management Subsidiaries"). None
of the assets of Security Capital Investment Incorporated, nor any of the fees
payable to any of the REIT Management Subsidiaries in connection with any REIT
management agreement under which such Person acts as Real Estate Manager, is
subject to any Lien other than Permitted Liens.
(v) Solvency. (i) The fair value and the fair salable value of the
Guarantor's assets (excluding any Indebtedness due from any Affiliate of the
Guarantor) are each in excess of the fair valuation of the Guarantor's total
liabilities (including all contingent liabilities); and (ii) the Guarantor is
able to pay its debts or other obligations in the ordinary course as they mature
and (iii) the Guarantor has capital not unreasonably small to carry on its
business and all business in which it proposes to be engaged.
Section 6. Covenants. The Guarantor agrees that, so long as the Lenders
have any Commitments under the Credit Agreement or any Obligation remains unpaid
or unperformed:
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(a) Information. The Guarantor will deliver to the Agent and each Lender:
(i) as soon as available and in any event within ninety days after
the end of each respective fiscal year of the Guarantor and any of its
Subsidiaries the financial statements of which are audited, a consolidated
balance sheet of such Person as of the end of such fiscal year and the
related consolidated statements of funds from operations or earnings,
stockholders' equity and cash flows for such fiscal year, setting forth in
each case in comparative form the figures for the previous fiscal year, all
(other than any statement of funds from operations) reported on in a manner
acceptable to the Agent by independent public accountants of nationally
recognized standing;
(ii) as soon as available and in any event within forty-five days
after the end of each of the first three fiscal quarters of each respective
fiscal year of the Guarantor and any of its Subsidiaries the financial
statements of which are audited, a balance sheet of such Person as of the
end of such quarter and the related statements of funds from operations or
earnings, stockholders' equity and cash flows for such quarter and for the
portion of such Person's fiscal year ended at the end of such quarter,
setting forth in comparative form the figures for the corresponding quarter
and the corresponding portion of such Person's previous fiscal year, all
certified (subject to normal year-end adjustments) as to fairness of
presentation, generally accepted accounting principles (subject to absence
of full footnote disclosures and other than any statement of funds from
operations) and consistency by the President, Managing Director, Treasurer
or controller of such Person (which officer shall be authorized to so
certify such statements);
(iii) simultaneously with the delivery of each set of financial
statements referred to in the immediately preceding clauses (i) and (ii), a
certificate of the President, Managing Director, Treasurer or controller of
the Guarantor (which officer shall be authorized to execute such
certificate) (A) setting forth in reasonable detail the calculations
required to establish whether the Guarantor was in compliance with the
requirements of Sections 6.(g), (k) and (n) through (p) hereof on the date
of such financial statements, (B) stating whether any Default or Event of
Default exists on the date of such certificate and, if any Default or Event
of Default then exists, setting forth the details thereof and the action
which the Guarantor is taking or proposes to take with respect thereto, (C)
setting forth a schedule of all Contingent Obligations of the Guarantor as
of the date of such financial statements, and (D) setting forth a schedule,
in such form as may be reasonably satisfactory to the Agent, of information
with respect to assets and liabilities of Consolidated Subsidiaries of the
Guarantor;
(iv) as soon as available and in any event within forty-five days
after the end of each fiscal quarter, or promptly upon the request of the
Agent, (A) a report certified by the President, Managing Director,
Treasurer or controller of the Guarantor (which officer shall be authorized
to certify such report), setting forth in
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reasonable detail all Unfunded Subscription Amounts owing under all
Subscription Agreements, together with the name and address of each
Subscriber a party to each such Subscription Agreement, all in reasonable
detail and reasonably satisfactory to the Agent and (B) copies of each
Subscription Agreement under which any Unfunded Subscription Amounts are
owing and copies of which have not previously been sent to the Agent.
(v) simultaneously with the delivery of each set of financial
statements referred to in the immediately preceding clause (i), a statement
of the firm of independent public accountants which reported on such
statements (A) whether anything has come to their attention to cause them
to believe that any Default or Event of Default existed on the date of such
statements and (B) confirming the calculations set forth in the Compliance
Certificate delivered simultaneously therewith pursuant to the immediately
preceding clause (iii);
(vi) promptly upon receipt thereof, copies of all reports submitted
to the Guarantor or its Board of Directors by the Guarantor's independent
public accountants, including without limitation, any management report;
(vii) within five days after any executive officer of the Guarantor
obtains knowledge of any Default or Event of Default, a certificate of the
President, Managing Director, Treasurer, controller or Secretary of the
Guarantor setting forth the details thereof and the action which the
Guarantor is taking or proposes to take with respect thereto;
(viii) promptly upon the mailing thereof to the shareholders of the
Guarantor generally, copies of all financial statements, reports, offering
memoranda and proxy statements so mailed;
(ix) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements
on Form S-8 or its equivalent), reports on Forms 10-K, 10-Q and 8-K (or
their equivalents) and all other periodic reports which the Guarantor or
any of its Affiliates which it directly or indirectly controls shall file
with the Securities and Exchange Commission (or any governmental agency
substituted therefor) or any national securities exchange;
(x) promptly upon the release thereof, copies of all press
releases of the Guarantor;
(xi) promptly upon the receipt of or giving thereof, a copy of and
written notice or communication given by a Subscriber to the Guarantor or
by the Guarantor to Subscriber under or relating to a Subscription
Agreement;
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(xii) promptly upon obtaining knowledge thereof, a description in
reasonable detail of any action, suit or proceeding commenced or threatened
against any of the Related Companies which is reasonably likely to have a
Materially Adverse Effect;
(xiii) promptly upon the occurrence thereof, any material change in
the senior management of the Guarantor;
(xiv) promptly upon any Change in Control, notice of such event
together with a description of the transaction giving rise thereto and a
list of all stockholders of the Guarantor after giving effect thereto;
(xv) promptly upon the occurrence thereof, any amendment to the
articles of incorporation or bylaws of the Guarantor;
(xvi) promptly upon the filing thereof, the annual report of the
Guarantor filed with the Secretary of State of the State of Maryland; and
(xvii) from time to time such additional information regarding the
financial position or business of the Guarantor and its Subsidiaries as the
Agent or any Lender may reasonably request.
(b) Payment of Obligations. The Guarantor will pay and discharge, and
will cause each Subsidiary (other than any Public Subsidiary) to pay and
discharge, at or before maturity, all their respective material obligations and
liabilities, including, without limitation, tax liabilities, except where the
same may be contested in good faith by appropriate proceedings unless the
contest thereof would have a Materially Adverse Effect on the Guarantor, and
will maintain, and will cause each Subsidiary (other than any Public Subsidiary)
to maintain, in accordance with generally accepted accounting principles,
appropriate reserves for the accrual of any of the same.
(c) Maintenance of Property; Insurance.
(i) the Guarantor will keep, and will cause each Subsidiary (other
than any Public Subsidiary) to keep, all property useful and necessary in
its business in good working order and condition, ordinary wear and tear
and insured casualty losses excepted.
(ii) the Guarantor will maintain, and will cause each Subsidiary
(other than any Public Subsidiary) to maintain, (A) physical damage
insurance on all real and personal property on an all risks basis
(including the perils of flood and earthquake if located in designated
flood and earthquake zones), covering the repair and replacement cost of
all such property and consequential loss coverage for business interruption
and extra expense (provided that the amount of such insurance with respect
to earthquakes need not exceed $15,000,000 for property
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located in California), (B) public liability insurance (including
products/completed operations liability coverage) in an amount not less
than $5,000,000.00 in primary coverage and $25,000,000.00 in umbrella
coverage and (C) such other insurance coverage in such amounts and with
respect to such risks as is consistent with insurance maintained by
businesses of comparable type and size in the industry. All such insurance
shall be provided by insurers having an A.M. Best policyholders rating of
not less than A-IX (with respect to liability) and A-XI (with respect to
property damage) or such other insurers as the Agent may approve in
writing. The Guarantor will deliver to the Agent (x) upon request of the
Agent from time to time full information as to the insurance carried, (y)
within five (5) days of receipt of notice from any insurer a copy of any
notice of cancellation or material change in coverage from that existing on
the date of this Guaranty and (z) forthwith, notice of any cancellation or
nonrenewal of coverage by the Guarantor.
(iii) except as otherwise permitted under Section 6.(h) hereof, the
Guarantor will, and will cause each Subsidiary to, qualify and remain
qualified and authorized to do business in each jurisdiction in which the
character of its properties or the nature of its business requires such
qualification or authorization and where the failure to be so qualified or
authorized would have a Materially Adverse Effect on the Guarantor.
(d) Conduct of Business and Maintenance of Existence. Except as otherwise
permitted under Section 6.(h) hereof, the Guarantor will continue, and will
cause each Subsidiary to continue, to engage in business of the same general
type as now conducted by the Guarantor and its Subsidiaries, and will preserve,
renew and keep in full force and effect, and will cause each Subsidiary to
preserve, renew and keep in full force and effect their respective existence and
their respective rights, privileges and franchises necessary or desirable in the
normal conduct of business; provided that nothing in this Section shall prohibit
the dissolution of a Subsidiary (other than the Borrower) if (i) such
dissolution will not be materially disadvantageous to the Lenders and (ii) such
dissolution will not have a Materially Adverse Effect.
(e) Compliance with Laws. The Guarantor will comply, and cause each
Subsidiary to comply, with all Applicable Laws, including without limitation,
all Environmental Laws and ERISA and the rules and regulations thereunder,
except where compliance therewith is contested in good faith by appropriate
proceedings or the failure to so comply would not have a Materially Adverse
Effect.
(f) Inspection of Property, Books and Records. The Guarantor will keep,
and will cause each Subsidiary to keep, proper books of record and account in
which full, true and correct entries shall be made of all dealings and
transactions in relation to its business and activities; and will permit, and
will cause each Subsidiary to permit, representatives of the Agent to visit and
inspect any of their respective properties, to examine and make abstracts from
any of their respective books and records and to discuss their respective
affairs, finances and accounts with their respective officers, employees and
independent
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public accountants in the Guarantor's presence prior to an Event of Default, all
at such reasonable times during business hours and as often as may reasonably be
desired and with reasonable notice so long as no Event of Default shall have
occurred and be continuing.
(g) Indebtedness. The Guarantor will not incur, assume or suffer to exist
any Indebtedness other than:
(i) Indebtedness in respect of this Guaranty;
(ii) Indebtedness described in Schedule 5.(f);
(iii) Subordinated Indebtedness;
(iv) Indebtedness represented by declared but unpaid dividends;
(v) Indebtedness secured by Purchase Money Liens in an aggregate
amount not to exceed $10,000,000 at any time outstanding;
(vi) Indebtedness owing to the Borrower under the Guarantor Note;
and
(vii) other Indebtedness in an aggregate amount not to exceed
$10,000,000 at any time outstanding.
Notwithstanding the foregoing, the Guarantor shall not incur, assume or suffer
to exist any Indebtedness by way of Guarantee or otherwise, in respect of any
Indebtedness of any Preferred Stock Subsidiary.
(h) Consolidations, Mergers and Sales of Assets. Neither the Guarantor
nor any of its Subsidiaries (other than any Public Subsidiary) may (i)
consolidate or merge with or into any other Person or (ii) sell, lease or
otherwise transfer, directly or indirectly, and whether by one or a series of
related transactions, a substantial portion of any of its assets to any other
Person except that the Guarantor or any of its Subsidiaries (other than the
Borrower) may merge or consolidate with another Person and the Guarantor or any
of its Subsidiaries (other than the Borrower) may sell, lease or otherwise
transfer a substantial portion of its assets to another Person so long as (A)
the Guarantor shall have given the Agent at least thirty days prior notice
thereof, (B) after giving effect thereto, no Default or Event of Default shall
have occurred and be continuing and (C) in the case of a consolidation or merger
(x) involving the Guarantor, the Guarantor is the survivor thereof and (y)
involving a Subsidiary and not the Guarantor, the Person surviving such
consolidation or merger will be a Subsidiary after giving effect thereto.
(i) ERISA. The Guarantor will not at any time maintain any Plan subject
to the provisions of ERISA and will not at any time be a member of any ERISA
Group with any Person that has at any time maintained any such Plan.
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(j) Negative Pledge. The Guarantor will not create, assume or suffer to
exist any Lien on any of the Collateral or any of its other assets, now owned or
hereafter acquired, except for Permitted Liens. The Guarantor will not permit
(i) Security Capital Investment Incorporated to create, assume or suffer to
exist any Lien on any of its assets, now owned or hereafter acquired, except for
Permitted Liens and (ii) any of the REIT Management Subsidiaries to create,
assume or suffer to exist any Lien on any of the fees payable to any of the REIT
Management Subsidiaries in connection with any REIT management agreement under
which such Person acts as Real Estate Manager.
(k) Restricted Payments; Payment of Mandatory Interest Expense; and
Agreements with Affiliates.
(i) (A) If no Event of Default shall have occurred and be continuing,
the Guarantor shall not directly or indirectly declare or make, or incur
any liability to make, any Restricted Payments during any four fiscal
quarter period in an aggregate amount in excess of 95% of the Guarantor's
Cash Flow Available for Distribution for such four fiscal quarters and, (B)
if an Event of Default shall have occurred and be continuing, the Guarantor
shall not (1) directly or indirectly declare or make, or incur any
liability to make, any Restricted Payments or (2) pay any interest in
respect of its Indebtedness other than Mandatory Interest, without the
prior written consent of the Majority Lenders.
(ii) The Guarantor shall not, and shall not permit any of its
Subsidiaries that are not Public Subsidiaries to, enter into any
transaction (including without limitation, any loan evidenced by the
Guarantor Note) requiring such Person to pay any amounts to or otherwise
transfer property to, or pay any management or other fees to, the Borrower
other than on terms and conditions substantially as favorable to the
Guarantor or such Subsidiary as would be obtainable at the time in a
comparable arm's-length transaction with a Person not an Affiliate.
(iii) Notwithstanding the provisions of the immediately preceding
subsection (i), in no event shall the Guarantor pay any interest or other
amounts in respect of the Subordinated Debentures, any other Subordinated
Indebtedness or any other Indebtedness of the Guarantor, if pursuant to the
terms of the Subordinated Debentures or any other document, instrument or
agreement evidencing any Subordinated Indebtedness or other Indebtedness,
as the case may be, the Lenders or the Agent have exercised any right
granted to them thereunder to prohibit the payment of any such interest or
other amounts. Further, the provisions of the immediately preceding
subsection (i) are not intended by the Lenders or the Agent to be, and
shall not be construed to be, a waiver of the benefit of any of the terms
of the Subordinated Debentures or of any subordination provisions of any
document, instrument or agreement evidencing any Subordinated Indebtedness
or other Indebtedness of the Guarantor.
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(l) ERISA Exemptions. The Guarantor shall not permit any of its assets to
become or be deemed to be "plan assets" within the meaning of ERISA, the
Internal Revenue Code and the respective regulations promulgated thereunder, of
any ERISA Plan or any Non-ERISA Plan.
(m) Subscription Agreements. The Guarantor shall issue all Securities
pursuant to a Subscription Agreement in full compliance with the Securities Act.
The Guarantor shall comply in all material respects with all terms and
conditions contained in each Subscription Agreement.
(n) Minimum Shareholder's Equity. The Guarantor shall not at any time
permit the Shareholder's Equity of the Guarantor and its Consolidated
Subsidiaries to be less than the lesser of (i) $469,256,322 plus 70% of the
amount by which the Shareholder's Equity of the Guarantor and its Consolidated
Subsidiaries has been increased by the issuance after January 1, 1996 of capital
stock and (ii) $793,000,000.
(o) Ratio of Total Liabilities to Market Value Net Worth. The Guarantor
shall not at any time permit the ratio of (i) the Total Liabilities of the
Guarantor and its Consolidated Subsidiaries (excluding any Investments of the
Borrower) to (ii) the Market Value Net Worth of the Borrower plus the Net Worth
of the Guarantor and its Consolidated Subsidiaries (excluding the Borrower and
any Investments of the Borrower) to exceed 1.75 to 1.00.
(p) Ratio of Cash Flow to Mandatory Interest Expense. The Guarantor shall
not permit the ratio of (i) the Cash Flow of the Guarantor and its Consolidated
Subsidiaries (excluding any Investments of the Borrower) to (ii) the Mandatory
Interest Expense of the Guarantor and its Consolidated Subsidiaries (excluding
any Investments of the Borrower) to be less than 2.00 to 1.00 at the end of any
fiscal quarter.
(q) Guarantor Note. The Guarantor will not amend, supplement, restate or
otherwise modify any of the terms of the Guarantor Note without the prior
written consent of the Majority Lenders.
(r) Separateness Covenants.
(i) The Guarantor will maintain the Borrower's separate existence and
identity and will take reasonable steps to make it apparent to third
parties that the Borrower is an entity with assets (in particular the
Pledged Shares (as defined in the Borrower Pledge Agreement)) and
liabilities distinct from those of the Guarantor.
(ii) Not in limitation of the generality of the foregoing, the
Guarantor agrees as follows:
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(A) Any financial statements of the Guarantor that are presented
on a consolidated basis and include the Borrower will contain detailed
notes clearly stating that all of the Borrower's assets are owned by
the Borrower, and that the Borrower is a separate legal entity with
its own separate creditors which will be entitled to be satisfied out
of the Borrower's assets prior to the Borrower's equity holders;
(B) The Guarantor will continue to provide for its own operating
expenses and liabilities from its own funds and funds received upon
the incurrence of Indebtedness to the extent permitted under this
Guaranty, from dividends and from capital contributions;
(C) The Guarantor will not refer to the Borrower as a
"department" or "division" of the Guarantor and/or any Affiliate of
the Guarantor; and
(D) All of the Guarantor's books and records relating to the
Pledged Shares (as defined in the Borrower Pledge Agreement) will be
conspicuously and appropriately marked at the time of transfer to
reflect the contribution of such Pledged Shares to the Borrower.
(iii) Not in limitation of the generality of the foregoing, the
Guarantor agrees that it has no authority, and shall not obtain any
authority, to control decisions and actions with respect to the daily
business affairs of the Borrower, except that the exercise by the Guarantor
of its rights retained under the Registration Rights Agreements shall not
constitute a violation of this Section.
(s) Transfer of Subscription Proceeds to Borrower. Upon receipt by the
Guarantor of proceeds under a Subscription Agreement, the Guarantor agrees to
transfer to the Borrower the net amount of such proceeds received by the
Guarantor in an amount not to exceed the aggregate principal balance of Loans
then outstanding; provided, however, the Guarantor may retain from such net
proceeds any amounts estimated by the Guarantor in good faith to be necessary to
the reasonably foreseeable operating or investing needs of the Guarantor.
Section 7. Waiver. The Guarantor, to the fullest extent permitted by
Applicable Law, hereby waives notice of acceptance hereof or any presentment,
demand, protest or notice of any kind, and any other act or thing, or omission
or delay to do any other act or thing, which in any manner or to any extent
might vary the risk of the Guarantor or which otherwise might operate to
discharge the Guarantor from its obligations hereunder.
Section 8. Inability to Accelerate Loan. If the Agent and/or the Lenders
are prevented from demanding or accelerating payment thereof by reason of any
automatic stay or otherwise, the Agent and/or the Lenders shall be entitled to
receive from the
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Guarantor, upon demand therefor, the sums which otherwise would have been due
had such demand or acceleration occurred.
Section 9. Reinstatement of Obligations. The Guarantor agrees that this
Guaranty shall continue to be effective or be reinstated, as the case may be,
with respect to any Obligations if at any time payment of any such Obligations
is rescinded or otherwise must be restored by the Agent and/or the Lenders upon
the bankruptcy or reorganization of the Borrower or the Guarantor or otherwise.
Section 10. Subrogation. Until all of the Obligations shall have been
indefeasibly paid in full, the Guarantor shall have no right of subrogation and
hereby waives any right to enforce any remedy which the Agent and/or the Lenders
now have or may hereafter have against the Borrower, and the Guarantor hereby
waives any benefit of, and any right to participate in, any security or
collateral given to the Agent and the Lenders to secure payment or performance
of any of the Obligations.
Section 11. Payments Free and Clear. All sums payable by the Guarantor
hereunder, whether of principal, interest, fees, expenses, premiums or
otherwise, shall be paid in full, without set-off or counterclaim or any
deduction or withholding whatsoever (including any withholding tax or liability
imposed by any Governmental Authority, or any Applicable Law promulgated
thereby), and if the Guarantor is required by such Applicable Law or by such
Governmental Authority to make any such deduction or withholding, the Guarantor
shall pay to the Agent and the Lenders such additional amount as will result in
the receipt by the Agent and the Lenders of the full amount payable hereunder
had such deduction or withholding not occurred or been required.
Section 12. Set-off. In addition to any rights now or hereafter granted
under Applicable Law and not by way of limitation of any such rights, each
Lender is hereby authorized by the Guarantor, at any time or from time to time,
without notice to the Guarantor or to any other Person, any such notice being
hereby expressly waived, to set-off and to appropriate and to apply any and all
deposits (general or special, including, but not limited to, indebtedness
evidenced by certificates of deposit, whether matured or unmatured) and any
other indebtedness at any time held or owing by such Lender or any Affiliate of
such Lender, to or for the credit or the account of the Guarantor against and on
account of any of the Obligations then due and owing after the expiration of any
applicable grace periods. The Guarantor agrees, to the fullest extent it may
effectively do so under Applicable Law, that any holder of a participation in a
Note, whether or not acquired pursuant to the applicable provisions of the
Credit Agreement, may exercise rights of setoff or counterclaim and other rights
with respect to such participation as fully as if such holder of a participation
were a direct creditor of the Guarantor in the amount of such participation.
Section 13. Subordination. The Guarantor hereby expressly covenants and
agrees for the benefit of the Agent and the Lenders that all obligations and
liabilities of the Borrower to the Guarantor of whatever description, including
without limitation, all
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intercompany receivables of the Guarantor from the Borrower (collectively, the
"Junior Claims") shall be subordinate and junior in right of payment to all
Obligations. If an Event of Default shall have occurred and be continuing, then
the Guarantor shall not accept any direct or indirect payment (in cash,
property, securities by setoff or otherwise) from the Borrower on account of or
in any manner in respect of any Junior Claim until all of the Obligations have
been indefeasibly paid in full.
Section 14. Avoidance Provisions. It is the intent of the Guarantor, the
Agent and the Lenders that in any Proceeding, the Guarantor's maximum obligation
hereunder shall equal, but not exceed, the maximum amount which would not
otherwise cause the obligations of the Guarantor hereunder (or any other
obligations of the Guarantor to the Agent and the Lenders) to be avoidable or
unenforceable against the Guarantor in such Proceeding as a result of Applicable
Law, including without limitation, (a) Section 548 of the Bankruptcy Code of
1978, as amended (the "Bankruptcy Code") and (b) any state fraudulent transfer
or fraudulent conveyance act or statute applied in such Proceeding, whether by
virtue of Section 544 of the Bankruptcy Code or otherwise. The Applicable Laws
under which the possible avoidance or unenforceability of the obligations of the
Guarantor hereunder (or any other obligations of the Guarantor to the Agent and
the Lenders) shall be determined in any such Proceeding are referred to as the
"Avoidance Provisions". Accordingly, to the extent that the obligations of the
Guarantor hereunder would otherwise be subject to avoidance under the Avoidance
Provisions, the maximum Obligations for which the Guarantor shall be liable
hereunder shall be reduced to that amount which, as of the time any of the
Obligations are deemed to have been incurred under the Avoidance Provisions,
would not cause the obligations of the Guarantor hereunder (or any other
obligations of the Guarantor to the Agent and the Lenders), to be subject to
avoidance under the Avoidance Provisions. This Section is intended solely to
preserve the rights of the Agent and the Lenders hereunder to the maximum extent
that would not cause the obligations of the Guarantor hereunder to be subject to
avoidance under the Avoidance Provisions, and neither the Guarantor nor any
other Person shall have any right or claim under this Section as against the
Agent and the Lenders that would not otherwise be available to such Person under
the Avoidance Provisions.
Section 15. Governing Law. THIS GUARANTY SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA.
SECTION 16. WAIVER OF JURY TRIAL/JURISDICTION. (a) THE GUARANTOR, AND
EACH OF THE AGENT AND THE LENDERS BY ACCEPTING THE BENEFITS HEREOF, ACKNOWLEDGE
THAT ANY DISPUTE OR CONTROVERSY BETWEEN OR AMONG THE GUARANTOR, THE AGENT OR ANY
OF THE LENDERS WOULD BE BASED ON DIFFICULT AND COMPLEX ISSUES OF LAW AND FACT
AND THAT A TRIAL BY JURY COULD RESULT IN SIGNIFICANT DELAY AND EXPENSE.
ACCORDINGLY, THE GUARANTOR, AND EACH OF THE AGENT AND THE LENDERS BY ACCEPTING
THE BENEFITS HEREOF, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
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LAW, HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR
NATURE IN ANY COURT OR TRIBUNAL IN WHICH AN ACTION MAY BE COMMENCED BY OR
AGAINST THE GUARANTOR ARISING OUT OF THIS GUARANTY OR ANY OTHER LOAN DOCUMENT OR
IN CONNECTION WITH THE COLLATERAL OR ANY LIEN OR BY REASON OF ANY OTHER CAUSE OR
DISPUTE WHATSOEVER BETWEEN OR AMONG THE GUARANTOR, THE AGENT OR ANY OF THE
LENDERS OF ANY KIND OR NATURE.
(b) THE GUARANTOR, AND EACH OF THE AGENT AND THE LENDERS BY ACCEPTING THE
BENEFITS HEREOF, EACH HEREBY AGREES THAT THE FEDERAL DISTRICT COURT OF THE
NORTHERN DISTRICT OF GEORGIA OR, AT THE OPTION OF THE AGENT, ANY STATE COURT
LOCATED IN FULTON COUNTY, GEORGIA SHALL HAVE NON-EXCLUSIVE JURISDICTION TO HEAR
AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN OR AMONG THE GUARANTOR, THE AGENT
OR ANY OF THE LENDERS, PERTAINING DIRECTLY OR INDIRECTLY TO THIS GUARANTY OR ANY
OTHER LOAN DOCUMENT OR TO ANY MATTER ARISING HEREFROM OR THEREFROM OR THE
COLLATERAL. THE GUARANTOR EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED IN SUCH COURTS. THE CHOICE
OF FORUM SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE BRINGING
OF ANY ACTION BY THE AGENT OR ANY LENDER OR THE ENFORCEMENT BY THE AGENT OR ANY
LENDER OF ANY JUDGMENT OBTAINED IN SUCH FORUM IN ANY OTHER APPROPRIATE
JURISDICTION. FURTHER, THE GUARANTOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO
THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY
CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
(c) THE FOREGOING WAIVERS HAVE BEEN MADE WITH THE ADVICE OF COUNSEL AND
WITH A FULL UNDERSTANDING OF THE LEGAL CONSEQUENCES THEREOF, AND SHALL SURVIVE
THE PAYMENT OF THE OBLIGATIONS AND ALL OTHER AMOUNTS PAYABLE HEREUNDER OR UNDER
THE OTHER LOAN DOCUMENTS AND THE TERMINATION OF THIS GUARANTY.
Section 17. Loan Accounts. The Agent may maintain books and accounts
setting forth the amounts of principal, interest and other sums paid and payable
with respect to the Obligations, and in the case of any dispute relating to any
of the outstanding amount, payment or receipt of Obligation or otherwise, the
entries in such account shall be binding upon the Guarantor as to the
outstanding amount of such Obligations and the amounts paid and payable with
respect thereto absent manifest error. The failure of the Agent to
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maintain such books and accounts shall not in any way relieve or discharge the
Guarantor of any of its obligations hereunder.
Section 18. Waiver of Remedies. No delay or failure on the part of the
Agent or the Lenders in the exercise of any right or remedy it may have against
the Guarantor hereunder or otherwise shall operate as a waiver thereof, and no
single or partial exercise by the Agent or the Lenders of any such right or
remedy shall preclude other or further exercise thereof or the exercise of any
other such right or remedy.
Section 19. Successors and Assigns. Each reference herein to the Agent or
the Lenders shall be deemed to include such Person's respective successors and
assigns (including, but not limited to, any holder of the Obligations) in whose
favor the provisions of this Guaranty also shall inure, and each reference
herein to the Guarantor shall be deemed to include the Guarantor's executors,
administrators, successors and assigns, upon whom this Guaranty also shall be
binding. The Lenders may, in accordance with the applicable provisions of the
Credit Agreement, assign, transfer or sell any Obligation, or grant or sell
participation in any Obligations, to any Person or entity without the consent
of, or notice to, the Guarantor and without releasing, discharging or modifying
the Guarantor's obligations hereunder. The Guarantor hereby consents to the
delivery by the Agent or any Lender to any assignee, transferee or participant
of any financial or other information regarding the Borrower or the Guarantor.
The Guarantor may not assign or transfer its obligations hereunder to any
Person.
Section 20. Amendments. This Guaranty may not be amended except in
writing signed by the Agent and the Guarantor.
Section 21. Payments. All payments made by the Guarantor pursuant to this
Guaranty shall be made in Dollars, in immediately available funds to the Agent
at its Lending Office, not later than 11:00 a.m., on the date one Business Day
after demand therefor.
Section 22. Notices. All notices, requests and other communications
hereunder shall be in writing (including bank wire, facsimile transmission or
similar writing) and shall be given (i) to the Guarantor at its address set
forth below its signature hereto, (ii) to the Agent or any Lender at its address
for notices provided for in the Credit Agreement, or (iii) as to each such party
at such other address as such party shall designate in a written notice to the
other parties. Each such notice, request or other communication shall be
effective (x) if given by mail, 72 hours after such communication is deposited
in the mails with first class postage prepaid, addressed as aforesaid or (y) if
given by any other means (including facsimile), when delivered at the applicable
address provided for in this Section; provided that any notice of a change of
address for notices, shall not be effective until received. In addition to the
Agent's Lending Office, the Guarantor shall send copies of the information
described in Section 6.(a) to the following address of the Agent:
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Wells Fargo Realty Advisors Funding, Incorporated
Real Estate Group
Koll Center
2030 Main Street, Suite 800
Irvine, California 92714
Attention: Ms. Debra Autry
Section 23. Severability. In case any provision of this Guaranty shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
Section 24. Headings. Section headings used in this Guaranty are for
convenience only and shall not affect the construction of this Guaranty.
Section 25. Definitions. (a) For the purposes of this Guaranty:
"Proceeding" means any of the following: (i) a voluntary or involuntary
case concerning the Guarantor shall be commenced under the Bankruptcy Code or
any other applicable bankruptcy laws; (ii) a custodian (as defined in the
Bankruptcy Code or any other applicable bankruptcy laws) is appointed for, or
takes charge of, all or any substantial part of the property of the Guarantor;
(iii) any other proceeding under any Applicable Law, domestic or foreign,
relating to bankruptcy, insolvency, reorganization, winding-up or composition
for adjustment of debts, whether now or hereafter in effect, is commenced
relating to the Guarantor; (iv) the Guarantor is adjudicated insolvent or
bankrupt; (v) any order of relief or other order approving any such case or
proceeding is entered by a court of competent jurisdiction; (vi) the Guarantor
makes a general assignment for the benefit of creditors; (vii) the Guarantor
shall fail to pay, or shall state that it is unable to pay, or shall be unable
to pay, its debts generally as they become due; (viii) the Guarantor shall call
a meeting of its creditors with a view to arranging a composition or adjustment
of its debts; (ix) the Guarantor shall by any act or failure to act indicate its
consent to, approval of or acquiescence in any of the foregoing; or (x) any
corporate action shall be taken by the Guarantor for the purpose of effecting
any of the foregoing.
(b) Terms not otherwise defined herein are used herein with the respective
meanings given them in the Credit Agreement.
Section 26. Amendment and Restatement. THE PARTIES HERETO HAVE ENTERED
INTO THIS AGREEMENT SOLELY TO AMEND AND RESTATE THE TERMS OF THE EXISTING
GUARANTY. THE PARTIES DO NOT INTEND THIS AGREEMENT NOR THE TRANSACTIONS
CONTEMPLATED HEREBY TO BE, AND THIS AGREEMENT AND THE TRANSACTION CONTEMPLATED
HEREBY SHALL NOT BE CONSTRUED TO BE, A NOVATION OF ANY OF THE OBLIGATIONS OWING
BY THE GUARANTOR UNDER OR IN CONNECTION WITH ANY OF THE EXISTING GUARANTY OR ANY
OF THE OTHER LOAN
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DOCUMENTS (AS DEFINED IN THE CREDIT AGREEMENT). FURTHER, THE PARTIES DO NOT
INTEND THIS AGREEMENT NOR THE TRANSACTIONS CONTEMPLATED HEREBY TO AFFECT THE
PERFECTION OR PRIORITY OF ANY LIEN OF AGENT IN ANY OF THE COLLATERAL IN ANY WAY
WHATSOEVER. THE AMENDMENT AND RESTATEMENT OF THE EXISTING GUARANTY EFFECTED BY
THIS AGREEMENT SHALL BE DEEMED TO HAVE PROSPECTIVE APPLICATION ONLY UNLESS
OTHERWISE SPECIFICALLY STATED HEREIN. THE GUARANTOR CONFIRMS THAT: (A) EACH OF
THE GUARANTOR SECURITY AGREEMENT AND THE GUARANTOR PLEDGE AGREEMENT REMAINS IN
FULL FORCE AND EFFECT AND (B) REFERENCES IN SUCH LOAN DOCUMENTS TO THE
"GUARANTY" ARE REFERENCES TO THIS GUARANTY AND TO THE "CREDIT AGREEMENT" ARE
REFERENCES TO THE CREDIT AGREEMENT.
[Signature on Next Page]
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IN WITNESS WHEREOF, the Guarantor has duly executed and delivered this
Amended and Restated Guaranty as of the date and year first written above.
SECURITY CAPITAL GROUP INCORPORATED
By: /s/
---------------------------------
Name:____________________________
Title:___________________________
Address for Notices:
Security Capital Group Incorporated
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Attention: Jeffrey A. Klopf
Telecopier: (505) 988-8920
Telephone: (505) 982-9292
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Exhibit 10.27
SECURITY CAPITAL GROUP INCORPORATED
1996 OUTSIDE DIRECTORS PLAN
---------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C>
SECTION 1 PURPOSE......................................... 1
SECTION 2 OPTION GRANTS................................... 1
2.1. Grants.......................................... 1
2.2. Option Terms.................................... 2
SECTION 3 OPERATION AND ADMINISTRATION.................... 4
3.1. Duration........................................ 4
3.2. Shares Subject to Plan.......................... 4
3.3. Adjustments to Shares........................... 4
3.4. Limit on Distribution........................... 5
3.5. Taxes........................................... 6
3.6. Distributions to Disabled Persons............... 6
3.7. Transferability................................. 6
3.8. Form and Time of Elections...................... 6
3.9. Limitation of Implied Rights.................... 6
3.10. Evidence........................................ 6
3.11. Action by Company............................... 6
3.12. Gender and Number............................... 7
SECTION 4 ADMINISTRATOR................................... 7
4.1. Administration.................................. 7
4.2. Powers of Administrator......................... 7
4.3. Information to be Furnished to Administrator.... 7
4.4. Liability and Indemnification of Administrator.. 7
SECTION 5 AMENDMENT AND TERMINATION....................... 8
</TABLE>
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
1996 OUTSIDE DIRECTORS PLAN
---------------------------
SECTION 2
---------
PURPOSE
-------
The Security Capital Group Incorporated 1996 Outside Directors Plan (the
"Plan") has been established by Security Capital Group Incorporated (the
"Company") to promote the interests of the Company and its shareholders by
enhancing the Company's ability to attract and retain the services of
experienced and knowledgeable directors and by encouraging such directors to
acquire a proprietary interest in the Company.
SECTION 3
---------
OPTION GRANTS
-------------
3.1. Grants. Each Eligible Director shall be entitled to the grant of an
"Option", subject to the following:
(a) As of the close of the meeting of the Board of Directors of the
Company (the "Board") on September 17, 1996, each Eligible Director
shall be granted an Option to purchase 150 shares of common stock of
the Company ("Stock").
(b) Each individual who is an Eligible Director on January 1 of each year
beginning after the September 17, 1996 Board meeting, shall be granted
an Option to purchase 150 shares of Stock.
(c) If an individual becomes an Eligible Director on a date other than
January 1, he shall be granted an Option to purchase a number of
shares of Stock as of the date on which he first becomes an Eligible
Director. The number of shares subject to the Option shall be the
number which would have been subject to the Option if he had been an
Eligible Director on the immediately preceding January 1, except that
such number of shares shall be subject to a pro rata reduction to
reflect the portion of the year prior to the date on which he becomes
an Eligible Director. In no event shall an Option be granted with
respect to a fractional share, and the amount of any pro rata
reduction shall be rounded to the nearest whole share.
(d) Each member of the Board who is not an employee of the
<PAGE>
Company or any Related Company shall be an "Eligible Director". A
"Participant" is an Eligible Director who has received an Option under
the Plan. The term "Related Company" means any company during any
period in which it is a "parent company" (as that term is defined in
section 424(e) of the Internal Revenue Code of 1986, as amended (the
"Code")) or a "subsidiary corporation" (as that term is defined in
Code section 424(f)) with respect to the Company.
3.2. Option Terms. Each Option granted pursuant to this Section shall be
subject to the following:
(a) Each Option shall provide for a per-share exercise price equal to the
Fair Market Value of a share of Stock on the date as of which the
Option is granted (but in no event less than the par value of a share
of Stock). The "Fair Market Value" of a share of Stock of the Company
as of any date shall be determined in accordance with the following
rules:
(i) If the Stock is at the time listed or admitted to trading on
any stock exchange, then the Fair Market Value shall be the
average of the highest and lowest sales price per share of the
Stock on such date on the principal exchange on which the Stock
is 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 Stock is not at the time listed or admitted to trading
on a stock exchange, the Fair Market Value shall be the average
of the lowest reported bid price and highest reported asked
price of the Stock 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 Administrator and regularly
reporting the market price of Stock in such market.
(iii) If the Stock is 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 Administrator in
good faith.
(b) The full purchase price of each share of Stock 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.
2
<PAGE>
(c) The Option purchase price shall be payable in cash or in shares of
Stock held at least six months (valued at Fair Market Value as of the
day of exercise) or in any combination thereof. If a cashless exercise
procedure is established by the Company, a Director may elect to pay
the purchase price upon the exercise of an Option granted pursuant to
this Section through such cashless exercise procedure.
(d) Each Option shall become fully exercisable on the first anniversary of
the date of grant, provided, that if a Director's Date of Termination
occurs before such date by reason of death or Disability, the Option
shall immediately become fully exercisable.
(e) An Option shall expire on the earlier of: (i) the ten-year anniversary
of the date it is granted; (ii) the three-month anniversary of the
Director's Date of Termination for any reason other than death or
Disability, or (iii) the one-year anniversary of the Director's Date
of Termination by reason of death or Disability.
(f) Each Option granted under this Section shall be evidenced by an
Agreement duly executed on behalf of the Company and by the Director
to whom such Option is granted and dated as of the applicable date of
grant. Each Agreement shall comply with and be subject to the terms of
the Plan.
(g) The Options are not intended to be "incentive stock options" as that
term is described in section 422 of the Code.
(h) A Participant's "Date of Termination" shall be the day following the
last day on which he serves as a Director.
(i) A Director shall be considered to have a "Disability" during the
period in which he is unable, by reason of a medically determinable
physical or mental impairment, to engage in any substantial gainful
activity, which condition, in the opinion of a physician selected by
the Administrator, is expected to have a duration of not less than 120
days.
SECTION 4
---------
3
<PAGE>
OPERATION AND ADMINISTRATION
----------------------------
4.1. Duration. The Plan shall be effective September 17, 1996, subject to
shareholder approval. Grants may be awarded under the Plan prior to such
approval, provided, that no Option may be exercised prior to such approval and,
in the event such approval is not obtained, the Options shall be of no effect.
The Plan shall be unlimited in duration and, in the event of Plan termination,
shall remain in effect as long as any Options granted under it are outstanding
and not exercised.
4.2. Shares Subject to Plan. The shares of Stock with respect to which
Options may be awarded under the Plan shall be currently authorized but unissued
shares or currently held or subsequently acquired by the Company as treasury
shares, including shares purchased in the open market or in private
transactions. The maximum number of shares of Stock available for Options under
the Plan shall not exceed 7,000 shares.
4.3. Adjustments to Shares.
(a) If the Company shall effect any subdivision or consolidation of shares
of Stock 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 of Stock outstanding
without receiving compensation therefor in money, services or
property, then the Administrator shall adjust: (i) the number of
shares of Stock available under the Plan; (ii) the number of shares
available under any Plan limits; (iii) the number of shares of Stock
subject to any outstanding Options; (iv) the number of shares of Stock
subject to future grant; and (v) the per-share price under any
outstanding Option.
(b) The Administrator shall add such conditions and limitations to any
Options to any Participant as is necessary to comply with Section
16(a) and 16(b) of the Securities Exchange Act of 1934, and the rules
and regulations thereunder or to obtain any exemption therefrom.
(c) 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
stockholders of the Company receive any shares of stock or other
securities or property, or the Company shall distribute securities of
another corporation to its stockholders, there shall be substituted
for the shares subject to
4
<PAGE>
outstanding Options an appropriate number of shares of each class of
stock or amount of other securities or property which were distributed
to the stockholders of the Company in respect of such shares; provided
that, upon the occurrence of a reorganization of the Company or any
other event described in this paragraph, any successor to the Company
shall be substituted for the Company.
(d) 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 Stock 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.
(e) 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 Options under the Plan.
4.4. Limit on Distribution. Distribution of shares of Stock 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 issue any shares of Stock 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) To the extent that the Plan provides for issuance of certificates to
reflect the transfer of shares of Stock, the transfer of such shares
may, at the direction of the Administrator, be effected on a non-
certificated basis, to the extent not prohibited by applicable law or
the rules of any stock exchange.
5
<PAGE>
4.5. Taxes. All Options under the Plan are subject to all applicable
taxes.
4.6. Distributions to Disabled Persons. Notwithstanding any other
provision of the Plan, if, in the Administrator's opinion, a Participant or
other person entitled to benefits under the Plan is under a legal disability or
is in any way incapacitated so as to be unable to manage his financial affairs,
the Administrator may direct that payment be made to a relative or friend of
such person for his benefit until claim is made by a conservator or other person
legally charged with the care of his person or his estate, and such payment or
distribution shall be in lieu of any such payment to such Participant or other
person. Thereafter, any benefits under the Plan to which such Participant or
other person is entitled shall be paid to such conservator or other person
legally charged with the care of his person or his estate.
4.7. Transferability. Options are not transferable prior to exercise,
except as designated by the Participant by will or by the laws of descent and
distribution. Notwithstanding the foregoing provisions of this subsection, the
Administrator may permit Options under the Plan to be transferred to or for the
benefit of the Participant's family, subject to such limitations as the
Administrator may establish.
4.8. Form and Time of Elections. Any election required or permitted under
the Plan shall be in writing, and shall be deemed to be filed when delivered to
the Secretary of the Company.
4.9. Limitation of Implied Rights. Neither the Participant nor any other
person shall, by reason of participation in the Plan, acquire any right in or
title to any assets, funds or property of the Company whatsoever prior to the
date such shares are distributed. A Participant shall have only a contractual
right to the shares, if any, distributable under the Plan, unsecured by any
assets of the Company. Nothing contained in the Plan shall constitute a
guarantee by the Company that the assets of the Company shall be sufficient to
provide any benefits to any person.
4.10. 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.
4.11. Action by Company. Any action required or permitted to be taken by
the Company shall be by resolution of the Board, 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
6
<PAGE>
Board, by a duly authorized officer of 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.
4.12. 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.
SECTION 5
---------
ADMINISTRATOR
-------------
5.1. Administration. The authority to control and manage the operation
and administration of the Plan shall be vested in the Secretary of the Company
(the "Administrator") in accordance with this Section.
5.2. Powers of Administrator. The Administrator will have the authority
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.
5.3. Information to be Furnished to Administrator. The Company shall
furnish the Administrator with such data and information as may be required for
it to discharge its duties. The records of the Company as to the period of a
Director's service shall be conclusive on all persons unless determined to be
incorrect. Participants and other persons entitled to benefits under the Plan
must furnish the Administrator such evidence, data or information as the
Administrator considers desirable to carry out the terms of the Plan.
5.4. Liability and Indemnification of Administrator. The Administrator
shall not be liable to any person for any action taken or omitted in connection
with the administration of the Plan unless attributable to his own fraud or
willful misconduct; nor shall the Company be liable to any person for any such
action unless attributable to fraud or willful misconduct on the part of a
director or employee of the Company. The Administrator and persons acting as the
authorized delegates of the Administrator under the Plan, shall be indemnified
by the Company, to the fullest extent permitted by law, against any and all
liabilities, losses, costs and expenses (including legal fees and expenses) of
whatsoever kind and nature which may be imposed on, incurred by or asserted
against the Administrator or authorized delegates by reason of the performance
of an Administrator function if the Administrator or authorized delegates did
not act dishonestly or in willful violation of the law or regulation under which
such
7
<PAGE>
liability, loss, cost or expense arises. This indemnification shall not
duplicate but may supplement any coverage available under any applicable
insurance.
SECTION 6
---------
AMENDMENT AND TERMINATION
-------------------------
The Board may, at any time, amend or terminate the Plan, provided that,
subject to subsection 3.3 (relating to certain adjustments to shares), no
amendment or termination may materially adversely affect the rights of any
Participant or beneficiary under any Option made under the Plan prior to the
date such amendment is adopted by the Board.
8
<PAGE>
EXHIBIT 10.29
SECURITY CAPITAL GROUP INCORPORATED
DEFERRED FEE PLAN FOR DIRECTORS
Section 1. Purpose. The purpose of the Security Capital Group
Incorporated Deferred Fee Plan for Directors (the "Plan") is to provide non-
employee Directors of Security Capital Group Incorporated (the "Company") the
opportunity to defer receipt of cash, stock and debenture compensation otherwise
payable to such Director by the Company. The Plan is designed to aid the
Company in attracting and retaining as members of its Board of Directors persons
whose abilities, experience and judgment can contribute to the well-being of the
Company.
Section 2. Effective Date. The effective date of this Plan is September
20, 1995.
Section 3. Eligibility. Any member of the Board of Directors of the
Company who is not an employee of the Company or any subsidiary thereof is
eligible to become a "Participant" in the Plan by completing an election form in
accordance with Section 6.
Section 4. Accounts. Subject to the provisions of the Plan, the following
"Accounts" shall be established in the name of each Participant:
(a) A "Cash Account" which shall reflect the retainer fees deferred by
such Participant in accordance with Section 6 that would otherwise
have been payable in cash, and the interest attributable thereto.
(b) A "Phantom Stock Account" which shall reflect the retainer fees
deferred by such Participant in accordance with Section 6 that would
otherwise have been payable in shares of the Company's common stock
("Common Stock") and cash dividends thereon. The Phantom Stock
Account shall consist of a cash component and a stock component.
(c) A "Phantom Debenture Account" which shall reflect the retainer fees
deferred by such Participant in accordance with Section 6 that would
otherwise have been payable in the form the Company's 12% convertible
subordinated debentures, due 2014 ("Debentures"), and interest
thereon. The Phantom Debenture Account shall consist of a cash
component and a debenture component.
<PAGE>
Such Accounts shall be for recordkeeping purposes only. The amount of any
benefit payable under the Plan will be paid from the general assets of the
Company or from one or more trusts, the assets of which are subject to the
claims of the Company's general creditors.
Section 5. Amount of Deferral. A Participant may elect to defer receipt
of all or any portion of the cash or stock and debenture compensation otherwise
payable to the Participant for serving on the Board of Directors or committees
of the Board of Directors of the Company or any of its subsidiaries.
Section 6. Time of Election of Deferral. Except as set forth herein,
an election to defer compensation shall be made on or before December 15th of
the calendar year immediately preceding the calendar year in which the election
is to first take effect on forms approved for that purpose and filed with the
Secretary of the Company. Such election shall remain in effect until modified
or revoked by the Participant by an election filed with the Secretary on before
the December 15th of the calendar year immediately preceding the calendar year
in which such modification or revocation is to take effect. For 1995, deferral
elections shall be made prior to October 31, 1995, and shall be effective when
made with respect to any compensation payable for the period commencing November
1, 1995. A Director who first becomes elected or appointed to the Board
subsequent to January 1 of any calendar year may make an election to defer
compensation within 30 days after his initial election or appointment to the
Board. Such deferral shall be effective with respect to compensation
attributable to services performed after the date of the election.
Section 7. Crediting of Accounts. The Accounts of each Participant
shall be adjusted in accordance with the following procedures.
(a) As of the date that retainer fees are otherwise payable to Directors:
(i) Each Participant's Cash Account shall be credited with the
amount, if any, of cash fees the Participant elected to defer as
of such date in accordance with Section 6.
(ii) Each Participant's Phantom Stock Account shall be credited with
the number of "stock units" equal to the number of shares, if
any, the Participant elected to defer as of such date in
accordance with Section 6.
-2-
<PAGE>
(iii) Each Participant's Phantom Debenture Account shall be credited
with the principal amount of "phantom debentures" equal to the
principal amount of Debentures, if any, the Participant elected
to defer as of such date in accordance with Section 6.
(b) As of the effective date of any distribution to the Participant in
accordance with Sections 9 and 10:
(i) Each Participant's Cash Account shall be debited with the amount
of cash fees, if any, distributed to such Participant as of such
date.
(ii) Each Participant's Phantom Stock Account shall be debited with
the number of stock units and the amount of cash component (as
described in paragraph (d) next below), if any, distributed to
such Participant as of such date.
(iii) Each Participant's Phantom Debenture Account shall be debited
with the principal of phantom debentures and the amount of cash
component (as described in paragraph (c) next below), if any,
distributed to such Participant as of such date.
(c) As of the effective date that cash interest is paid with respect to
Debentures, each Participant's Phantom Debenture Account shall be
credited with a "cash component" equal to the cash interest paid with
respect to Debentures multiplied by the principal amount of phantom
debentures in the Participant's Phantom Debenture Account on such
date.
(d) As of the effective date of any dividends payable with respect to the
Common Stock:
(i) If such dividend is payable in cash, the Participant's Phantom
Stock Account shall be credited with a "cash component" equal to
the cash dividend payable with respect to a share of Common Stock
multiplied by the number of stock units in the Participant's
Phantom Stock Account as of the applicable dividend record date,
if any.
(ii) If such dividend is payable in shares of Common Stock, the
Participant's Phantom Stock Account shall be credited with the
number of stock units determined by multiplying the number of
shares distributed in the dividend with respect to a share of
Common Stock by the number of stock units
-3-
<PAGE>
in the Participant's Phantom Stock Account as of the applicable
dividend record date, if any.
(iii) If such dividend is payable in the form of Debentures, the
Participant's Phantom Debenture Account shall be credited with
the principal amount of phantom debentures equal to the principal
amount of Debentures being distributed with respect to a share of
Common Stock multiplied by the number of stock units in the
Participant's Phantom Stock Account as of the applicable dividend
record date, if any.
(e) As of the last day of each calendar quarter, the balance in the
Participant's Cash Account, and the cash components of the Phantom
Stock Account and Phantom Debenture Account shall be credited with
interest, at the Investment Return Rate (defined below), compounded
quarterly. Interest shall be prorated on a daily basis according to
the balance in the Participant's Account. For purposes of the Plan,
the "Investment Return Rate" means the Company's average borrowing
rate for the calendar quarter.
Section 8. Form of Payment. The value of each Participant's Accounts
shall include compensation deferred and interest or dividends credited thereon,
pursuant to Section 7 of the Plan. All deferred amounts payable under the Plan
shall be paid as soon as practicable following the payment date determined in
accordance with Section 9, 10 or 13, as applicable. Unless the Committee (as
described in Section 17) determines otherwise, stock units shall be paid in the
form of shares of Common Stock and phantom debentures shall be paid in the form
of Debentures, with the Participant receiving one share of Common Stock for each
stock unit distributed and principal amount of Debentures equal to the principal
amount of phantom debentures being distributed. The amount in the Participant's
Cash Account and the balance in the cash components of the Participant's Phantom
Stock Account and Phantom Debenture Account, if any, shall be paid in cash.
Section 9. Payment of Deferred Compensation. No withdrawal may be made
from the Participant's Accounts prior to the date specified by the Participant
in his or her deferral election except as provided in Section 10. At the
Participant's election, compensation may be deferred to a specific date, become
payable immediately following the last day of the calendar year in which the
Participant terminates service as a Director, or become payable on the earlier
of such dates. If compensation is deferred to a specific date, such date must
be at least two years following the year for which the compensation is earned,
unless service as a Director terminates earlier. Deferred compensation
-4-
<PAGE>
and interest or dividends thereon will be payable in either a lump sum or in
such number of quarterly or annual installments as the Participant chooses;
provided, however, if an election with respect to the form of payment has not
been filed with the Committee at least twelve months prior to the date
distribution is to commence, such election shall be disregarded and payments
shall be made in accordance with the Participant's most recent election form
that has been on file with the Committee at least 12 months, or if no such
election has been filed, in the form determined by the Committee in its sole
discretion. If a Participant elects to receive payment from his or her Accounts
in installments, the Participant's Accounts will continue to accrue interest or
dividends, as applicable, during the installment period. Payments shall be made
first from the Cash Account, followed by the Phantom Debenture Account (pro rata
from the phantom debenture and cash component) and last from the Phantom Stock
Account (pro rata from the stock unit and cash component). Interest or cash
dividends credited to a Participant's Accounts during the installment period
will be paid on the next installment payment date.
Section 10. Hardship. In the event of a substantial, unforeseen
hardship, a Participant may file a notice with the Secretary of the Company to
be presented to the Committee, advising the Committee of the circumstances of
the hardship, and requesting a withdrawal of previously deferred amounts, or,
where a former Director is receiving annual installment payments, requesting
accelerated payment. The Committee, in its sole discretion, may agree to
accelerate distribution of all or a part of amounts previously deferred to
satisfy such hardship. The Committee shall determine, in its sole discretion,
whether such distribution shall be made in whole or part from the Participant's
Cash Account, Phantom Stock Account or Phantom Debenture Account. No member of
the Committee may vote on, or otherwise influence a decision of the Committee
concerning his or her request for a hardship withdrawal. A hardship withdrawal
by a Participant shall have no effect on any amounts remaining in the
Participant's Accounts, and shall not have any effect on any current or future
deferral election after the hardship withdrawal.
For purposes of this paragraph, a substantial unforeseen hardship is a
severe financial hardship resulting from extraordinary and unforeseeable
circumstances arising as a result of one or more recent events beyond the
Participant's control. To the extent such hardship is or may be relieved (i)
through reimbursement or compensation by insurance or otherwise, (ii) by
liquidation of the Participant's assets, to the extent the liquidation of such
assets would not itself cause a financial hardship, and (iii) by cessation of
deferrals under the Plan, accelerated payment may not be made. Withdrawals of
amounts
-5-
<PAGE>
because of an unforeseen hardship may only be permitted to the extent reasonably
necessary to satisfy the hardship. Unforeseeable hardships do not include
college tuition or the purchase of a home.
Section 11. Change in Control. In the event of a change or potential
change in the ownership or control of the Company which, in the opinion of the
Company's Board of Directors, could affect the payment of benefits hereunder,
the Company shall take such actions as it deems appropriate to protect each
Participant's Accounts under the Plan, including the establishment and funding
of a trust to satisfy the Company's obligations under the Plan; provided, that,
the assets of any such trust shall be subject to the claims of the Company's
general creditors. Neither a Participant nor a beneficiary shall have acquire
any interest in a trust established pursuant to this Section 11 greater than
that of an unsecured creditor.
Section 12. Designation of Beneficiary. A Participant may designate a
beneficiary or beneficiaries which shall be effective upon filing written notice
with the Secretary of the Company on the form provided for that purpose. If no
beneficiary is designated, the beneficiary will be the Participant's estate. If
more than one beneficiary statement has been filed, the beneficiary or
beneficiaries designated in the statement bearing the most recent date will be
deemed the valid beneficiary or beneficiaries.
Section 13. Death of Participant or Beneficiary. In the event of a
Participant's death before he or she has received the full value of his or her
Accounts, the then current value of the Participant's Accounts shall be
determined as of the day immediately following death and such amount shall be
paid to the beneficiary or beneficiaries of the deceased Participant as soon as
practicable thereafter in a lump sum. If no designated beneficiary has been
named or survives the Participant, the beneficiary will be the Participant's
estate.
Section 14. Participant's Rights Unsecured. The right of any
Participant or beneficiary to receive payment under the provisions of the Plan
shall be an unsecured claim against the general assets of the Company, and no
provisions contained in the Plan shall be construed to give any Participant or
beneficiary at any time a security interest in his or her Accounts or any other
assets of the Company.
Section 15. Statement of Account. Statements will be distributed to
Participants following the end of each year as to the value of their Accounts as
of December 31 of such year.
-6-
<PAGE>
Section 16. Assignability. No right to receive payments hereunder shall
be transferable or assignable by a Participant or a beneficiary, except by will
or by the laws of descent and distribution.
Section 17. Administration of the Plan. The Plan shall be administered
by the Management Development and Executive Compensation Committee of the Board
of Directors of the Company (the "Committee"). The Committee shall conclusively
interpret the provisions of the Plan and shall make all determinations under the
Plan. The Committee shall act by vote or written consent of a majority of its
members.
Section 18. Amendment of Termination of Plan. This Plan may at anytime
or from time to time be amended, modified or terminated by the Board of
Directors of the Company. No amendment, modification or termination shall,
without the consent of a Participant, adversely affect such Participant's
accruals on his or her prior elections.
Section 19. Governing Law. This Plan shall be governed by and construed
in accordance with the laws of the State of Maryland.
-7-
<PAGE>
Exhibit 10.36
FORM OF SECURED PROMISSORY NOTE
-------------------------------
$________ ___________ __, ____
_____________________ ("Obligor"), for value received, hereby promises
to pay to the order of Security Capital Group Incorporated, a Maryland
corporation ("Obligee"), the principal sum of __________________________________
________________________ ($_______) payable on the earlier of (i) ________ __,
____ or (ii) 120 days after the date Obligor is no longer an officer of Obligee
or an affiliate of Obligee for any reason whatsoever. Interest on the unpaid
principal amount outstanding hereunder shall accrue at ___ percent (__%) per
year. Accrued interest shall become due and payable annually during the term
hereof beginning on __________ __, ____ and thereafter on each ________ __ until
payment in full. Interest shall be computed for the actual number of days
elapsed on the basis of a 365-day year. Payments of principal and interest shall
be made on or before the respective due dates thereof in lawful money of the
United States of America at the address specified herein or at such other place
or places as Obligee may from time to time designate in writing. Payments
delivered by registered or certified mail, postage prepaid, properly addressed
and return receipt requested, shall be deemed made the date postmarked.
If Obligor defaults in making any payment of interest or principal
hereunder when due and such default continues for a period of five days after
delivery of notice thereof to Obligor, Obligee may declare the entire unpaid
balance of this Note to be immediately due and payable and such entire unpaid
balance shall thereupon become immediately due and payable.
Obligor shall use the proceeds of the loan to repay the principal and
interest of notes, dated ______ __, ____, ________ __, ____ and ________ __,
____, of Obligor in favor of Obligee, for repayment of other obligations of
Obligor for payment of taxes or the acquisition of securities of the Obligee or
an affiliate of the Obligee. This Note is secured by the Collateral (as defined
in the Pledge Agreement dated as of the date hereof between Obligor and Obligee)
and the holder hereof is entitled to the benefits of such Collateral and Pledge
Agreement. Obligor agrees that the proceeds of the sale of any Collateral, which
is sold with the permission of Obligee, shall be immediately applied first to
the payment of any outstanding and unpaid interest on this Note and next to the
payment of any outstanding principal on this Note. Obligor further agrees that
upon the exercise of any options to purchase shares of Common Stock or 12%
Convertible Debentures due 2014 of Obligee (collectively "Options"), held by
Obligor as of the date of this Note or any Options obtained by Obligor prior to
repayment in full of this Note, any Obligee securities obtained upon the
exercise of such Options shall either become subject to the Pledge Agreement, or
if such Obligee securities are disposed of by Obligor, the proceeds of the sale
of such Obligee securities shall be immediately applied first to the payment of
any minimum withholding taxes due upon the
<PAGE>
exercise of such Options, then to the payment of any outstanding and unpaid
interest on this Note and next to the payment of any outstanding principal on
this Note.
As a condition of Obligee advancing funds under this Note, Obligor has
obtained a term life insurance policy on himself from a reputable life insurance
company reasonably acceptable to Obligee in the amount of $___________, which
policy names Obligee as beneficiary. Obligor agrees to keep such policy in
effect so long as there is any unpaid interest or principal on this Note. All
premiums for such policy shall be paid by Obligee. If Obligor fails to maintain
such policy in the full amount for any reason or if Obligee changes the
beneficiary of such policy while there is any unpaid interest or principal on
this Note, Obligee may declare the entire unpaid balance of this Note to be
immediately due and payable and such entire unpaid balance shall thereupon
become immediately due and payable.
If Obligee dies prior to payment of all interest and principal on this
Note and while such policy is in effect, Obligor shall immediately apply the
proceeds of such policy first to the payment of any outstanding and unpaid
interest on this Note and next to the payment of any outstanding and unpaid
principal on this Note prior to the application of any proceeds from the sale of
any Collateral to the payment of any amounts outstanding and unpaid on this
Note. Upon payment in full of all unpaid interest and principal on the Note
from the proceeds of such policy, Obligee shall release its lien in the
Collateral and cooperate with the estate of Obligor in the transfer to the
estate of Obligor of any remaining Collateral.
This Note may be prepaid in whole or in part at any time and from time
to time, without premium, penalty or notice to Obligee.
Obligor represents and warrants to Obligee that (a) Obligor is solvent
as of the date of this Note and will not be rendered insolvent as of the result
of his executing this Note and using the proceeds of the Note as specified
above, (b) the execution and delivery by Obligor of this Note and the
performance of his obligations under this Note do not violate any material
agreement to which Obligor is a party or by which he is bound or any order to
which he is subject, and (c) Obligor shall use the proceeds of the Note only for
the purposes specified above and shall not use the proceeds of the Note to
purchase margin securities as defined in Regulation G of the Federal Reserve
Board. If any such representation or warranty is false or incorrect and is not
cured within 30 days after delivery of notice thereof to Obligor, Obligee may
declare the entire unpaid balance of this Note to be immediately due and payable
and such entire unpaid balance shall thereupon become immediately due and
payable.
All notices, certificates and other communications ("Notices")
hereunder shall be in writing, and may be either delivered personally, by
nationally recognized express courier for overnight delivery, or by facsimile
(with request for assurance of receipt in a manner appropriate with respect to
communications of that type, provided that a confirmation copy is concurrently
sent by a nationally recognized express courier for overnight delivery) or
mailed, postage prepaid, by certified or registered mail, return receipt
requested, addressed as follows:
<PAGE>
If to Obligee: Security Capital Group Incorporated
125 Lincoln Avenue
Santa Fe, NM 87501
Attn: Jeffrey A. Klopf, Senior Vice President &
Secretary
If to Obligor: [insert name and address of obligor]
Notices delivered personally or by facsimile shall be effective on the
date of such delivery or transmission. Notices delivered by a nationally
recognized express courier for overnight delivery shall be deemed to have been
made one day following the date so mailed and all other Notices delivered
hereunder shall be effective five days following the date so mailed. Obligee and
Obligor may, by Notice given hereunder, designate any further or different
addresses to which subsequent Notices shall be sent.
This Note shall be governed exclusively by and construed in accordance
with the internal laws of the State of New Mexico.
IN WITNESS WHEREOF, Obligor has caused this Note to be executed as of
the date first above written.
/s/
-------------------------------------------
SECURITY CAPITAL GROUP INCORPORATED
By: /s/
----------------------------------
Jeffrey A. Klopf
Its: Senior Vice President and Secretary
3
<PAGE>
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (as amended or otherwise modified from time to time,
this "Agreement") is made and entered into as of this __th day of ________,
____, by and between _______________________, an individual residing in
____________ ("Pledgor"), and SECURITY CAPITAL GROUP INCORPORATED, a Maryland
corporation ("Pledgee"):
W I T N E S S E T H:
WHEREAS, Pledgee made a loan to Pledgor in the amount of $___________, as
evidenced by a promissory note, dated ________ __, ____, in the original
principal amount of $__________ by Pledgor in favor of Pledgee (as amended or
otherwise modified, renewed or extended from time to time, the "Note"); and
WHEREAS, Pledgor and Pledgee desire to enter into this Agreement in order
to enable Pledgor to provide security for the payment and performance of all
obligations of Pledgor to Pledgee under the Note (the "Liabilities");
NOW, THEREFORE, for and in consideration of the loan made by Pledgee to
Pledgor, as evidenced by the Note (including any renewal or extension thereof),
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by Pledgor and Pledgee, the parties hereto agree
as follows:
GRANT AND PLEDGE
----------------
To secure the due and punctual payment and performance of all the
Liabilities of Pledgor to Pledgee, its successors and assigns, howsoever
created, arising or evidenced, whether direct or indirect, absolute or
contingent, or now or hereafter existing, or due or to become due, Pledgor
hereby pledges, hypothecates, assigns, transfers, sets over and delivers unto
Pledgee, and hereby grants to Pledgee, a security interest in and to, the
following (collectively, the "Collateral"): (a) the securities listed on Exhibit
A hereto (the "Securities"), all of the certificates and/or instruments
representing or evidencing the Securities, and all cash, securities, rights and
other property at any time and from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
Securities; (b) all other property hereafter delivered in substitution for or in
addition to any of the foregoing, all certificates and instruments representing
or evidencing such property, and all cash, securities, interest, rights and
other property at any time and from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all thereof; and
(c) all proceeds of the foregoing.
PLEDGOR AND PLEDGEE ADDITIONALLY AGREE AS FOLLOWS:
-------------------------------------------------
<PAGE>
1. Agreements.
(a) Pledgor agrees that it will execute such documents and such stock
powers and other instruments of transfer and assignment relating to the
Collateral (and pay the cost of filing, registering or recording the same in all
public offices deemed necessary by Pledgee) and do such other acts and things,
all as Pledgee may from time to time request to establish and maintain a valid
lien upon and security interest in the Collateral (free of all other liens,
claims, and rights of third parties whatsoever) to secure payment of the
Liabilities. Without limiting the generality of the foregoing, all certificates
or instruments representing or evidencing the Collateral shall, promptly after
receipt by Pledgor be delivered to Pledgee, or, if Pledgee so directs, any agent
or nominee of Pledgee.
(b) Pledgor covenants and agrees that it will not sell, transfer or
otherwise dispose of all or any part of the Collateral without the prior written
consent of Pledgee.
(c) Pledgor agrees after any Event of Default (as hereinafter defined)
shall have occurred and be continuing and Pledgee has notified Pledgor of
Pledgee's intention to exercise its voting power under this clause (c): (i)
Pledgee may exercise (to the exclusion of Pledgor) the voting power and all
other incidental rights of ownership with respect to any shares of capital stock
or other equity securities or beneficial interests constituting Collateral and
Pledgor hereby grants Pledgee, an irrevocable proxy, exercisable under such
circumstances, to vote such Collateral; and (ii) promptly to deliver to Pledgee
such additional proxies and other documents as may be necessary to allow Pledgee
to exercise such voting power. Pledgee agrees that unless an Event of Default
shall have occurred and be continuing and Pledgee shall have given the notice
referred to in this clause (c), Pledgor shall have the exclusive voting power
with respect to any shares of capital stock or other equity securities or
beneficial interests constituting Collateral and Pledgee shall, upon the written
request of Pledgor, promptly deliver such proxies and other documents, if any,
as shall be reasonably requested by Pledgor which are necessary to allow Pledgor
to exercise voting power with respect to any such shares of capital stock or
other equity securities constituting Collateral; provided, however, that no vote
shall be cast, or consent, waiver, or ratification given, or action taken by
Pledgor that would impair any Collateral or be inconsistent with or violate any
provision of this Agreement or the Note.
(d) So long as no Event of Default shall have occurred and be
continuing, Pledgor shall be entitled to receive any and all cash dividends,
interest and other similar distributions of any and every kind declared, paid or
distributed with respect to the Collateral in the ordinary course of business
(other than liquidating distributions); provided, however, that after an Event
of Default has occurred and as long as it continues uncured (and at all times
with respect to liquidating distributions), all such distributions shall be
deemed part of the Collateral and shall be held by Pledgee subject to the
security interest created hereby (or, if
<PAGE>
Pledgee so desires, distributed in the manner in which it desires).
2. Events of Default.
(a) The occurrence of any of the following shall constitute an Event
of Default hereunder: (i) failure of Pledgor to perform any of its agreements
contained herein or (ii) failure of Pledgor to perform any of its agreements
contained in the Note (subject to any grace period contained therein, if any) or
(iii) breach of any representation or warranty of Pledgor contained in the Note
(subject to any grace period contained therein, if any).
(b) Upon the occurrence of an Event of Default: (i) Pledgee may
exercise from time to time any rights and remedies available to it under the
Uniform Commercial Code as in effect from time to time in ____________ or
otherwise available to it; and (ii) Pledgee may, after giving Pledgor at least
10 days' notice of its intention to do so, appropriate and apply the Collateral
toward the payment of the Liabilities, in such order and application as is set
forth hereinbelow. Any notification of intended disposition of any of the
Collateral, if mailed, shall be deemed reasonably and properly given if mailed
at least 10 days before such disposition, postage prepaid, addressed to Pledgor
at the address of Pledgor appearing in the Note. Any proceeds of any
disposition of Collateral may be applied by Pledgee to the payment of expenses
in connection with the Collateral, including reasonable attorneys' fees and
legal expenses, and any balance of such proceeds may be applied by Pledgee
toward the payment of the Liabilities in such order and application as is set
forth in Section 3 hereinbelow. No delay on the part of Pledgee in the exercise
of any right or remedy shall operate as a waiver thereof, and no single or
partial exercise by Pledgee of any right or remedy shall preclude other or
further exercise thereof or the exercise of any other right or remedy.
3. Application of Proceeds of Sale or Cash Held as Collateral. Any and
all proceeds received by Pledgee at any time or from time to time pursuant to
this Agreement or as proceeds of any of the Collateral shall be applied by
Pledgee as follows:
First: to payment of the reasonable costs and expenses in enforcing
this Agreement and collecting on the Collateral, including, without limitation,
the expenses of collecting such proceeds through legal proceedings to enforce
this Agreement, the reasonable out-of-pocket expenses of Pledgee and the
reasonable fees and out-of-pocket expenses of counsel employed in connection
therewith;
Second: to the payment of amounts owing on Liabilities in such order
as Pledgee may determine; and
Third: the balance, if any, of such proceeds shall be paid to Pledgor,
its successors and assigns.
3
<PAGE>
Upon payment in full of all Liabilities and satisfaction of all
amounts owing to Pledgee by Pledgor, Pledgee shall release its lien in its
Collateral and cooperate with Pledgor in the transfer back to Pledgor of any
Collateral that Pledgor had transferred into the name of Pledgee, or in the name
of Pledgor, subject to the security interest of Pledgee, to the extent not sold
or otherwise disposed of.
4. Authority of Pledgee. Pledgee shall have, and be entitled to
exercise, all such powers hereunder as are specifically delegated to it by the
terms hereof, together with such powers as are appropriately incidental thereto,
and may execute any of its duties hereunder by or through agents or employees.
Pledgor hereby agrees to reimburse Pledgee for all expenses reasonably incurred
by it in connection with the enforcement of this Agreement.
5. Continuing Agreement. This Agreement shall in all respects be a
continuing agreement and shall remain in full force and effect until all
Liabilities have been paid in full in cash and all amounts owing to Pledgee by
Pledgor have been satisfied.
6. Notices. Any notice authorized or required by this Agreement shall be
sufficiently given if addressed to the receiving party and hand delivered or
sent by mail or facsimile to the individuals at the addresses specified in the
Note or to such other person or persons as the receiving party may from time to
time designate in writing. Such notice shall be effective upon receipt.
7. Successors. This Agreement, and the terms, covenants and conditions
hereof, shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns.
8. Miscellaneous.
(a) Neither this Agreement nor any provision hereof may be amended,
modified, waived, discharged or terminated, except by an instrument in writing
duly signed by or on behalf of Pledgor and Pledgee.
(b) The Section headings used herein are for convenience of reference
only and shall not define or limit the provisions of this Agreement.
(c) In addition to any other warranties heretofore or hereafter made
by Pledgor, Pledgor hereby warrants to Pledgee that Pledgor is, and at all times
while the Collateral secures the Liabilities will be, the lawful owner of the
Collateral, free of all claims and liens other than the rights of Pledgee with
respect thereto, with full right and power to grant a lien upon and security
interest in, and to deliver, pledge, assign and transfer, the Collateral to
Pledgee, subject to the security interest of Pledgee hereunder.
4
<PAGE>
(d) Pledgee shall be deemed to have exercised reasonable care in the
custody and preservation of the Collateral if it takes such action for that
purpose as Pledgor shall request in writing, but failure of Pledgee to comply
with any such request shall not of itself be deemed a failure to exercise
reasonable care, and no failure of Pledgee to preserve or protect any rights
with respect to the Collateral against prior parties shall be deemed a failure
to exercise reasonable care in the custody or preservation of the Collateral.
(e) All obligations of Pledgor, and all rights, powers and remedies of
Pledgee, expressed herein shall be in addition to, and not in limitation of,
those provided by law or in any written agreement or instrument (other than this
Agreement) relating to any of the Liabilities or any security therefor. In
addition to all other rights possessed by it, Pledgee may upon the occurrence of
an Event of Default and lapse of any applicable cure period take any or all of
the following actions: (i) transfer all or any part of the Collateral into the
name of Pledgee or its nominee, with or without disclosing that the Collateral
is subject to the lien and security interest hereunder; provided that aggregate
fair market value of such transferred Collateral will not exceed the amount of
the Liabilities plus a reasonable cushion to defray and pay for costs associated
with disposition of the Collateral and other charges that Pledgor has agreed to
pay; (ii) notify any obligers on any of the Collateral to make payment to
Pledgee of any amounts due or to become due with respect thereto; (iii) enforce
collection of any of the Collateral by suit or otherwise, or surrender or
release all or any part thereof; and (iv) take control of any proceeds of any of
the Collateral.
(f) Pledgee may, furthermore, from time to time, whether before or
after an Event of Default, at its sole discretion and without notice to Pledgor,
take any or all of the following actions: (i) retain or obtain a security
interest in any property of any other person, in addition to the Collateral, to
secure any of the Liabilities; (ii) retain or obtain the primary or secondary
obligations of any obligor or obligers, in addition to Pledgor, with respect to
any of the Liabilities, or release or compromise any obligation of any nature of
any obligor with respect to any of the Liabilities; (iii) extend or renew for
one or more periods (whether or not longer than the original period), alter or
exchange any of the Liabilities, or release or compromise any obligation of any
nature of any obligor with respect to any of the Liabilities; (iv) release its
security interest in, or surrender, release or permit any substitution or
exchange for, all or any part of any property securing any of the Liabilities,
or extend or renew for one or more periods (whether or not longer than the
original period) or release, compromise, alter or exchange any obligations of
any nature of any obligor with respect to any such property; and (v) resort to
the Collateral (or any part or portion thereof) for payment of any of the
Liabilities, whether or not Pledgee shall have resorted to any other property
securing any of the Liabilities or shall have proceeded against Pledgor or
against any other obligor primarily or secondarily obligated with respect to any
of the Liabilities.
(g) Pledgor agrees that at any sale of the Collateral, Pledgee is
authorized to comply with any restriction in connection with the sale as its
counsel advises it is necessary in
5
<PAGE>
order to avoid any violation of applicable law, or in order to obtain any
required approval of the sale by any governmental regulatory authority or
official. In this regard, Pledgor agrees that such compliance will not cause the
sale to be considered not to have been made in a commercially reasonably manner.
(h) In the event that the proceeds of any sale or other disposition
are not sufficient to pay the Liabilities in full, Pledgor shall remain liable
to Pledgee for any deficiencies.
(i) Pledgor agrees that any amount advanced by Pledgee to protect the
Collateral and any reasonable cost or expense (including reasonable attorneys'
fees) incurred in enforcing Pledgee's rights hereunder shall be added to the
Liabilities secured by the Collateral.
9. Counterparts. This Agreement may be executed in as many counterparts
as may be deemed necessary or convenient, and by the different parties hereto on
separate counterparts, each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
instrument.
10. Governing Law; Interpretation. This Agreement shall be governed by
the internal laws of the State of New Mexico. Wherever possible, each provision
of this Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under such law, such provision shall be ineffective to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered on the date first above written.
SECURITY CAPITAL GROUP INCORPORATED
By: /s/
----------------------------------
Jeffrey A. Klopf
Its: Senior Vice President
/s/
-----------------------------------------
6
<PAGE>
ATTACHMENT
----------
The following persons have executed secured promissory notes with Security
Capital in a form which, except as set forth below, is the same as that set
forth above in Exhibit 10.36 in all material respects.
<TABLE>
<CAPTION>
Name Principal Amount Due Date Interest Rate
- ----------------------- ---------------- ---------------- -------------
<S> <C> <C> <C>
C. Ronald Blankenship $925,000.00 January 15, 2000 6%
K. Dane Brooksher $249,997.50 January 4, 2005 (1)
Thomas G. Wattles up to $536,000 January 15, 2000 6%
</TABLE>
(1) Floating rate per annum equal to the lowest rate charged by Morgan Guaranty
Trust Company of New York to its most creditworthy customers for unsecured
loans having a maturity of 90 days or less plus .25%.
Only Messrs. Blankenship and Wattles have executed a secured promissory note
which contains the term life insurance policy provisions set forth in the fourth
and fifth paragraphs of the form of secured promissory note.
<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>
Three Months
Ended March 31, Years Ended December 31,
-------------------- -----------------------------------------
1997 1996 1996 1995 1994
-------------------- -----------------------------------------
<S> <C> <C> <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 $ 3,349 $ (9,854) $ 32,067 $ (201,634) $ (7,685)
of Operations
Add: Series A Preferred Share dividends 2,606 -- 7,819 -- --
Add: Interest expense - convertible debt, net of tax
effect 17,332 14,489 61,043 51,210 29,647
-------------------- ------------------------------------------
Net earnings (loss), as adjusted $ 23,287 $ 4,635 $ 100,929 $ (150,424) $ 21,962
==================== ==========================================
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 1,322,054 994,789 1,133,711 896,681 458,945
Add: Weighted average effect of conversion of
Series A Preferred Shares into common shares 105,896 -- 79,566 -- --
Add: Weighted average effect of conversion of
convertible debentures into common shares 893,870 687,007 743,771 618,017 210,094
Weighted average number of common shares, --------------------- ------------------------------------------
as adjusted 2,321,820 1,681,796 1,957,048 1,514,698 669,039
===================== ==========================================
Primary earnings (loss) per common share and common
share equivalent $ 2.53 $ (9.91) $ 28.28 $ (224.87) $ (16.74)
===================== ==========================================
Fully diluted earnings (loss) per common share and
common share equivalent(1) $ 10.03 $ 2.76 $ 51.57 $ (99.31) $ 32.83
===================== ==========================================
</TABLE>
(1)Fully diluted earnings per common share and common share equivalent is not
presented on the Consolidated Statements of Operations as the effect of the
conversion of the preferred shares and the convertible debt into common shares
is not assumed as the effect would be anti-dilutive.
<PAGE>
July 2, 1997
Board of Directors and Shareholders
Security Capital Group Incorporated:
We are aware that Security Capital Group Incorporated has included in its
Registration Statement Nos. 333-26037, 333-26259, 333-25267 and 333-26263 its
consolidated financial statements for the quarter ended March 31, 1997, which
includes our report dated May 14, 1997 covering the unaudited interim financial
information contained therein. Pursuant to Regulation C of the Securities Act of
1933 (the "Act"), that report is not considered a part of such registration
statements prepared or certified by our firm or a report prepared or certified
by our firm within the meaning of Sections 7 and 11 of the Act.
Very truly yours,
ARTHUR ANDERSEN LLP
<PAGE>
EXHIBIT 15.2
The Board of Directors
Security Capital Group Incorporated
With respect to Amendment No. 1 to the registration statement on Form S-1 of
Security Capital Group Incorporated, we acknowledge our awareness of the use
therein of our report dated May 2, 1997 related to our review of interim
financial information of Security Capital Pacific Trust as of March 31, 1997 and
for the three-month periods ended March 31, 1997 and 1996. Pursuant to Rule
436(c) under the Securities Act of 1933, such report is not considered a part of
a registration statement prepared or certified by an accountant, or a report
prepared or certified by an accountant within the meaning of sections 7 and 11
of the Act.
KPMG Peat Marwick LLP
Chicago, Illinois
July 2, 1997
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME OF ENTITY
(AND OTHER NAMES, IF ANY,
UNDER WHICH SUCH JURISDICTION
ENTITY DOES BUSINESS) OF ORGANIZATION
--------------------- ---------------
<S> <C>
Belmont Corporation
(d/b/a Village Assisted Living Corporation) Maryland
Coast Services Incorporated Maryland
SC Group Incorporated Texas
SC Realty Incorporated Nevada
SCERF Incorporated Maryland
Security Capital Management Incorporated Delaware
Security Capital Investment Incorporated Delaware
SCG Realty Services Incorporated Texas
SCG Realty Services Atlantic Incorporated Delaware
SCI Client Services Incorporated Delaware
Security Capital (Atlantic) Incorporated Nevada
Security Capital BVI Holdings Incorporated Maryland
SCGPD Incorporated British Virgin Islands
Security Capital Industrial Incorporated Delaware
Security Capital Investment Research Incorporated Delaware
Security Capital Investment Research Group Incorporated Delaware
Security Capital Markets Group Incorporated Delaware
Security Capital Pacific Incorporated Delaware
Security Capital Real Estate Research Group Incorporated Maryland
Security Capital Strategic Group Incorporated Maryland
Security Capital Atlantic Incorporated Maryland
Atlantic Alabama Multifamily Trust Alabama
Atlantic-Alabama (1) Incorporated Maryland
Atlantic-Alabama (2) Incorporated Maryland
Atlantic-Alabama (3) Incorporated Delaware
Atlantic-Alabama (4) Incorporated Delaware
Atlantic-Alabama (5) Incorporated Maryland
Atlantic-Alabama (6) Incorporated Maryland
Atlantic Development Services Incorporated Delaware
Atlantic-Tennessee Limited Partnership Delaware
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME OF ENTITY
(AND OTHER NAMES, IF ANY,
UNDER WHICH SUCH JURISDICTION
ENTITY DOES BUSINESS) OF ORGANIZATION
--------------------- ---------------
<S> <C>
SCA Florida Holdings (1) Incorporated Florida
SCA-Indiana Limited Partnership Delaware
SCA North Carolina Limited Partnership Delaware
SCA-Alabama Multifamily Trust Alabama
SCA-North Carolina (1) Incorporated Maryland
SCA-North Carolina (2) Incorporated Maryland
SCA-South Carolina (1) Incorporated Maryland
SCA-Tennessee (1) Incorporated Maryland
SCA-Tennessee (2) Incorporated Maryland
SCA-Tennessee (3) Incorporated Maryland
SCA-Tennessee (4) Incorporated Maryland
SCA-Tennessee Limited Partnership Delaware
Security Capital Alabama Multifamily Trust Alabama
Security Capital Atlantic Management Incorporated Delaware
Security Capital Atlantic Multifamily Incorporated Delaware
Security Capital Industrial Trust Maryland
1440 Goodyear Partners Texas
International Industrial Investments Incorporated Maryland
Red Mountain Joint Venture Texas
SCI-Alabama (1) Incorporated Maryland
SCI-Alabama (2) Incorporated Maryland
SCI Client Services of Colorado Colorado
SCI Development Services Incorporated Delaware
SCI-DS Mexico Incorporated Maryland
SCI Houston Holdings, Inc. Delaware
SCI IV, Inc. Delaware
SCI Limited Partnership-I Delaware
SCI Limited Partnership-II Delaware
SCI Limited Partnership-III Delaware
SCI Limited Partnership-IV Delaware
SCI Mexico Industrial Trust Maryland
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
NAME OF ENTITY
(AND OTHER NAMES, IF ANY,
UNDER WHICH SUCH JURISDICTION
ENTITY DOES BUSINESS) OF ORGANIZATION
--------------------- ---------------
<S> <C>
SCI-North Carolina (1) Incorporated Maryland
SCI-North Carolina (2) Incorporated Maryland
SCI-North Carolina Limited Partnership Delaware
Security Capital Alabama Industrial Trust Alabama
Security Capital Industrial Management Incorporated Delaware
Security Capital Logistar International Incorporated Delaware
Security Capital Pacific Trust Maryland
Las Flores Development Company Texas
PTR-California Holdings (1) Incorporated Maryland
PTR-California Holdings (2) Incorporated Maryland
PTR Development Services Incorporated Delaware
PTR Holdings (Texas) Incorporated Texas
PTR Holdings, Inc. Arizona
PTR Multifamily Incorporated Delaware
PTR-New Mexico (1) Incorporated Delaware
PTR-New Mexico (2) Incorporated Delaware
PTR-Washington Holdings 1 Incorporated Maryland
SCP Nevada Holdings 1 Incorporated Nevada
SCP Utah Holdings 1 Incorporated Utah
SCP Utah Holdings 2 Incorporated Utah
SCP Utah Holdings 3 Incorporated Utah
SCP Utah Holdings 4 Incorporated Utah
Security Capital Pacific Management Incorporated Delaware
Homestead Village Incorporated Maryland
Atlantic Homestead Village (1) Incorporated Maryland
Atlantic Homestead Village (2) Incorporated Maryland
Atlantic Homestead Village Limited Partnership Delaware
Homestead Alabama Incorporated Alabama
KC Homestead Village Redevelopment Corporation Missouri
Missouri Homestead Village Incorporated Maryland
PTR Homestead Village (1) Incorporated Maryland
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
NAME OF ENTITY
(AND OTHER NAMES, IF ANY,
UNDER WHICH SUCH JURISDICTION
ENTITY DOES BUSINESS) OF ORGANIZATION
--------------------- ---------------
<S> <C>
PTR Homestead Village Limited Partnership Delaware
Security Capital Homestead Incorporated Maryland
Texas Maids Incorporated Maryland
CS Integrated LLC Delaware
SCI Logistics Holdings LLC Delaware
SCI Logistics Services Incorporated Delaware
Security Capital Employee REIT Fund Incorporated Maryland
Security Capital Preferred Growth Incorporated Maryland
Strategic Hotel Capital Incorporated Delaware
Security Capital U.S. Realty Luxembourg
Security Capital (EU) Holdings S.A. Luxembourg
Security Capital (EU) Investment Research Group Luxembourg
City Center Retail Trust Maryland
CCRT I Incorporated Delaware
CCRT II Incorporated Delaware
City Center Retail/McCaffery
Developments, L.P. Delaware
National Parking Corporation Maryland
Pacific Retail Trust Maryland
Retail Property Partners Limited Partnership Delaware
Urban Growth Property Trust Maryland
Urban Growth Property Incorporated Delaware
CarrAmerica Realty Corporation Maryland
Storage USA, Inc. Tennessee
Regency Realty Corporation Florida
Security Capital (EU) Management S.A. Luxembourg
Security Capital (UK) Management Limited United Kingdom
</TABLE>
-4-
<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
July 2, 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, included herein, and to the reference to our
firm under the heading "Experts" in this Amendment No. 1 to the registration
statement on Form S-1 (File No. 333-26037) of Security Capital Group
Incorporated.
KPMG Peat Marwick LLP
Chicago, Illinois
July 2, 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 Amendment No. 1 to the Form S-1 Registration
Statement filed by Security Capital Group Incorporated, in connection with the
registration of its Class B common stock dated July 2, 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
July 2, 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 Amendment No. 1 to the Registration Statement on Form S-1 (No.
333-26037) and the related Prospectus of Security Capital Group Incorporated
for the registration of its Class B common stock.
Ernst & Young LLP
Dallas, Texas
July 1, 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 Amendment No. 1 to the
Registration Statement on Form S-1 (No. 333-26037) and the related Prospectus
of Security Capital Group Incorporated for the registration of its Class B
common stock.
Ernst & Young LLP
Dallas, Texas
July 1, 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
March 31, 1997 and December 31, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 MAR-31-1997
<CASH> 23,662 41,360
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 1,414,255 1,519,645
<DEPRECIATION> 48,882 56,472
<TOTAL-ASSETS> 2,929,284 3,222,715
<CURRENT-LIABILITIES> 0 0
<BONDS> 1,197,296 1,309,875
0 0
139,000 139,000
<COMMON> 12 13
<OTHER-SE> 779,690 879,796
<TOTAL-LIABILITY-AND-EQUITY> 2,929,284 3,222,715
<SALES> 0 0
<TOTAL-REVENUES> 398,122 114,031
<CGS> 0 0
<TOTAL-COSTS> 196,770 74,155
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 117,224 32,838
<INCOME-PRETAX> 84,128 19,384
<INCOME-TAX> 30,872 8,445
<INCOME-CONTINUING> 39,886 5,955
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 39,886 5,955
<EPS-PRIMARY> 28.28 2.53
<EPS-DILUTED> 0<F1> 0<F1>
<FN>
<F1> Earnings per share - fully diluted is not presented as the conversion of
the preferred shares and convertible debt into common shares are not
assumed as the effect would be anti-dilutive.
</FN>
</TABLE>
